Options Outlook For The Week Of June 2: Will Market Confusion Continue?

* Friday The bears did just enough to remind bulls that this is not 2013 where every run is to the moon. The week was full of action and if market confusion was the only sure thing. For months markets have had an inverse trading relationship betwee the TLT and Yen on one side and Equities and the TNX on the other. This week the relationship broke down. It did occur sporadically but nothing to be relied upon for direction. The options make up suggests that traders are still cautious. They bought VIX calls, indices puts, and almost evenly split in the equities.

A highlight of the week is the resurgence of the love for Apple. The recommendations and price upgrades came in fast and furious but almost all too late and after the fact.

* Next week: The week though ended with media coverage of all time highs (SPX and Dow), the day was definitely negative. Apple could not hold its day high of 644 and closed 12$ lower and negative for the day. Furthermore, the small caps closed -.5%. So, absent any headlines, markets may carry a negative sentiment into Monday's pre-open. The most important even of next week is the ECB. There is a chance that the event is a lose/lose situation. If Draghi cuts rates and/or introduces a QE then markets will read doom into it and sell off hard. If he doesn't cut then they will be disappointed and also sell off. Furthermore, if we get a weak jobs numbers... lookout below. That's why traders should expect a potentially violent week.

Consequently, it would be wiser to extend the short term weekly trades into at least two weeks or more. Setting trades further out in time via the options market would protect from massive losses from tight weekly trades. From an options perspective one can do the following:

* It is still prudent to defend a few short positions. This can be done by buying call spreads in the indices so to avoid potential pitfalls from stock specific exceptions.

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