Diamonds Trust is an exchange traded fund (ETF) that track the Dow Industrial composite. Buying calls or puts at the money at market open or before an expected correction is a fairly low-risk strategy to provide recurring income.
The last week of August led the $INDU higher and market history says that we are do for a minor correction in September. With that the Diamonds were trading around 95 on the last Friday of August so I picked October 92 PUTS at 1.90. As I expected the market to make some southern adjustments. As expected the market on average news took profits broadly an ended up with an almost 200-point drop on the 1st of September, quicker than I had anticipated but to lock in profits I was able to sell between 2.50 and 2.90 on2 September. I still believe we are headed a little further south which would provided greater returns on my puts, however, the number one rule in trading is not be emotional—hence greedy.
The idea here is that this is a fairly repeatable trade, whichever side you are on for the week or month you can buy CALLS or PUTS around the money and take profits relatively quickly.
I don’t recommend selling calls or puts, especially in this market environment since you can get yourself into trouble rather quickly. By being a buyer you know what your maximum loss is going into the trade.
Happy Trading
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