By Chris Ebert

Anyone who has traded for a while can recognize a secular Bull market from a Bear. Even those who don’t trade for a living likely recognize the signs on the evening news or the Sunday paper. But within a secular trend that may last for years are different flavors of that trend.

For example, sometimes a Bull market is hot-hot-hot, and other times it is more bla·sé – tending to melt up slowly with choppy  pullbacks punctuated by rallies. The Options Market Stages may be helpful in identifying the flavor of the trend.

Currently the S&P 500 arrears to have entered a period in which it may be digesting the gains of the past few months. Traders who have unrealized gains are selling-the-rip when stock prices rise, while traders on the sidelines are buying-the-dip whenever prices decline. The result in such an environment has often been a period of overall sideways, sometimes choppy movement for stocks.

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Note that Stage 0 and Stage 2 are the same, except Stage 0 is on the way up and Stage 2 is on the way down.

For a full description of each Stage CLICK HERE ==> Option Market Stages

While the S&P may still be near the green Lottery Fever buy-buy-buy zone, if it does indeed enter the blue Digesting Gains zone, traders should be prepared for a sideways chop-fest like the one that occurred in the summer of 2016. If instead it regains its place in the green zone, prices could rally very high very fast. Two different flavors for one Bull market.

The preceding is a post by Christopher Ebert, co-author of the popular option trading book “Show Me Your Options!” Chris uses his engineering background to mix and match options as a means of preserving portfolio wealth while outpacing inflation. Questions about constructing a specific option trade, or option trading in general, may be entered in the comment section below, or emailed to OptionScientist@zentrader.ca

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