Bye Bye Bear?

Heather Cullen

Heather Cullen

In The Money

Hether Cullen Blog Bye Bear Market

Finally, End of the Bear Market?

Has it finally happened? After all the pain of the last eighteen months are we finally out of the bear market?

It’s pretty close. After flirting with the bear threshold (20% above the low) for a while we technically closed over it on Friday. But only just. After an early rally, SPY closed 10 cents above the bear exit. Not terribly convincing, and unlike the Covid recession where SPY bounced back very quickly, this has been a slow, painful, grinding climb out.

SPY Chart

The chart shows how close we are to the bear exit. It is always amazing to me how accurately indexes behave around important levels. I mean, how do they know? They are a composite of millions of trades on thousands of stocks, yet they somehow manage to behave with precision. You can see that this week SPY bounced off the bear exit on three days, and then closed on it on a fourth.

Heather Cullen Blog Bye Bye Bear

It will be interesting next week to see if there is enough momentum for it to keep going up or if it decides to take a breather and hang around, something like QQQ did on its exit. Let’s take a look.

QQQ Chart

You can see that QQQ first reached the bear exit in early February, then bounced off and went down for a bit. Then, in late March, it reached it again, but then hung around that level until mid May, when it finally started moving north definitively. Will SPY follow that pattern? Possibly. We’ll find out.

SPYG Chart

Let’s look at the chart for SPYG. You can see that it is following SPY almost exactly, so the comments above about SPY are relevant here.

So it should be an interesting week; lets hope that the pain is over and we have a nice new bull market to trade.

Reader Q & A

I think answering questions in the comments is proving to be a good way of doing it, because you get answers to your questions much more quickly. Even from Greece I have been managing to respond within a day or two. I am repeating some of them here as others may have the same queries:

Hey John, posting it here so that others can see the response as they are good questions.
Re time decay in the last 30 – 60 days yes, you are right about that being the time that decay really kicks in, but because we are buying options with less than 1% time value we have limited our losses on that front. Of course, there is nothing to stop you rolling earlier – it’s a good idea, just that I was trying to make the ITM strategy as quick and easy as possible, hence the idea of a once-a-year roll.
Re rolling every 6 months – yes, now that brokerage costs are negligible that is a good idea – as above, was just trying to keep the strategy as simple as possible.
Re optimal time to roll out in backtesting – I backtested with the rule that if the position was rolled with more than 90 days to expiry then the time value was not lost, but if there was less than 90 days then the entire time value was lost. So you can see that the backtest results are a worst-case scenario, the actual results would be better – as always I make sure that I am not cherry-picking the data or gilding the lily.
Good questions, hope this answers them.

Hi Charity, yes rolling out and up is a good idea. Today, SPY has closed at $427.92 So I would look for a strike between $215 and $240 (depending on your risk tolerance!) and an expiry date of January 2024 or later.
It’s so good to see SPY going up again!
(and thank you for your kind words)

Hi Charity – re backtesting and getting option prices – yes, this is well-nigh impossible because option pricing changes day to day and minute to minute. BUT if we are using a strike at, say, 50% of the current price then we know that there is very little time value and the option price plus the strike will be less than 1% above the current price. We can then use that to estimate the option price in the past.
So, for example, if SPY was trading at $400 and you wanted to know the price of the $200 strike option then you can use $404 (1% above current price of $400) minus the strike $200 so your option will cost $204.
Clearly, that overestimates the actual option price (as you can usually get it for less than 1% above current price at 50% leverage (i.e. strike at half price), so the bacltesting tends to underestimate profits, but that is good.
When backtesting, I assume that if I am selling an option with less than 90 days to expiry then it has lost all time value, so again this underestimates results.
I think 2? 3? posts ago I had a section on ‘How to do backtesting’ which may be helpful. Yes, found it, here it is: – it is about backtsting SPYG alternatives but the principles are the same.
Hope this helps

Hi Eli

Yes, if you want more than 50% leverage then move your strike up to $35. I see the Dec $35 ia $24.40 / $25.00 (bid / ask) so this may suit you. If you are going to roll up I would roll out as well – no particular reason, just that you will have more time on your side and wont have to roll so often.

Hope this helps.


Apology – I know the typography of the accordian layout above is pretty awful, but I can’t find the setting where I change it! Its on my list to fix, but if anyone knows Elementor enough to let me know that would be much appreciated!


Heather Cullen In The Money Blog ITMeter

Daytrading Experiment

Tom Hougaard isn’t back until the 12 June so no action on this front.

