Riding the Bull

Heather Cullen

Heather Cullen

In The Money

Heather Cullen Blog - ITM - In the money - Riding the bull

Riding the Bull.

Readers are getting twitchy.Shouldn’t we get out now? We’ve made profits, wouldn’t it be wise to quit when we are ahead?’ I’m getting lots of messages along these lines.  

‘Take the money and run’ sounds like wise advice – but is it?

Loss Aversion

Traders tend to realize gains too quickly and hold onto losing positions for too long. I’ve talked before about Prospect Theory, and how people feel their losses much more than they feel a gain of the same size. So, for example, the pain of losing $1,000 may only be matched by the pleasure of making $2,000.

Irrational? Yes. Illogical? Yes.

Yet that is what humans do.

We prefer avoiding losses over acquiring equivalent gains. In trading, it means that traders tend to hold on to losing investments while cutting short winning investments. Once a position is underwater traders tend to hold onto it, hoping that it will bounce back, and that they will recoup their money.

I’m sure you have heard ‘you haven’t lost until you’ve sold.’

Realizing Profits

On the other hand, if traders have a winning investment, they tend to cut it short. Why? This is the Disposition Effect, traders fear losing the profits they have already made and want to avoid the regret that they will feel if the price reverses. There are also other factors: overconfidence, where traders believe that they can accurately time the market and have identified the peak of a winning trade, lack of patience and succumbing to external influences, like media hype

We should be taking profits!

But enough of the theory – what about real life? Here is the SPY chart from some years ago. I have blanked out the years and the right axis so that you can look at the chart with fresh eyes.

See when you think that it’s a good idea to take profits.

Heather Cullen Blog - ITM - In the money - Riding the bull

Now is a good time? Why not? It’s almost doubled – surely a good idea! Yes? No?

Let’s see what happens in the next year:

Now SPY has MORE than doubled! Maybe we’re pushing our luck. Time to take profits? Yes? No?

Let’s see what happens in the next year:

Heather Cullen Blog - ITM - In the money - Riding the bull

Surely this can’t keep going – it’s been going up for 3 years now. We should take profits. Yes? No?

Let’s see what happens in the next year.

(Zooming out, so the print gets smaller – sorry)

It’s gone up too much! We MUST be ready for a reversal, or probably a crash. Let’s take profits? Yes? No?

Let’s see what happens in the next year.

Heather Cullen Blog - ITM - In the money - Riding the bull

Crazy! Five years this bull has been going! It MUST be time to take profits. Yes? No?

Lets see what happens in the next year.

Heather Cullen Blog - ITM - In the money - Riding the bull

This bull is going on forever! It must be the ‘new normal’. This time it’s different!

Euphoria, anyone?

This was the bull market of the 1990s. Will the 2023 – 4 bull go on for as long? Who knows? I certainly don’t. But just showing that thinking you know the top of the market has its drawbacks!

Logic not Emotion

Why did I show you this? Because if we use ‘logic’ (by which I mean emotion!) and act on the fear losing our profits we could be missing out on a lot of money.

What should we do instead? Let the market tell us what it is doing – not what we feel it should do, or what we fear it might do. We have a signal to tell us the bull market is over or at least that we should get out of the market in the short term. I am planning on sticking to it.

You, dear reader, are of course a free agent and can make your own decisions. Just telling you what I am going to do. Will I get out at the top of the market? No. Will I kick myself for not recognizing it and getting out? Yes. But remember:

We can all be brilliant traders in hindsight

Bull and Bear Updates – special price

I am still planning on the weekend after Easter. I have had a few unexpected setbacks – after changing the font to something I thought was more readable, I discovered that Amazon would only print that font in pale gray making it almost unreadable. So, it’s back to reformatting and pagination. Fun, fun, fun.   

To the markets . .

Quite an OK week last week. Last blog we were noting that things were going a bit sideways, but now it seems to have resumed its uptrend, which is nice and steady, no big surprises.

SPY Chart

SPY reached another all-time high on Thursday, followed by a slight dip on Friday. I have drawn in the trading channel that it seems to be travelling up nicely. Right now we are in the middle of the channel.

You can see that last Friday’s candle was sitting on the bottom of the channel, and bounced off. A good sign.

Heather Cullen Blog - ITM - In the money - Riding the bull

And the weekly chart in perspective:

Heather Cullen Blog - ITM - In the money - Riding the bull

ITM Results

Just checking in with the ITM results: If you were using a 50% strike (and had entered at the IN signal) you would be up 41% in 4 months. If you were using a 60% strike you would be up 49%.

If you had rolled up when you dropped below these percentages then you would be up even more.  I can live with that!

SPYG Chart

SPYG is following a similar pattern to SPY. I have drawn in the trading channel it seems to be following.

Heather Cullen Blog - ITM - In the money - Riding the bull

The weekly chart for perspective. You can see that SPYG is approaching an al time high, which means that it may (note: may) encounter resistance at that level. But who knows? With SPY and QQQ all sailing through previous highs perhaps SPYG will too.

Heather Cullen Blog - ITM - In the money - Riding the bull

ITMS Results

We have been in a bull trade for a year now, and are up 66% if you had used a 50% strike, and 80% if you used a 60% strike.

This is without rolling up or out. You would have had to roll out during this time as SPYG options don’t go out a year so you would have a closer expiry. 

You would also have rolled up. A 50% strike at the start of the trade meant a strike of  $28, which would now be only 38% of current strike, so of course you would have rolled up when you rolled out. This would make the profits significantly bigger than  thos quoted above.

QQQ Chart

QQQ is still consolidating. It’s been in it’s Darvas box for a month now. I have draw in the trading channel, it looks much the same as SPY.

