The buzz word of the quarter if you haven’t figured it out yet, is sequester.
Sequester, sequestration, sequestered, are all making their way into the headlines this week. The first thing that pops in my head when I hear “sequester” is the image of Americans stuck inside a medium priced hotel, while fulfilling their duty as jurors in a high profile trial.
The terms of the looming sequester could possibly have many people making unwanted adjustments. Spending cuts are scheduled to take place across Federal programs on March 1st. The potential of a trickle-down effect could potentially start within a few days.
The effects of a budget sequestration on the financial markets aren’t exactly known, but my feelings can be put in simple terms, it’s probably not a good thing.
The S&P 500 has been enjoying a nice bull move this quarter. I am looking at a short term option play based on a possible break from that rally. Buying an out of the money put gives us the opportunity to take advantage of a sell off from the current level in the March E-Mini S&P 500.
THE TRADE
I like buying the March E-Mini S&P 1490 put for eight points or better. In this instance, the risk would be $400.00 plus commission and fees on the trade. We have 14 days until contract expiration, so I am placing a target exit at 28 points, aggressive traders may want to stick around longer. If the sell -off doesn’t take place I suggest exiting the put near 4 points in effort to limit further loss.
Don’t let uncertainty in the marketplace make you feel sequestered. View at as an opportunity to take a calculated risk.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES. A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
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