Summer of '23

I am currently in Greece. I started in Santorini, and while the scenery was absolutely beautiful, there were so many people and cars it all felt rushed rather than relaxing. After that I went to Amorgos, which was very quiet and more Greek somehow. I am now on an island called Folegandros, also very quiet and beautiful. This is the view from the pool – hard to take, I know!

I have to love the stock market for giving me the means to do this every year. No more winters, ever! I’m very lucky, I know. It was always my dream to be able to do this.

Heather Cullen Blog Summer 23 Folegandros If you want to see any more photos and follow where I go, I am posting photos almost every day on Facebook – Heather Cullen, not Heather Cullen Author which I am not updating.

I have so many What’s App private groups, and invitation only Facebook groups and family groups its too hard to keep track of them and remember where to post, so I have given up and am posting publicly on FB.

Let’s hope for a nice, bullish week so that we can get back to making some lovely profits!


13 thoughts on “Bye Bye Bear?”

  1. Hi Heather: In reviewing your books multiple times, is there a page/s that summarize the steps that identify the emergence of a bear market from a bull market and vice versa. After reading the books and then trying to summarize these steps into a simple, orderly format, it turned out to be more difficult that I thought. As I recall, there is a 20% test, 1 vs. 2 indicators (bull vs. bear), threshhold lines, exit/entry lines death cross epa’s, etc. There must be a way to summarize this info for quick reference. I have both books but not the compare strategies book. Are the steps summarized in that one? Thanks, and hope you are enjoying your trip. Sounds amazing!! Buck

    1. Hi Buck, I actually haven’t got my books with me so I can’t refer you to any pages – but here’s a summary:
      1. Bull market – to do ITM we dont have to wait for an official bull market, but can do a bull trade when there is a golden cross (10/200 day SMA) + 1 day confirmation to make sure it really happened not just touched and bounced off (which often happens). The golden cross happened in late March so we have been in a bull trade since then. If you aren’t already on board now may be a good time to do so given the recent retracement.
      2. Bear market – there are many different criteria for a bear market – most mention the 20% drop, but some say it has to be over an extended period, like 4 months. If we take this definition then the Covid bear didn’t happen! So we just go with the 20% drop. We have just come out of a bear market quite decisively (20% from the bottom) so SPY has to drop 20% from its most recent peak to get back into a bear market. That’s not going to happen in a hurry (unless there is a disaster like Covid) so we won’t be doing a bear trade for a while yet – hopefully some years!
      There is some more explanation in this blog post:
      Hope this helps.

  2. Dear Ms. Cullen, I have read your book “In The Money: Bull Market Strategy”. I have read “Timing the Market” and “Compare Options Strategies” too. I am reading “In The Money: Bear Market Strategy”. They are amazing! Thank you for having written them. I´m trying to put in pratice the bull strategy. But I´ve never traded options before, so a few doubts has arised. My broker is the “Interactive Brokers”. I noticed that there isn´t DITM option at the “Option Chain”, whose Time Value is bellow 1% of the price of the option. The formula in your book is Price of Option = Intrinsic Value + Time Value. Therefore, Time Value = Price of Option – Intrinsic Value. For its turn, Intrinsic Value = Price of Underlying Asset – Strike of Option. Applying that to any DITM options of the chain of today (06/16/2023), I can´t find any option with Time Value bellow or next to 1%. For example, this morning, when SPY was beeing trading at $441,34: Strike Bid Ask Price Option Intrinsic Value Time Value 180 $266,84 $269,03 $267,94 $261,34 (97,54%) $6,59 2,46% 185 $262,16 $269,03 $265,60 $256,34 (96,52%) $9,26 3,48% 190 $256,50 $260,21 $258,36 $251,34 (97,28%) $7,02 2,72% 195 $252,79 $254,95 $253,87 $246,34 (97,03%) $7,53 2,97% 200 $248,11 $250,26 $249,19 $241,34 (96,85%) $7,85 3,15% 205 $242,46 $246,16 $244,31 $236,34 (96,74%) $7,97 3,26% 210 $238,76 $240,90 $239,83 $231,34 (96,46%) $8,49 3,54% 215 $233,12 $236,84 $234,98 $226,34 (96,32%) $8,64 3,68% 220 $228,45 $232,15 $230,30 $221,34 (96,11%) $8,96 3,89% The price of option above pressuposes I would be sucessfull buying at the middle of bid and ask. I´ve tried to paste the imagem of Option Chain, but I couldn´t do it. The site doesn´t allowed. Could you help me to understand what is happening? Have I misunderstood some concept or has the market changed ? There´s no more DITM options as those described in your book? Should I trade DITM options at current Time Value? Would I assuming a riskier trade for doing that? I would appreciated too much, if you could help. Best regards

