Today is the last day of the month. Take some time and review what has worked in your favor and what has not. Make sure you are staying disciplined in respect to your trading plan. In trading the only person looking out for your best interest is you.

FED TAPERING

There was an earthquake that registered 4.6 in California this week, but that wasn’t the only tremor making waves. President Eric Rosengren of the Boston Fed Bank hinted that “tapering” of the Fed’s asset purchase program may come in a few months. He stated that a few more months of gradual improvement in the labor market and economy would be needed for a reduction of the program to be considered. In his address to the Economic Club of Minnesota he also noted that it would be “premature” to stop the quantitative easing program with current unemployment levels and inflation near 30 year lows.

This is the second time in the last few weeks that we have heard hints of a possible end to the current QE policy. If we continue to hear these rumblings and we see continued positive job numbers, a switch in current policy may change from an “if” to a “when”. In my opinion, the index markets seem to take these news bits in stride with some mild sell offs followed by a bit of upside recovery. Continued moves to the upside tell me that the market may think any slowdown in QE is later rather than sooner.

THE TRADE

I am looking to strangle this market.

I am going far out from the current levels (near 1650) looking for a significant move in either direction. I like buying the June E-Mini S&P 1700-1600 strangle (1700 call with the 1600 put). I am trying to get in at 10 points ($500) or better. Risk is limited to the cost of entry plus fees and commissions. We have 22 days until the June E-Mini options expire, so there is time for this market to move. If we are not seeing the trade go our way, I would cut bait if the strangle loses half its value. I am setting an exit level at 20 points, if you are able to trade multiple contracts you may want to scale out at higher levels.

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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.