It’s the second first full week of February and the roller coaster ride continues. The volatility in the equity markets has also shown up in the U.S. Dollar Index and FX markets. The Chinese markets may be sleeping during their New Year’s celebrations, but the rest of the world markets are alive and kicking.
On Wednesday Chair Yellen gave her semi-annual monetary report in front of the House Financial Services Committee. While many observers feel that any Fed action in March is off the table, she did not shut the door on a potential move. She said the current stress that the global markets are under, “bears close watching”, but also mentioned the strength of the U.S. economy. Yellen expects the GDP to pick up after a fourth quarter slowdown, with employment growing and gains ahead for consumer spending. While mention there is always a risk for recession, she doesn’t see the Fed reversing policy anytime soon.
I don’t think there were any surprises in the statement. Not much came of the question and answers from the committee either. It was well versed Fedspeak, anyone looking for a hint that we will see more action and a specified date is probably disappointed. On Thursday she will present to the Senate Banking Committee.
I’m ramping up my risk appetite a bit. I see an opportunity in a short term trade to collect a bit of premium. I like selling a strangle in the February E-Mini S&P 500 options. I am trying to sell the Feb 1770 put and the Feb 1930 call for 10 points ($500.00). This trade is putting a cap on a potential move in the S&P, between 1770 and 1930. The Feb options expire on Friday February 19th, so we have just a week of trading days until expiration. Breakeven is 10 points from either strike at expiration. If the volatility spikes up, and the trade goes against me, I am looking to get out at 15 points, a 5 point loss.
For those interested Walsh Trading is holding our weekly grain webinar Thursday February 11th at 3:00 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.