    1. Hi Cristiano
      Options ARE more expensive than when I wrote the book so we cant always get a 1 year to expiry DITM within 1% of the current price. But an example – today SPY is trading at $439.36 so 1% above that is $443.85. I have just had a look at the chain for January 2024, and the $220 option has a bid/ask of $223.99 / $225.17. This give you an effective price of $443.99 / $445.17 which is just above $443.85. I know if is slightly above the 1% and is only 6 months to expiry (instead of the 1 year we would like) but it is quite close to our parameters.
      I hope that helps? If not please get back to me.

  3. Heather–Thank you for answering my question

    I think I got it–for the AAPL example–the effective price is $193;stock price is $185.Want effective price<1% from stock price.In this example 193/185=1.04 which is >1% so dont buy?

    Thanks again-


    1. Hi – yes, technically it would be ‘don’t buy’ but in practice you could use your discretion is it was close. It just means that you are going to lose 1.04% of time vale rather than 1% if you hold to expiry, so you can decide if you want to take the extra 0.04% loss.
      There is nothing magical about the 1% rule, I selected that as a low time value that was easy to calculate, and then backtested on that. I would probably go ahead in r4eal life at 1.04% if everything else looked good, and make sure I sold more than 30 days before expiry.
      Hope that helps.

    1. Hi Steve – posting your question here instead of replying directly as others may have the same question.
      The ‘effective price’ is simply what you would actually be paying for the stock if you exercised your option.
      For example:
      If you had a $200 strike and you paid $205 for the option, then your effective price would be $405 (strike ($200) + cost of option ($205).
      If you had a $300 strike, and the option cost $115 then your effective price would be $415.
      The effective price is indepentent of the time to expiry – it always remains the same.
      So if, say, AAPL was trading at $185, and you bought the $100 strike option for $93 then if you exercised you would be paying $193 per AAPL share. (and given that it is currently trading at $185 it would not make sense to exercise and buy for $193 when you can buy on market at $185).
      Hope this helps – if not clear please get back to me.

  4. Hi Heather,

    You may have answered this question before, but what should I consider if the effective price is not within 1% of market price? I’m having a hard time finding an strike price that comes close for QQQ.

    1. Hi – yes, just checked the chain for QQQ and see that the effective price of the Jan 2024 180 strike is coming in at 1.2% above current price, and the $200 at 1.4%. Both are a little above the 1% but as options are expensive right now I think you may have tp go with them. The $160 trike comes in at 1% but is less than 50% leverage.
      The choice depends on your tolerance for risk – and remember that we are looking at the ASK price, the spread is around $0.80 and you will probably be filled for less.
      And remember – I haven’t back tested ITM on QQQ, only SPY. But if you want to I did intructions a couple of posts back for anyone who wants to do their own backtesting.
      Hope this helps.

      1. I’m trading QQQ on paper only currently. I was looking at the June 2024 expiration as that was the closest to 1 year from today. I didn’t think to check Jan 2024. Thanks for the guidance.

  5. Really appreciate your material. Quick question, when you’re rolling out (whether up, down or sideways) do you roll out to a new contract roughly one year in future, or do you keep your original contract date until your closer to it’s expiration and then move out to the new one year contract?

    Enjoy your travels.

    1. Hi Dave – if you are rolling out then the ITM strategy is to roll to 1 year in the future. If you were using ITMS (SPYG) then you can only go out6 – 8 months as that is all they have options for. I recently bought some new ATM options (SPY and QQQ, a little flutter not part of my major ITM strategy) and used the expiry date of Jan 24 (just over 6 months) as being the shortest that I would use.
      Whether you go out 6 or 12 months depende on whether you can yake the hassle of rolling out twice a year instead of once a year – although its really not much of a hassle. All the backtesting was done on 1 year to expiry, only rolling up (and out) if the strike dropped to below 50% of the current price.
      Not sure if I have answered your question plese come back to me if not.
      (and yes, thank you, loving my travels – today in Sifnos, at the Verina Astra hotel, sitting here typing this as I look over the sea towards Anit Paros (I think!) Beautiful!)

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