Usually at this time of year, I am looking at the markets and wondering when everyone will be back from vacation. Lower volumes, less volatility, tighter ranges, all pop into my head when I think about trading in August. Much of Europe goes on holiday, and the markets often appear to take a vacation with them. This year has been a little different.
Wednesday was quite a session in the equity markets. The Dow Jones was down over 270 points before nearly closing positive on the day. The S&P 500 traded in a 55 point range, was down over 33 points on the lows, and also closed positive. That followed a 21 point range on Tuesday and nearly 30 point range on Monday to start the week. There are no “Gone Fishin” signs in the window this summer.
Volatility and big ranges can really test your risk tolerance. At the same time in can also present opportunities. China’s currency play for the second time in two days has sent the markets scrambling. Those moves combined with speculation about a near term Fed rate hike have provided the volatility that traders look for.
The S&P has had a tough time sustaining moves to the downside, but I still think there is more to come. I like buying the September E-Mini S&P 500 2035-2000 put spread at 7 points ($350.00) or better. Risk is defined to the cost of entry plus fees and commissions. Maximum value of the spread is 35 points with both strike sin the money at expiration (09/18/15). I am setting an initial target exit at 25 points. If the market appears like it does not want to break further, I would look to limit losses and exit the spread at 3 points.
For those interested Walsh Trading is holding our weekly grain webinar Thursday August 3rd, 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.
