2 Surprises To Watch For In The Options Market This Week

Scoreboard: The week ended on a sour note. Although the Friday's drop was not massive, it came on the most exuberant labor data day in years. The January jobs came out in-line with expectations, but the 'Wow factor' came from a phenomenal upward revision of Novembers job number from 250,000 to 420,000. This makes the three-month average about 330,000 per month in new jobs. The initial reaction to those numbers was market-wide -- a rip only to fade into an ugly reversal into the close.

So what really happened? After all was said and done, a rate hike became tangible sooner rather than later. This manifested itself in a few ways, such as the breakdown in the yen, a huge drop in Bonds. a +6.5 percent rip in the 10-year rates, and a strong bid for bank stocks as they will benefit from higher rates. This could be the start of a game changer, but not quite yet verified so the macro thesis remains intact.

Related Link: From Coca-Cola To Tesla, Here Are The 68 Most Important Earnings Expectations For The Week

The Week Ahead: Absent headlines, markets are likely to carry a negative bias. Options open interest going into the week were lined up for support at SPX 2000, so the disaster situation is too early to call. Furthermore, the small-caps Russell 2000 has the technical make up for a breakout towards 1250. There are road blocks, however, such as the possible drag from the Nasdaq. The bulls have also shown that their conviction in the long thesis is fragile, as it is more like sentiment trading rather than buying on conviction.

Nimble traders should continue to create income using iron condors (as was mentioned last week) as the meander is likely to linger. Slower traders could also continue to snipe values. This is not the time to put a large amount of money at risk. Small-sized trades and a well-balanced portfolio are best during these turbulent times. Make no mistake: this is new territory for many traders including all the experts. No one can be sure of anything.

Surprise Of The Week: Last week was a possible breakdown in the TLT and it paid well. This week there potentially are two surprises.

The first is not too likely and is an upside surprise that there is progress in the Ukraine struggle since Angela Merkel and Francois Hollande meet with Vladimir Putin in Russia.

The second involves oil. If oils spikes over the next few weeks, it could render inflation measurable and add more pressure on the Fed to raise rates soon. U.S. Fed Chair Janet Yellen is running out of reasons to delay the first rate hike. This may take a few weeks to develop, but markets could price it in ahead of the reports.

And that mystery of the missing extra money that consumers have been saving? They have been buying vehicles, as auto sales were record-breaking last week.

Check out the video below for a full preview of this week's options outlook:

Posted In: PreviewsOptionsMarketsTrading Ideas
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