ECB Disappoints, Debit Spread Hedge For DIA

Draghi and the ECB disappointed traders [again] today by leaving rates unchanged. The ECB committed the EFSF program to aid in short term debt auctions. Details will be released in the coming weeks. Traders were not happy with this lack of action on the heels of Uncle Ben failing to make it rain yesterday. Bottom line, Euroland credit concerns will be pacified (although artificially) short term and the US recovery is bad but not bad enough for more stimulus. While off Wall Street it sounds good that things are not that bad, on Wall Street that means no additional free money and traders are throwing tantrums; as evidenced by the 20-point S&P range today. The result: We expect the S&P to resume trading the range of the last few weeks for the next few weeks. Heading up to today's ECB release we hedged our Weekly Service portfolio, which was net short via DIA puts, with SPY calls. We did so just in case the ECB surprised everyone and made a drastic move. However, knowing that was highly unlikely, we structured the portfolio to benefit more on a downside move than an upside surprise. It was the right move. As a result, we were able to use today's pullback to execute a Debit Spread Hedge for DIA reducing our exposure to only 4% of the funds we had at risk originally in the DIA puts while still maintaining the same profit expectations. We are still long the SPY calls heading into tomorrow's Payroll Report and the portfolio's P&L has a slight gain concerning these 2 trades (that is a success on a day like today). We will look to do something with the SPY calls in the coming days or next week. Read more about Debit Spread Hedges here Today's pullback has put the Monthly Service in great shape with 2 weeks left until OpEx. Our DIA Iron Condor, SPY Bear Call Spread, and IWM Bull Put Spread are benefiting nicely as volatility premiums contracts due to unknowns (headlines from the Fed, ECB, jobs, etc) become known. We have already booked a +6.2% portfolio gain for the August cycle. Thanks to everyone and have a great evening!!!