The set-up: The Standard & Poor’s 500 established a new high pre-market today.
How a lot of people will react: When the SPDR S&P 500 ETF opens at a new all-time high – which it should since it established that high before trading has even opened – a lot of people will be tempted just to throw money into it for a move higher right away.
That’s a mistake.
How I will react: A new high is not a signal to buy to open call options at the moment the bell rings. Watch for brief profit-taking to drop the SPY back to a first or second support level, and make sure the price action holds a support level.
Only then do you buy to open call options to capture the rest of the upside move that has been the way of the stock market – and of pre-market highs – lately.
Davis Martin is the head trader at Dailyprofitmachine.com. He trades SPY calls and puts and swing trades individual stocks and stock options. At the time this article was published on RagingBull.com, he had no options, shares or open orders on the SPY, having last traded Oct. 27 $257 calls on Friday, Oct. 20 for a profit of roughly 15 percent after waiting out a dip at the open and buying off of a support level charred in the premarket. He is looking to repeat that kind of trade, as described in this commentary, again today.