The March Mini S&P Index is up 5 points at 1102.25. The included chart shows that the S&P is holding up quite well inside the month long trading range. In the recent several months, as commodities rose in value, the stock market did as well. Now, commodities seem to be correcting sharply, and yet the stock market is holding up well, but not following through to the upside, just holding. We have to keep an eye on this sideways pattern. A close that is clearly outside of the trading range should bring on good follow through trading in that direction. Yesterday, we were able to fill on the ration put spread on the March Mini S&P. We bought the March Mini S&P 1000/935 put spread 1*2 for a gross credit of $125.00. It would take a 10% correction in the Mini S&P’s from here to reach the higher strike price of 1000.00. If prices never get down to 1000.00 by expiration on March 19th, then the options will expire and we will keep the $125.00. The best result would be if prices reach the 935.00 area on expiration date, where the potential gain would be the difference between the strike prices of $3250 gross. The risk on this trade will be if the S&P spikes down towards the lower strike price too quick and too soon before enough time value eroded. So, now we have a ratio call spread and a ratio put spread.
Followers of this letter should be long one March Mini S&P (1190 strike) call from 17.00 and short 2 March Mini S&P (1220) call options from 9.50.
You should also be long one March Mini S&P (1000.00 strike) put option from 23.00 points and short 2 March Mini S&P (935 strike) put options from 12.75 points each for a total credit of 2.50 points or $125 gross.
March Mini S&P options expire in 98 days.
David Hall
The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
This newsletter is not intended for dissemination to the public without prior approval from David Hall.
