Stock Bounce Could Be Short-Lived: E-Mini Play

If you are a fan of swings or seesaws, the S&P gave you some entertainment the last few days. On Tuesday the index dropped nearly 1.5% in one of the larger moves we’ve seen as of late. If that wasn’t enough action and volatility for you, I hope you were able to see Wednesday’s bounce. The S&P recovered the Tuesday’s loss, rallying just under 2%.

Fed News

Wednesday’s release of the FOMC minutes gave investors an invitation to come back and buy the index markets. Many interpreted the minutes as a sign that the Fed will maintain its current policy if the world economy weakens. Fed officials said U.S. economic growth “might be slower than expected if foreign economic growth came in weaker than anticipated.” Some investors viewed it as tip of the hat that the Fed isn’t in any hurry to raise interest rates.

Use A Strangle

I think the latest Fed news may have settled short term concerns for many investors and traders. I also think that the bounce could be short lived.  I’m looking at directional play in the short term using a strangle. I like buying the October E-Mini S&P 500 1900-2000 strangle at six points ($300.00) or better. By buying the put and call at the same time, we are hoping to take advantage of a market move in either direction. Risk is limited to the cost of entry plus fees and commissions. I am setting an initial target exit at 15 points.

Webinar

For those interested Walsh Trading is holding our weekly grain webinar today, Thursday October 9 at 3 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.

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.