The highly-anticipated FOMC meeting yesterday left the bulls elated, while the bears once again hung their heads in shame (at least for now).
Roughly three days ago the major market indices started to move into short-term extremes overbought states. And after today’s price action we are witness to some of the most short-term overbought states seen in years. Just look at the High-Probability, Mean-Reversion indicator below to see all of the very overbought readings in the ETFs I follow. Basically, only the commodity ETFs are in a neutral state and that’s because they rallied hard after the announcement of no taper.
But that was the case for everything…stocks, bonds, commodities…everything but the dollar and inverse ETFs moved substantially higher. It was a little crazy.
Now we are left with some of the best opportunities to sell options, mostly through the use of bear call spreads. Of course, I would prefer to see implied volatility a little higher, but we can still sell options for October expiration and pick up some decent premium. And if we are willing to use some of the leveraged inverse ETFs that are currently in an oversold state you can pick up some very nice premium. Of course, if I decide to take that route I will be adding bull put spreads.
One thing is certain the risk is now to the upside. The exponential move higher has pushed the market several standard deviations above the mean so if you are indeed a proponent of mean-reversion now is one of the best times of the year to make a few trades.
Check out my daily High-Probability, Mean-Reversion indicator below for a starting point for your trades.
If you are a believer in a statistical approach towards investing please do not hesitate to try my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, it’s free for 30 days.
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Kindest,
Andy
