Wednesday’s Fed Minutes seem to have been a bit of a indicator that the Federal Reserve may be ready to take action. Some observers think the data is not supportive of a rate hike quite yet. The markets however reacted like that a hike is coming this summer, with June as a possibility.
The equity markets have enjoyed a longer term run to the upside since bouncing back this spring. As has been the case over the previous several years, the indices have shown that they love a low interest rate environment. That party may be coming to an end soon, and I expect that the markets will continue act as they have previously; higher interest rates should bring a move to the downside.
Looking at the possibility of a continued move downward I am looking to buy a bear put spread. I like buying the June E Mini S&P 500 2025 -1990 put spread at 10 points ($500.00) or better. Expiration is on June 17th, so we will be in the trade through the June FOMC meeting on the 16th. I have an initial target exit of 20 points. If the market holds steady or has an upside move, I would look to limit a loss to five points. We are long premium so risk is defined to the cost of entry plus fees and commissions.
For those interested Walsh Trading is holding our weekly grain webinar Thursday May 19th 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.
John Weyer
Director of Commercial Hedging
Walsh Trading Inc.,
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.
