Margin Calls and Option Exp Will Slow – Earnings Will Ramp Up – Market Should Stabilize

October 16, 2014
Author: Peter Stolcers, Founder of OneOption

Posted 11:00 AM ET - Yesterday, panic selling hit a feverish pitch. The S&P 500 was down 62 points at its worst level. Buyers started to nibble and we had a sharp reversal. However, the gains did not hold into the close and we saw another round of late day selling. Today, the market found an early bid. This could be phase 1 of the bottoming process, but it is too early to tell. As long as we stay in positive territory, I will day trade from the long side. Netflix missed its number and new subscriptions were disappointing. That weighed on the entire tech sector after hours. Goldman Sachs and eBay are down after posting results. This afternoon we will hear from Google and SanDisk. GE will post tomorrow. Normally, earnings would drive the market. Now the focus is on Ebola and Europe. Europe's economic activity is slipping and the ECB said it is out of bullets. Germany does not have any fiscal stimulus plans and that is spooking investors. Greek bond yields are climbing and credit concerns are elevated. I still believe earnings season will provide some stability. This might only lead to a small bounce. Time will tell. The selling pressure has been very heavy the last week and it is impossible to gauge panic. It is also impossible to gauge credit fears. Ebola will get worse before it gets better. I am going to wait for a few more days before I sell out of the money put credit spreads. I like this strategy after the announcement and there will be more stocks to choose from as earnings season cranks up. This will also give the market a chance to find its footing. Option expiration will pass tomorrow and some of this volatility will subside. Margin calls will be met and that will also reduce some of the selling pressure. These two elements have been adding to the decline. The market has been all over the board today and we can expect wild swings. I am staying away from the S&P e-mini today. The moves have been too wild and random. I am able to find nice stocks that are rallying off of a base. They have been stable during the recent bloodbath and they want to rebound. Try to find stocks that moving higher today and have found support this week. These will make good day trading candidates. If the market starts to sink, look for tech stocks that have not been able to rally today. Netflix and eBay have cast a dark cloud over the sector. If we make a new low for the day, I will short the stocks and cover before the close. Given that we are way above the low of the day, I probably will not be day trading from the short side. We can move all over the board throughout the day, but the close is critical. The late day selling needs to end. I will stick my neck out - I believe we've seen the level of the day. Do not rush in and buy calls. This bottoming process will take a while. When it is time to enter, you need to sell put spreads and use the proceeds to buy call spreads. You have to sell premium. . . image

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