S&P Weekly Recap: February 27 – March 2

Monday: Anyone who is buying and selling options for a living was looking across the ocean on Monday morning, and once again, it was Europe that dominated the financial markets in the pre session hours.  News from the Old Continent’s suggested that the route to stability is far from being a smooth one. 

Add into the mix concerns about rising oil prices and a dash of traders taking profits at the current market levels, and you get a sticky mix pointing down.  And down the market went, crossing the 1356 level on its way off the peak.

Alas, when the bull charges, it charges blindly.  All that was needed was a reason to charge, and one was given with the 10:00 pending home sales.  With pink glasses on, the market leaped ahead and rebounded from 1353.0 to trade at, and above the 1365 level at quarter passed eleven.

The positive attitude prevailed throughout the day and it was the bulls who took the trophy home after watching the stock index briefly breaking the 1270 glass ceiling and closing just above the 1367 level.

Tuesday: Pre-open activity pointed to the continuum of the positive sentiment.  Then came the durable-goods report and the colors on the screen suddenly changed. Orders for durable goods were expected to drop by 1.1% but instead, registered a 4% tumble – the greatest in 36 months. 

The market reacted immediately and gave back 5 points and more within a minute’s time.

Similar to Monday though, the swing was not ready to give in to gravity, and the 10:00 Consumer Confidence report came in positive and stronger than expected (maybe those consumers didn’t hear about the Durable Goods report…). 

Additional support came from declining oil prices, and the market gained ground again and
wheeled on to close at 1371.5 turning the 1370 from a glass ceiling to a (glass?) floor.

Wednesday: Last year’s 4^th Quarter GDP broke open the day with good news.  According to the report, the U.S. economy grew in a slightly faster manner than was first estimated. 

The market did not move into a rally mode since it was very likely waiting to the Beige Book report which is usually announced at 2:00 pm. 

Indeed, the BB report brought some more good news with it, suggesting that the economic recovery across the board is generally stable and in some cases even showed a slight increase.

Strangely enough, but not un heard off, the market drifted down following the positive news and at half past two, it was trading at 1368.75, down 3 points.

It was most likely Bernake’s antagonistic remarks about the U.S. Job market, remarks that came near “the witching hour”, better known to the public as 3:20 pm, which pushed the market down as much as 13 points and although the bulls eventually found their footing, it was the sellers who came ahead at the end of the day, to the tune of 7 points.

Thursday: A mini flood of reports washed the screen on March first.  Jobless claims and personal income at 8:30 am, Construction spending and ISM Mfg. at 10:00.

Jobless claims brought good news under its wings (a small decline rather than a small increase) and the personal income report was by no means a market mover. The 10:00 news were also not taking a decisive stance on market direction. 

Construction spending was expected to grow by a basis point, and instead dipped down 0.1%.  The ISM report on the other hand, came strong at an increase of 0.6%.

The market reacted to the later rather than to the former, and pumped up with force, stretching to reach yesterday’s highs, and though it didn’t make it quite that high, the market closed up 10 points, and on a high note, suggesting possible appetite for more.

Friday: Friday’s morning early birds saw the market hanging around yesterday’s close.  Asian markets closed their trading day on a high note, but closer to home, on the European fore, matters seemed to be getting unclear as Spain reported its deficit would possibly be greater than earlier agreed upon with the EU.

The European news seemed to weigh heavy on the market and ten minutes into the trading session, the stock index was trading down two and a half points, a trend which continued throughout the day. As the closing bell rang it found the market down 5.75 points, trading at 1368 and three quarters in an overall slightly up week.

IF YOU HAVE A BULLISH VIEW ON THIS MARKET YOU COULD ENTERTAIN THE FOLLOWING:

1)     Buy the April 1420x1440 call spread:

Buy the April 1420 call and sell the April 1440 call.  Pay approximately 4 points for a potential profit of 16 points (20-4=16) if the market expires above 1440 and with a break even at 1424 (excluding commissions and fees).

2)     Sell the April 1300x1275 put spread:

Sell the April 1300 put and buy the April 1275 put (yes, always spreads).  Collect 3.7 points in premiums, risking 26.3 points (30-3.7=26.3)  and win if the market at expiration is anywhere above 1300.  Again, excluding commissions and fees.

IF YOU HAVE A BEARISH VIEW ON THIS MARKET YOU COULD ENTERTAIN THE FOLLOING:

1)     Buy the April 1325x1300 put spread:

Buy the April 1325 put and sell the April 1300 put.  Pay approximately 4.7 points for a potential profit of 20.3 points (25-4.7=20.3) if the market expires below 1300 and with a break even at 1320.3 (excluding commissions and fees).

2)     Sell the April 1410x1430 call spread:

Sell the April 1410 call and buy the 1430 call (again, always spreads).  Collect 5.3 points in premiums, risking 14.7 points (20-5.3=14.7) and win if the market at expiration is anywhere below 1410 (excluding commissions and fees).

If you have a neutral point of view, you could entertain selling Iron Condors or buying Time Spreads on both sides of the market.  Feel free to call us for a more detailed illustration or conversation.

And that is that folks, good trading and good luck!

David S. Rozen

The Options Academy

1-888-6-GET-TOA (643-8862)

www.TheOptionsAcademy.com

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