Heather Cullen Blog - ITM - In the money - Riding the bull

The weekly chart for perspective:

Heather Cullen Blog - ITM - In the money - Riding the bull

Using ITM on QQQ

I have been quite open that I use ITM on QQQ, and it has done very well. However, I haven’t backtested it thoroughly, hence I am not recommending it as part of the ITM strategy which I wanted to keep very simple and easy. But in case you are interested in the results: entry was in February 2022 and the trade has continued until now. Without rolling up, the gains have been 94% at a 50% strike, and 113% at a 60% strike. 

As the 50% strike would have been $150, and now would be a 33% strike, we would have rolled up and the results would be significantly higher than those quoted above. Nice.

VIX Chart

The VIX continues at low levels.

Heather Cullen Blog - ITM - In the money - Riding the bull


Heather Cullen Blog ITMeter

The week ahead . . .

Well, the Fed signaled it would cut interest rates this year, so the market rallied, but then, as is usual on Friday, investors sold before the weekend bringing the market down slightly. More inflation data and Fed signals are expected this week.

I forgot to warn you about quadruple witching which was on March 15th (last Friday’s drop) – sorry! This Friday is the end of the quarter, and many mutual, hedge and pension funds rebalance their portfolio, and fund managers often ‘window dress’ or adjust to comply with regulatory disclosures. You can expect to see increased trading volume and price fluctuations later this week.

The futures are pretty neutral right now, 11 hours to market open.

Fingers crossed for another good week!


Comments, Questions & Answers

14 thoughts on “Riding the Bull”

  1. Hi, Heather! I’ve now read your ITM bull market book twice and have been enthralled. I’ll also be purchasing your other books soon, as you are an excellent teacher and explain seemingly difficult concepts in digestible ways. I’m wondering if any of your books or former blog posts cover tax implications to the ITM strategy? I’m still unsure how taxes work with either exercising options and immediately selling shares, or rolling options, and how this differs from holding stocks. I know about short and long term capital gains tax and just wonder where this fits in. Thanks and I hope you’re well!! Eric

    1. HI Eric – thank you for your kind words, they are truly appreciated.
      Re taxes – I am sorry, I taxes bore me to death (I have a very low threshold of boredom!) so I don’t pay any attention to them. Probably not the smartest thing to do, but you have to recognise what you are good at and accounting is not one of my strengths.
      I don’t even have anyone to refer you to for further information – other than I would try asking questions of AI? I have found Chat GPT quite good if you pose it specific questions, and Bing chat isn’t bad either. Or else track down a good accountant near you.
      Sorry I can’t help!
      PS – wait another week before you buy the bear book – it is almost ready to publish and is a lot better than the current version.

  2. Good morning Heather – I just wanted to say cheers and thanks for putting together such a great blog and platform. I’m working through your content and will be digging into the books and strategies as I add to my long term financial planning. Thank you!

  3. Hi Heather,
    After reading your two books on In-The-Money Bull and Bear Strategies and reviewing your examples, today I decided to enter the market, especially after reading your blog early this morning. Following your rules, I am looking for SPY call options between December 2024 and March 2025 with a strike price at 50% or 60% of the current price. With either of these strike prices ($260/$312), the intrinsic value is around 96-97%. To achieve an intrinsic value around 98-99%, as you recommended, I should use a strike of almost 35% of the current price (around $180). Am I missing something, or could you please give me any recommendations?

    1. HI Raquel
      I have just looked at the options chains for September, December and January and have identified which options meet the 50% / 1% time value and the 60% / 2% time value criteria.
      I have posted the spreadsheet at the bottom of this blog. The possibilities are:
      50% strike ($260), less than 1% time value (green line)
       Sep 2024 $260 strike, ASK: 266.37
      60% strike ($320), less than 2% time value (purple line)
       Sep 2024 $320 strike, ASK: 208.37
       Dec 2024 $320 strike, ASK: 211.68
       Jan 2024 $320 strike, ASK 212.09
      The above are ASK prices, so you will probably get is for less – rule of thumb is midway between the bid / ask. The latest update of the Bull strategy has backtested both the 50% / 1% and the 60% / 2% strategy and the latter is more effective (prices have changed since the original book was written, hence the updates)
      These are the official options chains from Schwab, but they should be the same anywhere. If this doesn’t help please get back to me.

    2. Good Morning Heather, I really appreciate your quick response. Excellent blog!! thank you.
      Have a great week!

  4. Hi,

    Recently dicovered your strategy while perusing your books on Amazon. I would like to start with SPYG. Should I start now or wait following a pullback?


    1. Hi Jane – if you know when a pullback is coming then yes, wait for it! But no-one knows when or if a pullback is coming, so if you have decided to get into the market then I suggest that you get in. Everytime I wait for a pullback the market takes off without me, so in my experience once I decide to get in I gat in.
      Just remember to place your order ‘at limit’ not ‘at market’ – the spreads are large at the moment.
      Hope this helps

      1. Hi Heather,

        I love all of your books. Do you ever cover the actual setups within a Schwab account. I am loathe to make a mistake. Wondered if you ever just ran through the process or did a demo in one of your blogs.

        1. Hi Jason
          I haven’t done any videos, and I’m not spriuking for Schwab – I have accounts with other brokers but confess I prefer the Schwab platform.
          The easiest thing to do is create an account, then use their demo (pretend money) account to place trades and sell them again.
          I’ve just looked in an account and tried to ue live chat to find out how to get into them, but they are not currently live.
          I think the best thing to do0 would be to set up an account and then use live chat to get you into the demo platform.
          Then you ca practice without being worried about actually doing things wrong,
          Hope this helps.

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