The Federal Reserve pleased the market by doing absolutely nothing. The result of today’s FOMC meeting was to keep rates at the current near zero target rate and they didn’t even bother changing their “exceptionally low” and “extended period” language. However, as was the case last time, Hoenig was a dissenting opinion on the language. He feels that the current language could cause imbalances.
The Fed noted that the pace of the recovery is moderate and the economic activity has continued to strengthen. On the other hand, they observed that bank lending continues to contract despite financial market conditions that support growth.
There comes a time that a trader/analyst has to come to term with the fact that she was wrong and we have reached that point. We had been calling for a rally to 1125 in the S&P but never expected it to continue into the 50’s and certainly not the 60’s. However, sticking our head in the sand and pretending that it didn’t happen isn’t the answer. Our clients that were holding multiple short S&P calls based on our recommendation below were advised to begin mitigating market exposure by buying half of their position back (April 1165 calls) and selling an April S&P 1185/1100 strangle. I am normally not a fan of strangles, but this seemed to be the best way to recoup the premium paid to exit the existing trade and keep a position that would benefit from time decay at the pace that we need it to.
The result is a net short position with a lower delta (less volatility) and intrinsic risk shifted away from the market.
It is possible that the market will have some buyer’s remorse in tomorrow’s session. After all, gains were made on news of alleviated concerns over Greece’s debit issues and a Fed with a slow trigger; each of these factors seemed to have been built into the rally on the way up. That said, the next resistance in the S&P is 1163 and it looks like that is the next stopping point. Similar resistance lies in the Russell at 683 and 1950 in the NASDAQ.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track ‘n Trade, Gecko software.
**Seasonality is already be factored into current prices, any references to such does not indicate future market action.
Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations can be applied to either the full-sized S&P or the mini. Unless otherwise noted, profit and loss will be based on the mini version.
S&P 500 Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade –
February 19 – Our clients were advised to sell the April 1165 calls for about $7.50, fills were coming in near $7.25 and a handful at $7.50.
March 5 – Clients with ample margin and guts, were recommended to add to this position by selling the 1165 calls for $9.50.
Russell Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade –
March 9 – Sell 1 June mini Russell @ 682 OB
Please note: A mini-NASDAQ chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used.
NASDAQ Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade –
March 3 – Sell 1 e-mini NASDAQ at 1878 or better
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701
www.DeCarleyTrading.com
www.ATradersFirstBookonCommodities.com
*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.
There is substantial risk of loss in trading futures and options.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
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