The S&P 500 has seen quite a few ups and downs since trading at 2175 at the end of February. The market traded all the way down to 2030 by mid-March. By the end of the month, the index had traded above 2100 again in two separate sessions, only to follow up with another visit to the 2030 area. Volatility anyone?

The Federal Reserve still casts a large shadow (or cloud depending on your point of view), over the equity markets. Investors and traders alike are still reading every bit of text from the Fed looking for a clue as to when a rate hike may occur. The Fed is standing by its mantra that economic data (jobs, inflation) will dictate any decisions. They may have removed “patient” from their statement, but they reserve the right to act patiently.

I think the S&P will continue the push to 2100 level again. However, I think there is some technical resistance combined with uncertainty about Fed action keeping it from going much higher. Any hints of rate hikes have given the equity markets the jitters and sent it lower. I think those concerns are still out there and most participants are aware of that.

The Trade

  • I am looking for the S&P 500 to stay near or under the 2100 level as we head into May.
  • I like selling an out of the money call spread, the May E-mini S&P 500 2110-2130 call spread at 10 points ($500.00) or better. We will be collecting premium on entry of the trade.
  • Our maximum risk is 10 points ($500.00) if both strikes are in the money at expiration on 5/15/15.
  • If the June S&P futures are below 2110 at expiration, the options will expire worthless and we will keep the entire premium collected.

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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.