You want some volatility? Be careful what you wish for. We are getting our fair share so far this year, with a little added extra today thanks to the Swiss National Bank (SNB). The SNB’s surprise announcement they will stop capping the Swiss Franc against the Euro, and reducing interest rates gave the markets a big jolt.

The effects of the Swiss move showed up across the board, and in domino effect fashion. Big moves by the Euro and U.S. Dollar seemed to trickle over into crude oil. The decision also sent equity markets tumbling down, (the Dow dropped nearly 250 points) followed by a retracement that had the markets just shy of unchanged ahead of the day session.

Seeing surprise news like this, and the way markets react, always makes me revisit my risk- management strategies. With extreme moves in the markets, stops are almost guaranteed to be hit. This is why I am a fan of options as a protection or insurance play.

I think the S&P still has a move to the upside in the near future. At the same time, I don’t think we are going to see a straight run up; it will be filled with a lot of back and forth moves, and as we have been reminded today, they can be extreme.

The Trade

  • I like buying the March E-Mini S&P 500 1820 put at 10 points ($500.00) or better.
  • If you are in the market already, you can treat this as you protection play. If you don’t have a current position, you can use this trade to take advantage of a significant move to the downside.
  • Expiration is on March 20th.  I am setting an early target of 25 points for the first exit level. 
  • Risk is limited to the cost of entry plus fees and commissions.

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RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  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.  WHILE 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.