Option Plays for a Topping Market

06/06/2014 8:00 am EST

Focus: OPTIONS

As the market continues to grind higher, the staff at Stock Barometer offers some option plays.

As the markets set up here, we are in the window for a top. While we're waiting for weak price action to confirm a trading signal in our QQQ Trader service, this is a good time to start layering on some options and selling covered calls.

On Wednesdays, we start looking at weekly data. Here are the primary things we're seeing in our weekly data:

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Probably the most popular and quoted weekly surveys is the Investor intelligence bulls minus bear, which is about as high as it's been in recent history.

A much less quoted data series, but equally as important:

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When indicators get to the top of the range, the potential of the market reduces. Also the potential for a move lower increases. Sentiment is pretty bullish here, so the market is even more vulnerable. Accordingly, we've recommended 20 or so put option plays in our Stock Option Speculator service. The first 10 are from the Nasdaq 100. And the second 10 are the least efficiently priced options in the market overall. Here's that list:

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Our recommendations are sorted by the bearish percent to double. So the top option has to only move down less than 5% for the option to double in value.

We've also released our covered call list for the Nasdaq 100, which has about 43 plays, including many popular stocks—if you're holding them and plan on holding them, why not make some additional changes as the market moves sideways or lower! Here's the bottom of that covered call list:

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These are ranked by return rate to expiration, annualized. These numbers are pretty low above, but in the top of the list, the numbers are greater than 100%. That's where you really want to be playing.

For our QQQ Trader Service, we'll need to see more bearish price action to move us into sell mode.

By the Staff at Stock Barometer

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