Option Expiration Buy Programs Could Kick In.

May 14, 2008
Author: Peter Stolcers, Founder of OneOption

Yesterday, the market had a relatively quiet day. It was able to hang onto Monday's gains and that was a positive for the bulls. Foreign markets were trading higher and a moderate CPI number sparked a rally. An increase of .3% was expected and the number came in a .2%. That data is not consistent with what most Americans are experiencing and I seriously question the inputs and the computation. For instance, the CPI showed that gasoline prices declined by 2% last month when in fact we know that gasoline futures rose by 11% in April. In any case, the market like the news and stocks rallied. Oil inventories came in slightly higher than expected and energy prices are slipping. That is providing a nice tailwind. The market could gain momentum and challenge SPY 145 if oil pulls back to $110. The S&P 500 futures are less than 10 points a way from last week's high. Now that the bulls have regained their composure, we are likely to see option expiration related buy programs. The market is close to its one-month high and as it grinds higher, traders will goose the rally by legging out of hedged positions. Tomorrow we will get initial jobless claims, industrial production and the Philly Fed. I don't believe these numbers will be a drag on the market. To date, traders have shrugged off weak economic news and higher oil prices. There aren't any major earnings releases heading into tomorrow and JCP is the most noteworthy. The market is likely to keep grinding higher today. For a very short term trade, I like the dry bulk shippers and tech. The market should hit resistance at SPY 142.50. I am still very guarded and I am reluctant to buy into this rally. I feel that the bullish sentiment is a little “hot” and we are due for a pullback. I am selling OTM calls spreads on financial stocks and as the RTH reaches $99, I will start to sell OTM call spreads on retail stocks. image

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