As I write this Monday morning, the futures are sitting at 1392 and I ask myself what is next. My previous post here predicted we would break out of the top side of the range of the overall market and we were able to do so. We popped over 1394 in the S&P and hung around the 1420's for a few days before the dreaded duo of Financials and Oil reared there ugly head again. See the chart below. Trust me, my point here today is not to pat myself on the back, I realize even a blind squirrel finds a nut, a broken clock is right twice a day.........My point is to come up with some trades that will make us some money if the next phase of this market is sitting in a range for a good portion of the remainder of the year. It feels to me like I am watching a tug of war with one side being the Optimistic Forward Looking Market and the other side being The Financials, Oil, Commodities, and Dollar. Right now both sides are tuckered out and waiting to see what the other side is going to do. The Optimists had a nice pull but they are gassed so we will see what the Gloom and Doom Boys have. I am not expecting much either way.

The question then becomes how can we profit in a range-bound market? I like to sell Iron Condors, which consists of selling both a Vertical Call Spread and a Vertical Put Spread. I determine a range that I am comfortable with and sell the call and put side equal distance from the current trading price. In making my determination I am going to look at the Delta of the Options (Gives me a rough probability of success); the chart for levels and the Vix to see what the market thinks is likely to happen.

Looking at all of these factors brings me to a couple of conclusions. The VIX is now trading under 20. For the better part of the last year this is the bottom of the range so the market is not expecting much movement or volatility. My chart tells me by going roughly 3-4% out I am not violating any major levels in the S&P and I am still able to collect some decent premiums selling options in June. I like selling the June 132-134 Put Spread and simultaneously selling the 144-146 Call Spread. I will collect around one dollar in premium and will be risking one dollar of premium. Notice my time frame is roughly one month, I am only committing to this strategy for a month and if conditions change I can alter my strategies to reflect my views.

I think this market just feels tired and perplexed so to pick a direction is difficult right now. In the meantime I am happy to collect some premiums and wait for the picture to become more clear. Happy Hunting!!

thinkorswim, Inc. and its registered employee, Steve Quirk, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.