Hey, anything going on in the market? There’s a question no one has asked so far this year. Maybe someone has, but if they did they have probably been enjoying an extended holiday somewhere isolated. From the first trading day of the year, the equity indices have shown enough volatility for a quarter.
Wednesday saw that trend continue, with the Dow down over 500 points during the session. Both the Dow Jones and S&P reached levels we hadn’t touched since October 2014. Asian markets once again kicked off the move in the overnight session. The sell may have also received some help from crude oil as it broke 28.00 a barrel, a level it hadn’t traded at since 2003. The continued downside pressure has participants a bit nervous.
The concerns this week are the same ones that we started the year with. The Asian markets (CHINA) and currency game is on trader’s mind when their feet hit the floor in the morning. The effects of lower priced crude oil are presenting problems for the energy sector, and makes observers concerned with what will happen to jobs in the oil patch. And everyone’s favorite, THE FED, what is their next step? Can they really go from a rate hike for the first time in a decade to contemplating another round of QE?
I am looking at a bearish play the February e-Mini S&P 500. I like buying the Feb 1800 put and selling the Feb 1750 put for a debit of 9 points ($450.00) or better. The maximum value of the spread if both strikes are in the money at expiration (02/19/16) is 50 points ($2500.00). We are defining risk to the cost of entry plus fees and commissions. My initial target exit is 20 points, if you are able to trade my than one contract I would scale out in five point increments. If this market shores up or we get a rally, I would look to keep a loss to 5 points.
I won’t lie to you; this is a very tough market to trade. It certainly tests your risk tolerance levels. If you aren’t a fan of volatility, or having trouble withstanding pain, these markets aren’t for you. That doesn’t mean you are weak, or chicken. That just means you are smart enough to know when to play it smart and watch the action from the sideline.
For those interested Walsh Trading is holding our weekly grain webinar Friday January 22nd at 2:00 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.