Will options expiration save stock index futures?

April 13, 2012

 

For information or to purchase Carley Garner's latest book, Currency Trading in the FOREX and Futures markets visit http://www.currencytradingthebook.com/

 

Will options expiration save stock index futures?

 

Equities lost ground ahead of the weekend but with options expiration on tap, the markets might find a way to find a short-term low early next week.  More often than not, equities have a tendency to trade firmer on the Monday through Wednesday heading into the monthly expirations, and with the market trading at a relative discount it seems the stage might be set for such a move.

 

Friday's bloodshed actually started Thursday evening following “disappointing” news of a smaller than expected GDP figure in China.  Nevertheless, China is still growing at a rate of 8%…and I have a hard time seeing that as a complete disaster.  Adding fuel to the fire was activity in the credit default securities that increased the cost of insuring Spanish debt.  In other words, today's selling was based on fear of the fundamentals of other economies rather than domestic issues.  Obviously, the globe has become a melting pot of economies in which we are all linked together so this is something we should accept for the long haul.

 

The banks were hit hard on Friday over concerns of a European debt crisis bleed but the fact that we will hear the latest earnings reports from major banks next week likely sparked some of the manic trading.  If bank stocks were able to lead the market lower this week, they are capable of doing the opposite next week (assuming their earnings numbers are a meet, or beat).

 

According to the Stock Trader's Almanac, the income tax deadline (Monday this time around) is generally bullish and in line with our seasonal research, they claim the Dow has only been down five times since 1981 on the Monday before the April expiration.

 

If we get some follow through selling on Sunday night/Monday morning, look for support in the June S&P near 1359 and 1348.  If we get an expiration rally, we'll be looking for the mid to low 1390′s.  If we're wrong about the market finding a bottom, the next major area of support is 1330ish.

 

If you are day trading, look for support at the levels mentioned above and intraday resistance near 1378 and 1386.

 

 

 

 

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.

 

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

 

Please note: An e-mini S&P and e-mini NASDAQ chart are used because they better for charting purposes, but trade recommendations can be applied to either the full-sized S&P or the mini.  Unless otherwise noted, profit and loss will be based on the mini version.

 

Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade -

Flat

 

 

In other Markets…

 

 

3-30 Clients were advised to sell June Bond strangles using the 143 calls and the 131 puts for a combined premium of 60 ticks ($937.50).

4-2 Clients were advised to sell June soybean 1570 call options for 8.5 to 8.0 cents.

 

4-4 Clients were advised to sell corn strangles.  Strikes and fills varied slightly (730/600 strangles for 14.5 cents, or 720/605 strangles for about 16.5 cents)

 

4-9 Clients were advised to buy back the June 131 puts for about 10 ticks to lock in a profit of about 20 ticks before commission and fees ($312.50).  We are recommending to leave the short calls open for now.

 

4-10 Clients were advised to sell the June bond 135 puts for about 30 ticks.  Later in the session, we recommended to buy back the 143 calls at a loss (about 1'03 before considering profit on puts) and sell the 146 calls in their place.   The “new” strangle provides more room for error on the upside and carries a slightly bearish delta with plenty of profit potential if volatility erodes.

 

4-10 Clients were advised to buy back their 730 corn calls for about 3 cents to lock in a profit of about $250 before commission and fees.

 

(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more.  Email us for more information)

 

Carley Garner

Senior Analyst / Commodity Broker

DeCarley Trading

cgarner@DeCarleyTrading.com

1-866-790-TRADE

Local : 702-947-0701

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http://www.DeCarleyTrading.com

http://www.CurrencyTradingtheBook.com

http://www.ATradersFirstBookonCommodities.com

 

*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.

 

There is substantial risk of loss in trading futures and options.

 

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

 

Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years.  There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year.  While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing.  Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results.  No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations.  No representation is being made that price patterns will recur in the future.

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