Looking for Bullish Stocks in a Bear Market

OK I always say it is better to go with the trend and at this point in time the trend is a bear market; however for those of you not capable of thinking in Bear terms and just want to look for stocks that go up I have some good news. In every Bear market there are always groups of stocks and even sectors that do well. This bear market is no exception. In this market alternative energy is a great sector to be bullish.

Yesterday the US Senate approved tax credits for producers of alternative energy. So start looking for alternative energy stocks that are into wind and/or solar power. Case in point, right now I have a friend who is a plant manager for a windmill company. They build the gears for the giant windmills that you see producing wind power in large quantities. He currently has a major problem and has been working weekends and long hours to try and resolve the problem. The actual problem? They can not produce the gears fast enough! They have more demand than what they can currently supply and they are beefing up production on another plant modelling the plant my friend is currently managing to help support demand. I would say that is a good problem to have!

So in most cases for credit spreads I would always say follow the market; however in some cases you may want to follow the trend in the sector the company is in. One example would be FSLR (First Solar), the stock has been in a channel for the past five months and it did drop with the rest of the market this month, but it has regained some traction and rebounded nicely. The fundamentals are strong and it is in a good field of solar production. The current weak support is around 200 and the lowest it has been this month is 186. So I would place a Bull Put Credit spread trade below 200. Maybe an October credit spread at the 180 level creating a bull put spread for around .50 or 11% in the next three weeks.

bear market, bullish stocks, credit spread, FSLR

How much to start trading?

I have been asked how much money/capital does one need to start trading credit spreads? And I will tell you that it is more of personal preference and also how much risk you are willing to accept and how much risk you can afford. But I will give you my rules…

First, trading options should only be a part of your entire investment portfolio. In my opinion it should only be a maximum of 10% of your total investments, to me this includes items such as real estate, gold, stocks, ETFs, Mutual Funds, etc, etc.

For an exact amount - ideally I would start with $10,000, however $5,000 is acceptable and $2500 is the absolute minimum.

Personally I use a $10,000 account and use the profits to put into my ETF accounts. If I have a loss or a couple…LOL…I will replenish the amount to maintain my $10,000 account or I will keep the profits in the account until $10,000 is reached again. It is a systematic approach with specific rules that I keep. This is the way to win at this game, make rules and stick to them.

I also only risk a  maximum of $25% per trade and preferably 10%. So with my rules I am risking 10% of 10% of my total account or a total of 1%, if you follow the math.

Now what I started with when I first opened my options account was $2500 which I promptly lost then I put another $2000 and was able to lose than in another 6 months, then another $2000 and I finally learned how to trade to make a consistent profit.

credit spreads, how much money, investments, investment portfolio, systematic approach

AMZN and BZH

Here are a couple of stocks I am looking at *CAUTIOUSLY* for a possible trade -

AMZN - July Bull Put Spread using 60 as a good support. AMZN has been a rocket in this bull market and is most likely way over priced, but for the time being I do not see a slow down in the next month. IS the summer slump not coming? Not sure if the year before an election has anything to do with it but the slump should have started and it seems we are just picking up steam and this one has good solid support at 60. Although the technicals are not saying that the rise will continue it is difficult to assess these technicals with the way AMZN has been rising. We would be looking at a .30 to .35 credit for the July 60/57.5 Bull Put spread.

BZH - July Bear Call Spread using 40 as a good resistance at the 200 dma. The Housing Industry may have seen the bottom but many people are claiming not in any case there is still weakness in the Housing Sector so even in this bull trend I find it difficult for BZH to break the 200 dma at 40 in the next few weeks. So we would be looking at a .50 credit for the July 40/45 Bear Call spread.

Neither of these trades are set in stone and I will continue to watch these two stocks and make a decision next week. We are 50 days away from July expiration which is entirely too long to be in a trade. If we can get in next week and then close the trade with enough gain prior to expiration I will be happy. These are not the most profitable trades out there right now but they are conservative and thats what I like. So we will check back on these next week.

amzn, bear call spread, bull put spread, bzh, credit option spreads

Bear Call Credit Spread on X

Heres a credit spread on United States Steel (X) from Brent Archer with a good probability of success even though the stock is close to the sold spread and we would be betting against the trend - something I usually do not do.

Good resistance at 112, stochastics is coming down, MACD is starting to come down, X has never been above $115.

So the trade would be - Bull Call Spread - 115/120 for a credit of $1.10 or for a little less risk play with the ability to close the trade if X closes above 112 or 115 is the 120/125 for a credit of $.55

You would sell the June 115 strike for 2.10 and buy the June 120 strike for 1.00 or sell the June 120 for 1.00 and buy the June 125 for .45.

Heres Brent’s explanation - Blogging Stocks

bull call spread, credit spread, united states steel

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