Options Outlook For The Week Of April 21: Fundamentals Have Not Changed

A bullish week 

Traders ended the week on several positive notes. 

Friday was another bullish day but in disguise. While Friday wasn't a plus-one-percent it was even more impressive. Why? Because it had the potential to be a disaster but it wasn't.

The VIX agrees as it lost almost six percent and now back down to normal levels of 2013.

Markets got lucky that they absorbed the Google GOOG and IBM IBM debacles as if they were micro-caps.

Friday avoided a disaster day 

There was a chance that traders would hit the sell button ahead of a long weekend for fear of a Ukraine headline. But, politicians hit the airwaves late in the day and said that the Geneva talks went well which likely stopped traders from off loading their positions.

The Ukraine struggle is a local one and no major international power has anything to gain from escalating the situation. Ukraine elections are coming in May. 

The VIX

Lost 5.78 percent Friday and now back down. Monday hopefully will stay at these levels and not rocket up on slight hint of headlines. Markets STILL remain cautious as call are still 3/1 vs. puts.

SPX

Played out perfectly to the 1865 pin AND for those that shorted it above 1875.

Monday: If we get no major escalation of the situation in Ukraine, we may come into Monday with positive momentum. This of course also assumes status quo from Asia.

Any rhetoric from major countries will cause a freak out into Monday. Be wary of traders/experts that are STILL expecting more selling to come; sometimes this becomes a self-fulfilling prophecy.

Plan of action:

• If markets sell off on Ukraine headlines: but there's a continued muted negative effect from the TLT and the YEN then consider buying the proverbial dip. Google and IBM might be good examples.
• If markets sell off on Ukraine headlines AND there's continued negative effect from the rising TLT and the YEN then traders should take more bearish trades via debit put spreads in the momentum stocks and the small caps.
• Those tend to fall faster than the SPX which has held up relatively better. Traders can also hide in Apple but likely NOT until after its earnings event.
• If markets continue on with the upward momentum: Consider going long those same quality names and hedge a few (about two longs to one perhaps). Don't over-commit since we've seen some wild recent swings in the past few weeks.
• The point is that there are a lot of opportunities but ALL have to fit under the cautious optimism; going long but with a few hedges and staying nimble.
• The fundamentals have not changed; the Janet Yellen confirmed it once again this week.
• The Fed is still behind the markets for as long as we need it. Rates aren't going up for a while.

Check out the video below for a recap of this week's outlook: