Winning Streak
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War and Inflation Take a Back Seat as Stock Markets Begin One of the Longest Winning Streaks of the Last Two Years

By:Anton Kulikov

Stocks posting a 6.5% gain over the last eight sessions

  • The market has rallied 6.5% during an eight-day winning streak, something that’s happened only seven other times in the last 20 years.
  • Even though markets ripped higher, the probability of another up day tomorrow is still 50%
  • Options strategies enable us to maintain a bullish bias with less risk.

Since the end of October, the S&P 500 has surged 6.5% to begin November with one of the longest and largest winning sessions in the last two years. We’ve seen eight straight days of gains averaging 0.8% per day in growth!

Investors and traders alike have waited a long time for this rally. Still, the S&P 500 is only back to its mid-October highs. So, the tastylive research team is being asked how to respond.

We are eight days into an up streak only to arrive at the same price level we were at just less than a month ago. Traders who see a streak like this may be inclined to pump the break and take profits on a long-awaited bull run or at least pare down a long position that has served them well the last eight days, knowing streaks like this are few and far between.

The issue is that many long-biased traders are net-net even over the last month because the second half of October saw the stock markets fall by 6%.

So, what do you do?

Do you get out of your long position even though a month ago you were still long at these same prices? Do you flip temporarily to be short the market knowing this streak moved so far so fast? Or do you keep your position the same but hedge yourself to the downside so you can still make money if the market goes up but you limit your loss if the market goes down?

Or how about a fourth option: all the above?

What should traders do now?

With options at your disposal, it is possible to accomplish multiple trading goals at the same time without sacrificing something you don't want to give up quite yet.

For example, with implied volatility coming down hard in the last week, it is cheaper to purchase options today than it was just a week ago. It means that if you want to be long the market while having downside protection in case of a short term dip, buying an in-the-money call and selling an out-of-the-money (OTM) call enables you to remain directionally bullish while protecting your portfolio from large downswings.

Or what if you were long straight futures or stock and want to instead reduce your exposure a bit while still being able to make money as the market goes up or even stays where it is at right now? Selling an OTM put and buying a further OTM put enables you to profit from up moves, no movement, and even small down moves in the market while capping your risk if the market drops a lot.

Most of all—beyond the strategies available to you as an options trader—remember the context of this recent bounce. In the last 20 years, there have been just seven other times when there has been a streak of eight up days in the S&P 500. Despite the rarity of the event, it is also true that the probability of another up day the next day is still around 50%. I say this to put to rest any notion that now the market somehow "has to come down" just because of a huge swing higher. The bottom line is that every day is a new day in the market, so treat it as such.

Anton Kulikov has a decade of trading experience. He leads research content creation at tastylive, appears on over 20 live shows including Futures Power Hour, Options Jive, and Research Specials LIVE co-authored bestselling investment strategy book Unlucky Investor’s Guide to Options Trading, and contributes research articles to Luckbox Magazine.

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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