It appears that winter may be finally coming to an end in the United States. The Midwest and Northeast have gotten a bit of a teaser this week of something that resembles spring. There is a change of season approaching that is long overdue for many who have been battling precipitation in a solid form for too long. Something that appears to be sticking around during this transition is volatility in the equity-index markets.

The Dow has seen 300 point ranges in three of the last four trading sessions, and the S&P has traded in similar fashion. We are in an era when positive jobs data can have a negative effect on the indices. The Federal Reserve has told us for quite some time that jobs data is one the most important things they will lean on when it comes to any rate-hike changes. Last Friday’s Non Farm Payroll came in at 295,000, well above the consensus expectation of 230,000, and this sent the equity markets tumbling down. That move wiped out the previous month’s gains and put us back right we started at the beginning of the year.

The Trade

I think the volatility will continue as we start the second quarter. I am looking for a slow climb up, back to the levels we saw in February. I am looking at a bull-call spread to take advantage of a move back up.

  • I like buying the April E-Mini S&P 500 2075-2125 call spread at 5 points ($250.00) or better.
  • Our risk is defined to the cost of entry plus fees and commissions. 
  • Full value of the spread with both strikes in the money at expiration (4/17/15) is 50 points ($2500.00).
  • I am setting an early exit target of 20 points.
  • If the market looks like it does not want to move higher, I would try to limit my loss to 3 points.

For those interested, Walsh Trading is holding our weekly grain webinar Thursday February 12th at 3 p.m. Central time. Please click here for details.

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.