Sticking With The Strangle

While the technical picture is certainly turning more favorable, I still don't trust this market and expect to see a reversal of fortune in the near term.

Stock index futures have already given up their pre-market gains and the charts are running into layers of resistance. I'd become more bullish if the S&P 500 Index closes above 1350. But the real significant level that would turn technicians bullish would be a close above 1390. So for now, I'm sticking with that strangle for the next week.

For those that think this market will have some legs and benefit from end of the quarter mark ups making use of the Spyder (SPY - commentary - Cramer's Take), quarterly options might be a good low-cost, limited-risk way to play for an end of the month run-up.

For example, with the Spyders trading $134.70, one could buy the March $136 calls for around $1.00 a contract.

Finally, I want to welcome Lenny Dykstra back to the fold and wish him and all who use his Deep-in-the-Money call strategy the best of luck.

I have just one suggestion for tracking win rates. Please define the size of the portfolio and avoid simply tallying up the $1,000 winners. Instead, please recognize the marked-to market losses of positions in which you double down but have not yet been closed. You wouldn't want to be lumped in with those Wall Street operators that kept certain positions off the books as their losses ballooned into the billions.

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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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