Time To Sell E-Mini Premium
John Weyer | Jul 28, 2016 10:44AM ET
Wednesday’s FOMC didn’t bring any surprises. I don’t think anyone was looking for action from the Fed, and the Fed lived up to that expectation. But the tone of the Fed’s statement might have turned a bit more hawkish from the previous dovish announcements.
The term “strengthened” made an appearance in describing the current labor market, probably referring to the addition of 287,000 jobs in the June jobs report. “Growing strongly” was used to describe current household spending, another point for the hawks. I don’t think a rate hike is around the corner, but the possibility of a December move just got a little bit bigger.
h3 Look For Retracement/h3The latest news from the FOMC may have slowed the run up in the equity markets. The 2200 level in the S&P 500 will be harder to reach. A strong retracement over the next few weeks would not surprise me as traders position themselves for the longer term. I’m not looking for a complete wash out, more likely a see-saw move back and forth.
I’m looking at collecting a bit of premium by selling a credit spread. I like selling the September S&P 500 2205-2035 call spread at 10 points ($500) or better. This trade is basically bearish and says that we don’t believe the S&P 500 will trade and stay above the 2200 level. Risk is defined to 20 points, and maximum loss would occur with both strikes in the money at expiration on September 16. I am looking to limit a loss at 10 points -- if the market continues to rally.
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