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Always Give Price the Final Word

Regardless of rhetoric, the bears have had little clout this year. You'd do well to pay attention to that.
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I was speaking with a colleague of mine the other day, and he asked if I would ever buy puts, considering that many if not all of my trades since last fall have been on the call side. I told him that, if it were poised to make me money, then yes -- I would buy puts. Back in 2008 and 2009, it was far too easy to make money on the downside, like shooting fish in a barrel; never in my life had I made so much money for clients by going long puts. That aside, I almost always have some puts on as protection -- though so far this year, of course, those have been wasted insurance policies rather than payoffs. They've constituted a small piece of protection vs. a larger part of a portfolio.

Now, some may color be bullish, but would be more than a personal opinion. I can only object and offer my own statement: I play the market that I see in front of me, and if it says I should buy calls in order to make money for my accounts, clients and subscribers, then I will do it. I rarely if ever listen to others who try and shape my perspective. If the market is telling a different story, then I'll play the other side. I'm agnostic when it comes to direction; I'm only partial when it comes to growing accounts. I've been at this game long enough to realize that having a directional bias is dangerous.

So how unfair has the market been to the bears this year? I don't have to tell you that, with 100 full calendar days in the bag -- and as we head into the next third of the year -- the major indices are already up 10% or more. If we dig a little deeper into the S&P 500 we'll find that, of 65 trading days so far this year, there were roughly 41 up sessions and 23 down days (one went nowhere). We only witnessed four instances that brought any length of consecutive down days, and only once was there a three-day losing streak. That's it! On the other end, the up days have seen streaks of five and eight sessions at a minimum.

For all the rhetoric, propaganda and warnings we have heard, the bottom line is this: For anything other than spotty scalp trades, the market has given little profit opportunity for the bears. Price has the final word, and my style demands that I pay close attention to it.

So if you prefer to scalp the market, I suppose the setups are there each day, and any climbs in volatility will open up the playing field. But volatility has been hard to come by in 2013 -- the CBOE Volatility Index (VIX) has averaged under 14. That makes it tough for the quick two-way trader, but it does open things up for a stock picker who trades momentum swings for big option moves. That is my game, and if the setup for the trend is up, then that is the direction I'll play. I won't play puts just to be defiant, cute or different -- or just to go along with others. That kind of strategy will doom a trader in a hurry.

At the same time, I know it won't be like this forever, and when the conditions change -- so will my trading.