What Options Traders Are Watching This Week

Scoreboard: Friday ended the day green but strangely so. On a green day, 10 year rates should also be green and certainly bonds should be red. Instead, Friday TLT closed +1.3% and TNX -1.3%. This doesn't take away from a green week across the indices. In the second half of the week everything went the bulls' way and sentiment turned upwards. This resulted in a violent move up in the indices. Yet Friday's close was less than impressive. This puts the onus on the bulls to prove they can resume upwards on Monday. There were cracks in the bull action this week. First the QQQ weekly candle although green, it closed again lower than the week prior. This makes 3 lower weekly closes in a row. [graph 1] Same scenario for the SPY while green weekly candle, this makes for another lower close than prior. [graph 2] How to trade from here: Given that the onus is now on the bulls to find reasons on which to base rallies, indices can be shorted via sniper range trades like credit call spreads out in time and up in value leaving a decent buffer. There are also a few opportunities for a few long lottos. For example if the oil free fall is at its end then companies lik HAL should be able to recover so small debit call spreads should pay. [graph 3] Also if markets don't correct in general then CMG could see a jump up from here. This is a well managed company and always pleases the Street. I like the technicals as the trading range is tightening and a big move could be coming. The direction of which is almost a coin flip. However I see more reason to believe that the direction is up. It's an expensive stock and they could announce a stock split. Traders love to chase splits. This is a long shot scenario but add to it that cheap oil will translate into more sales at CMG. [graph 4] Potential pitfall: Recently markets have seen extreme volatility with 10% correction erased in days to new all time highs then another small correction also erased in two days. In spite of all this elasticity in market prices, the fundamentals have NOT change much. Sentiment has been the may fuel to these massive moves that we haven't seen since 2008. Since fundamentals have remained somewhat constant then upside exuberance, the bull thesis, has been built on the assumption that Europe will be saved by the ECB QE. There-in-lies the potential pitfall. There is a real chance that Draghi won't be able to deliver on his two year old promise. The uber bulls are rallying hard mainly on that assumption. I use assumptions as part of my thesis. I start with fundamental facts, then I sprinkle a few assumptions around those fundamentals. I don't build a thesis entirely on assumptions. Otherwise the thesis has the potential of being a house of cards.