First of all, I’m done calling rallies. I suck at it.

Today was an up day that was easily traded. I do believe that we are overdue for a sustained rally, just as much as I believe we are not at the bottom. However, I have a terrible record of calling these things. They are far easier to trade than they are to call. I actually bought some calls on this one, hoping to sell them higher. After buying the calls on the morning dip, I bought some puts (high, but not near the day’s peak), making a very efficient strangle.

As long as the S&P doesn’t decide to go back down to 960 and sit there for a month, I’ll make money. At close, the calls were winning. If the rally continues, I won’t be closing out these strangles at once. If the rally is sustained high enough, I’ll sell the calls. I have faith that the market will drop back down so that the puts will be profitable. As the S&P touches 1150, I’ll be selling all of my calls. Some will be sold before then (anything above 1000 starts being profitable if I choose to close out the strangles). If the rally fizzles, it becomes profitable to close out the strangle around 920. Anything below that starts getting much more profitable.

This is a pretty big earnings week. Expectations are low, and anyone sane is expecting lowered guidance. If someone gives better guidance, expect a move upwards. I do not believe such a move can be sustained because I doubt the guidance will be believable in the long run. If things move too high, too fast, I’ll sell my calls. I won’t add any additional puts for fear of over-exposure. Last I checked, nobody wanted me to expose myself.