August traditionally brings us the dog days of summer, and usually slow, low volatile markets with it. IF you were trading last year, you know what the phrase “exception to the rule” means. August of 2015 saw the S&P 500 wipe out the previous nine month’s gains. The index had a nearly a 240 point range, and closed down over 11% from July 2015. Not exactly a low volatility environment.
The S&P keeps reaching for new highs, but can’t seem to hold them. We have seen some pull backs and retracements but nothing to give the market a scare. Most of July looked like sideways trading from a day to day perspective. That has changed a bit in the early portion of August, with the index enjoying several consecutive sessions to the upside.
I’m not expecting any kind of move like we saw last year, but I think we might be due for something a little bigger than we have seen lately. The possibility of a swing in the market has me a bit reluctant to trade the futures in a longer time frame. With that type a concern I am looking at a long options play.
I am going out of the money to buy an options strangle. I am trying to buy the September E-Mini S&P 500 2000 Put along worth the 2220 call at 8 points or better. I am looking to take advantage of a strong move in either direction ahead of expiration on 9/16/16. My initial target exit is at 30 points. If the market doesn’t get much movement, I would look to keep a loss to 4 points. WE are long premium so risk is defined to the cost of entry plus fees and commissions.
For those interested Walsh Trading is holding our weekly grain webinar Thursday August 11th 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.,
