I know I am out on a limb here, but I think the US market has bottomed. Intraday on October 10th, 2008, when the Dow Jones Industrial Average traded in a 1,000 point range intraday, closing in the middle of that range. The October 10th, intraday low on the Dow was 7,882, or about 300 points above the lows of the 2000 to 2003 bear market.

Make no mistake, the US market could push down to that 7,500 number, and could well test the Oct 10th intraday lows. Taking the Canadian market with it. But, you have to think there is more upside than downside from here… mid to longer term.

Having said that, the bottoming phase will take months before an uptrend is firmly established. Much as it did from October 2002 to June 2003. But when the bottoming process ended, investors flocked back to the big blue chips, which they happily abandoned when the chips were down.

The easiest way to buy into Canadian blue chips is through iShares CDN S&P/TSX 60 Index Fund (TSX: XIU). The trick is picking an entry point. To early, and you will have to live through more volatility until eventually the market gets a firm footing. Waiting too long, and you miss what may be the opportunity of a lifetime.

The advantage with options, is they allow you to ease your way into the bottoming process. Especially now, with option premiums so high, and blue chip stocks so low relative to historical cash flow multiples.

Normally, I would look at option buying strategies given the current state of the stock market. But high premiums, and my view that we are unlikely to see a sustained stock market rally until sometime in the third quarter of 2009, bullish option writing strategies look more attractive.

Take XIU as a case in point. With XIU trading at $14.91, the December 15 calls were trading at $1.10 (52.86% implied volatility). One strategy would be to buy XIU and write the Dec 15 calls. The sale of the December 15 calls reduces the cost of the underlying shares to $13.81 ($14.91 purchase price less $1.10 premium = $13.81). A price that is useful in the current environment, as new information flooding the financial markets can cause wide swings in prices almost immediately. With this strategy, you have some downside protection. On the upside, if XIU closes above $15 by the December expiration, the position returns 8.6% over the next eight weeks.

You might also look at cash secured puts as an alternative to covered call writing. The profit and loss characteristics are the same, but with cash secured puts, traders assume an obligation to buy XIU at the strike price of the put until the option expiry.

Look at writing the XIU December 15 puts, which are trading at $1.20. If XIU is above $15 at the December expiration, you simply keep the premium and the position expires. If XIU is below $15 per share, you will have to buy shares at $15. But your net out of pocket cost accounting for the premiums received is $13.80 ($15 strike less $1.20 premium = $13.80).