Breakout Trying To Gain Traction – Reduce Risk If SPY Closes Below $212

May 20, 2015
Author: Peter Stolcers, Founder of OneOption

Posted 9:40 AM ET - Global markets set a positive tone for the open Tuesday (China up 3% and the EU up 1.5%), but the S&P 500 struggled to tread water. The overnight news was light and stocks around the world are up slightly this morning. The FOMC minutes will be posted this afternoon and I'm not expecting any surprises. The statement was rather boring a few weeks ago. Janet Yellen will speak Friday and that could have more of an impact. She has been dovish and her comments should be market friendly. Flash PMI's will be posted tomorrow morning and the results will be soft. The PBOC has been easing and weak numbers in China will be dismissed. Europe and the US will have sluggish growth. Retailers have been posting dismal results. Analysts are blaming bad weather and while the stocks have been trading lower, the damage is relatively contained. We are in pre-holiday mode. Trading volumes have fallen off and the S&P 500 had a very tight range for most of the day Tuesday. I have been selling put credit spreads for over a week and those positions are in nice shape. The market rally has given me additional breathing room and time decay is starting to kick in. As long as the SPY stays above $209, I am not going to worry. Ideally, the breakout at SPY $212 will hold through next week. By that time, my put spreads will be showing a nice profit and I can buy them back if the breakout fails. Greece is in meetings with the EU this week. I'm not expecting any resolutions. Rumor has it the tone has improved slightly. Look for quiet trading. If we see late day selling and a close below $212, consider reducing risk. Buy back a few of your bullish put spreads. I will hedge using the S&P futures if we make a new intraday low after two hours of trading. I have nice profits to my positions and I don't want to see them slip away. Any selling should be brief and I feel like I just need to weather a couple of small storms along the way. This strategy will help me do that. . . image

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