The March Mini S&P Index is up 1.50 points at 1124.50 this morning as I write. The included chart shows the current reluctant uptrend continue to trudge higher. These kinds of bull moves can last for long periods of time as I have mentioned in past letters. There are still too many analysts looking for corrections and no one that I know of is complacent about the market. Remember, major tops happen when everyone is complacent about the market and only predicting how high the market is going to go and no one is worried about corrections. That is not the case right now. I still look for this stock market to continue to work higher. The directional movement indicators are bullish and the ADX line is rising. Yesterday, following my recommendation, we bought one March Mini S&P futures contract at 1125.50 and sold one deep in-the-money March 1080.00 strike call option at 70.75 points. This means that in 80 days when the option expired, if the March Mini S&P closes above 1080.00 then our short call option will be exercised. The result would be a futures loss of 45.50 points (the difference between 1080 and 1125.50), but we would keep the option premium of 70.75 points, so the overall result would be a gross gain of 25.25 points or $1262.50. I did the trade this way so that we have a lot of downside protection and the expectation that stock index prices will continue to rise very slowly over time. I do not expect to wait until expiration to liquidate this trade. Over some time, if prices work higher and begin to stall, I will probably take whatever profit is available at the time and liquidate. By the way, the 1080.00 level is a very important price level to hold for this bull move. Don’t forget that we also have both ration call and ratio put spreads to attempt to take advantage of larger bull or bear moves should they take place in the intermediate term. If those types of trends don’t occur within the expiration time, no problem, because we did those spreads for credits anyway.
Followers of this letter should be:
Long one March Mini S&P (1190.00 strike) call option from 17.00 points and short 2 March Mini S&P (1220.00 strike) call options from 9.50 points each for a total credit of 2.00 points or $100 gross.
Long one March Mini S&P (1000.00 strike) put option from 23.00 points and short 2 March Mini S&P (935.00 strike) put options from 12.75 points each for a total credit of 2.50 points or $125 gross.
Long one March Mini S&P futures contract from 1125.50 and short one March Mini S&P (1080.00 strike) call option from 70.75 points.
March Mini S&P options expire in 80 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.
