The market held true to form today with the Monday/Tuesday reversal pattern that has been around as long as I have been involved in the markets. This pattern is not always present, but when you have a situation like today with early weakness and the Tuesday pattern calls for a higher close, then you are presented with an excellent trading opportunity.
As I mentioned yesterday, if we were to get strength today then it was to be used to sell into and aggressive traders could sell the futures short or buy SPY put options near or at the close. I opted for both!
We are long the May SPY 142 puts from 1.44.
The reason I picked these options in particular is their very real potential to double in price over the next 3-5 days.
The bearish evening star pattern from yesterday remains in force and the sentiment as measured by the CBOE Put/Call ratio continues to run in an area that typically sees market corrections. As a matter of fact, the small investor was gobbling up as many calls as they could get their hands on this morning on the weakness which is yet another bearish precursor of things to come.