This Friday’s employment data may be the most closely watched in quite some time. Comments by Fed Governor Dudley earlier this month hinted that Fed was closer to a rate hike than most observers think. Dudley also mentioned that a rate hike at the September meeting was a possibility, if the data was supportive. Last week Chair Yellen in her speech in Jackson Hole stated” I believe the case for an increase in the federal funds rate has strengthened in recent months”. This latest talk for from the Chair and Dudley are a different view than what we were looking at in June.
While Chair Yellen did not mention the September meeting as a possibility for a rate hike, many observers feel that if the jobs numbers for August are strong enough, we will get one. If the August Nonfarm payrolls come in anywhere near the previous two months (292,000 & 255,000), most trader will likely treat that as bearish for the stock market. A number below 200,000 isn’t necessarily bullish, but might take September off the table in the minds of many market participants.
I’m looking to play Friday’s job number with a bearish tilt. Trying to define risk and using a short time frame, I am going to trade the Sep E-Mini S&P 500 Week 1 options. I like buying the 2150-2130 put spread at 2 points ($100.00) or better. These options expire on Friday at 3:00 PM CDT, so it is a very short term trade. We are long premium so risk is limited to the cost of entry plus fees and commissions. If filled I am placing an initial exit target of 10 points. If you are able to trade multiple contracts I would look to scale out at 5 point increments.
For those interested Walsh Trading is holding our weekly grain webinar Thursday September 1st 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.
