Relief Rally – Lows From Wed Likely To Hold Until July Option Expiration

July 9, 2015
Author: Peter Stolcers, Founder of OneOption

Posted 10:30 AM ET - Yesterday, all the negative news finally caught up with the market. Major horizontal support was tested at SPY $204.50. It took a lot of selling pressure to get us down to that low and prices were very resilient. I believe those lows will hold through July option expiration and I am selling bullish put spreads today. Overnight, China's market rebounded. Large shareholders were banned from selling stock and short selling of small cap stocks was also prohibited. China is not out of the woods yet and we will see additional selling before this is over. For the time being, I feel that their market is at a resting point. China's market should bounce. Even if it just stays above the lows from yesterday, our market will rally. Rumor has it that Greece is close to a deal. Where I heard that before? Grexit would probably push us down to the lows yesterday, but the market is prepared for this event. If the market shoulders Grexit initially, the turmoil could spark selling a week or so afterwards. Earnings season attracts buyers and I am looking for positive price action through options expiration. I will be selling out of the money bullish put spreads on stocks that have been able to tread water during this decline. In some cases, the stocks have been forming a base and are starting to move through horizontal resistance and in other cases, they have broken through horizontal resistance and they pulled back to the breakout. Both patterns present excellent opportunities. I will distance myself from the action and I will take advantage of time decay and inflated option implied volatilities. If the breakout fails, I will buy back the put spreads. The price action yesterday looked bullish to me. We did not hit an air pocket and major support has been holding. Bullish speculators have been flushed out and Asset Managers are buying at the low-end of the range. Don't get overly excited. I am just positioning myself for a flat to slightly higher market for the next week. I feel that there is a good opportunity to sell put premium ahead of July expiration. The market is likely to rally. Look for an opportunity to sell puts. . . image

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