After our big wins on GOOG and NFLX, I told my members in the chatroom that this market is going to be range-bound, and that we should look for some downside trades to hedge:

Monday, July 20, 2015
Happytrading: I said on Friday that the market is going to be range-bound for a little while… [7:20 am]

Happytrading: we should look for downside trades to hedge… [7:20 am]

Today, markets were under pressure. The Dow was down over 200 points most of the afternoon, and closed down 181 points. After the market close, apple AAPL tumbled more than $10 at one point, as its Q4 sales outlook disappointed investors. Microsoft MSFT also posted weak results as it booked $8.4 billion write-down, although it managed to beat analysts' expectations. MSFT traded down almost 4% in after-hours trading. Yahoo! YHOO also posted a weak quarter and its shares slid in the evening.  Chipotle Mexican Grill CMG initially traded down after releasing its quarterly report but is now trading higher. Chipotle's quarterly profit did beat analysts' expectations. But CMG's option premiums are so high on both sides, both sides are likely to lose value tomorrow.

This is what often happens after the present month's options have expired. The options for next month still have a lot of premiums built in, because they are not to expire for another few weeks. What happens next is that the markets get volatile, but range-bound. Big players will often sell options or write covered calls. As the volatility dwindles down the premiums on the options, those options sold are bought back, or covered. Then, the real direction for the market will emerge. This is part of the game that you should always be aware of if you trade options.

We are sitting on 96% cash in my Ecstatic Plays Portfolio. A vital skill in trading is to learn not to lose your winnings. Right now, being in cash is a very good position, and our downside plays should do well tomorrow.