Historically we have seen some of most volatile market reversals in September and October. We are approaching the five-year anniversary of the Financial Crash. We should all be aware what can happen if we don’t prepare to manage risk. It’s better to plan for the worst rather than hope for the best.
THE MORNING NEWS
Jobless Claims had another drop this week to 292,000 down 31,000 from the previous week. This was below the general consensus range of 325,000 to 335,000. That is the lowest level since April of 2006. This number would seem to show a sign of a continued slowly improving economy, but it comes with an asterisk. The Labor Department has attributed the larger than expected drop to a possible computer issue. No, not a fat finger. Two states (not reported which states) upgrade their computer systems which may have led to a possible undercount in reporting. I’m glad to see that I am not the only one who struggles with computer upgrades.
This additional information makes the latest data a bit tougher to interpret. The Labor Day holiday may also account for a drop in filed claims as well. I’m thinking that we may see a jump for next week, as well as a revision to this week’s number. These numbers are being more scrutinized as the big cloud of Taper Talk hangs over our heads.
A LOT OF UNCERTAINTY
Right now I feel like there is a lot of uncertainty to the market. The current situation in Syria, and any possible reaction from the U.S. and other nations have not been resolved. The Taper On/Off debate is still on. Believe or not our other two favorite buzz words sequester and debt ceiling may be making a return in October. All of this has me leaning towards a downside move.
PLAY IT WITH A PUT SPREAD
I like buying the October E-Mini S&P 500 1650-1600 put spread at 9 points ($450.00) or better. Risk is limited to the cost of entry plus fees and commissions. The October options don’t expire until 10/18, so we have a little over a month to be in the trade. I would look for exit near 20 points. If you are able to trade multiple positions, I would set exit targets at every 5 points after that. If the trade does not go our way, I would look to exit near 5 points.
Please feel free to contact me with questions.
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.
