My Big Fat Greek Eurozone crisis is number one at the box office again this week. Every financial market seems to be sensitive to any reports of possible deals or rejections of proposals between Greece and the EU. Technology has made the world a smaller place, and the domino effect seems to live large in the global economy.
The only thing I am certain of when it comes to the Greek situation is that I am uncertain. I don’t think anyone really has an idea of what the real reaction will be in either scenario. I can see reasons for the Euro to strengthen on a Greek exit, and I also can see the currency weaken. A deal that would keep Greece as a fine standing member of the EU may come with terms that could easily bring the Euro down. At the same time the Euro may move a bit higher if a new deal comes with terms that are favorable to the rest of the EU.
The U.S. markets seemed to enjoy the idea that a deal was in place at the beginning of the week. Equities rallied as rumors flew around that Greece came to terms with the EU. As those stories turned out to be just a rumor, the Dow and S&P gave back their earlier gains. The news continued to flow as protestors gathered in the streets in Athens, and it appeared there was another shot an agreement. AS of this writing no deal has been met, and it looks like the best short term scenario is another round of kick the can, possibly the six month variety.
The S&P 500 has flirted with making runs at the high we saw in May (near 2134), but has failed to do so. We have also seen it decline and break the 2100 mark in the previous week. It appears to me that the market doesn’t have enough juice or confidence to make a solid push up, but is strong enough to halt a significant sell off. The Eurozone situation may have traders a bit cautious and risk adverse.
With the thought that I think the S&P maybe range bound for a while longer, I am looking at selling an out of the money call spread. I like selling the August E-Mini S&P 500 2140-2160 call spread at 10 points ($500.00) or better. This is appealing to me because it gives us the opportunity to collect premium while defining risk. A maximum loss of 10 points (plus fees and commissions) would occur at expiration with the S&P 500 above 2160 on 8/21/15. Since we are collecting 10 points upon entry, our breakeven point is at 2150. This is a trade I would like to stay in as close to expiration as possible and try and keep the entire premium. If you are trading multiple contracts, you may look to close out of some ahead of expiration and lock in some profit.
For those interested Walsh Trading is holding our weekly grain webinar Thursday June 25th, at 3 pm Central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.
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.
