If anyone thought the market could rally without AAPL participating, they only have to look at today’s movement to get disabused of that notion. The economic news fueling the small selloff is really just more concern of a possible slowdown.
GOING NOWHERE FAST
Really, a possible slowdown is what the IMF says may happen? That is going out on a limb with China growth slowing (not negative, just not as fast), and the Euro Zone is in a perpetual bunker mentality. Overall, this is more of a recipe for a market that really has nowhere to go.
MORNING ACTION
That brings us to some of today’s numbers. The S&P 500 (SPX) is holding 1450 at 1453.93, down 2.06 with the Euro generally weaker down to 128.39 for the FXE. Market volatility is relatively firm with the VIX up slightly to 15.42. That is up almost 2 full handles from the low on Monday morning. The VIX is now looking at mid-November options (remember 30 days forward) that have moved up smartly over the last week. November downside skew is sharply elevated, so it is recently pushing up the VIX. All eyes are looking at the election and earnings season.
THE WAITING GAME
What this sets up is a kind of holding pattern, as the market moves into earnings and the election. That means the back month should stay relatively firm this week, but the October and October Weekly options should start to drift a bit. Aside from AAPL moving all over creation, the realized volatility in the SPDR S&P 500 ETF (SPY) is pretty low at around 9.9%.
THE PLAY
This setup really benefits a time spread (calendar) type of set up for a trade. The trade idea would be to buy a just out of the money time spread in the SPY 144 strike by buying Nov or Oct ordinaries and selling Oct Weeklys. This trade is a little bearish, so with a move back up in the market, a trader can add buying a VXX put time spread (around the 33 level) to help even the direction exposure.
Right now, some positive theta as the market beats around feels like the smartest play.
