We were in there bidding yesterday for more QQQ puts, but even with the underlying index acting more buoyant than the broad averages, the options stayed just out of reach. This is encouraging, since, as in other areas of life, we shouldn’t be too eager to possess things that come too easily. We’ll be bidding once again for put options this morning, although not necessarily as generously. If shares are strong, we’ll back off our bids accordingly; and if they are weak, we might bid with the crowd. Of course, it is only in extremely rare instances that we would pay up for puts or calls, buying them on the offer. This is a no-no when attempting to load up on out-of-the-moneys that sell for nickels and dimes to begin with, and for which paying that extra tick would add a third to their cost.

But we should always be wildly eager to pay 0.15 for a put option when it is possible to short another of a lower strike for the same price. For instance, if the January 40 QQQ puts are 0.10 bid – 0.15 asked, and the January 39 puts are 0.05 bid – 0.10 asked, then we should try to buy the former on the bid (i.e., for 0.10), and then to short a like number of the latter on the offer (i.e., for 0.10). If successful, we’ll have legged on a $1 vertical put spread with profit potential of $100 per spread and no possible loss. That might sound like small potatoes, but how would you like to have that spread on 200 times? That would mean that, for the mere cost of commissions, you’d have a shot at making $20,000 in the next three weeks without risking a dime.

One implication of the foregoing is that if the QQQs appear to be topping just above 40, or at the least meeting rally resistance there, it behooves us to buy as many January 40 puts for 0.10 as we can. We would be acting on the logical – and not very daring -- assumption that even a small decline in the underlying QQQs would make the January 39 puts an easy sale for 0.10. If such conditions obtain, how many times should we want to buy the Jan 40 – Jan 39 put spread for zero cost? Answer: a zillion. And what if we buy a ton of January 40 puts for 0.10 and the QQQs then rise, making the January 39 puts a very difficult short sale for 0.10? Well, although they may have become a tough sale for 0.10, you can bet there’ll be a substantial 0.05 bid for them. Bottom line, then: If you buy January 40 puts for 0.10 with the goal of legging into a $1 vertical put spread (i.e., shorting the Jan 39 puts),  the most you’ll be risking, probably, is 0.05 (plus commissions).

Is it worth all the work? Most surely. As far as I’m concerned, it is the very best way to satisfy our natural desire to own put options when the stock market is floating on hot air and promoted by lunatics, mental defectives and CNBC shills, as it is now. When one sees, for instance, the shares of homebuilder Beazer get bid up to new record highs as occurred yesterday, how can one not want to prepare for the crash that is becoming increasingly likely each day? But should we risk more than mere nickels and dimes on this prospect, especially when the overwhelming percentage of puts have, over the last 30 years, expired worthless? No way.

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Hidden-Pivot Seminar: Last Call!

The course will be offered twice: in Denver, on Feb 25-26, at the Cherry Creek Marriott; and in Boulder, on March 11-12, at the Boulderado. Both sessions are now sold out, but I am establishing a waiting list because of possible no-shows. The seminar is being offered at $1,975 – slightly higher than announced initially, but the package now includes two nights at the four-star hotels named above. A significant discount is available to spouses who wish to take the course. It will include the following:

• How to set up for killer opportunities in the first hour, when most traders are on the sidelines “waiting for the dust to settle.”  
• How to initiate trades in mini-futures contracts using stops of a point or less.
• How to use cheap, way-out-of-the-money options to leverage bullish or bearish hunches while risking only pocket change or even nothing at all.
• The one trick that can overcome the edge the option floor traders have over retail customers. 
• How to use "dynamic trailing stops" to manage risk when a trade is in progress.
• The juiciest trade set-up I have discovered in nearly 30 years of trading. It is a nearly infallible pattern that takes two days and one night to ripen to perfection on a 15-minute bar chart.
• How to use five- and fifteen-minute charts to read much bigger trends with precision and absolute confidence.
• How to forecast price swings far more accurately, even, than some of the most celebrated gurus and sophisticated trading algorithms.
• How to overcome the 95%-plus failure rate of trading-school “grads”.     

To request a registration form, send me an e-mail by clicking here.