Broader Market Weekly Performance:
This week markets embarked on a snap-back rally that lasted right up to Friday's close. A 3% rally after last week's meltdown has recovered most of the loss occurring from the Japanese tsunami and nuclear fears. Commodities tagged along with the rally as well. Gold hit a new high of $1,447 and oil remained around $105 a barrel.
Volatility was sucked out of the market this week as fast as it was injected last week. Rallying through Friday's closed indicates that fear is quickly diminishing as traders were not scared to be long into the weekend. A little back filling would be good action in the coming week to assimilate this bounce. SPY 132 will be the first area of resistance but as long as SPY is above 130-131 the bias will be upward. We expect a the previous trading range of 130-134 to come back into play for the short term.
Areas of support remain at S&P 1305, 1290, 1260, 1250, and 1225. Resistance remains at S&P 1320, 1330 and 1345.
The past two week's volatility has allowed us to layer on some nice out of the money credit spreads. Last week's meltdown gave us some great openings to execute some juicy put credit spreads. This week's bounce provided some nice opportunities to add call credit spreads to construct Iron Condors.
The calls added this week, while still comfortably far out of the money, are closer to the underlyings current price than the calls. This is a usual circumstance with call spreads due to the way options are priced. However, this is not something to fear.
"Markets take the stairs up and the elevator down." This is one of my favorite expressions as it rings very true. This is important to remember when managing call credit spreads because they can be adjusted upward easily if the short strike becomes threatened. Spread adjustments can continue to be made waiting for the rising underlying to digest its gains thereby allowing the call credit spread to expire worthless.
The same cannot be said with put credit spreads because, like two weeks ago, when the market pulls back, it can be swift and take no prisoners. Both the short and long strikes can be violated very quickly putting the spread seller in a defensive position very quickly.
This week we will be keeping a close eye on our expiring March Quarterly spreads. Things look pretty comfortable so far and we don't expect any fireworks this week to upset our positions. Stay tuned......happy trading......and thank you to everyone for supporting BookingAlpha!
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