Market Summary
Stocks are doing what is referred to as a 'risk on' rally led by the small cap indexes and tech stocks. Risk on suggest that investors have developed more of an appetite for riskier investments compared to conservative blue chip stocks and bonds. This type of trading action is needed for continuation of an upside market price breakout. U.S. stock futures roared last Friday along with a global rally after European leaders reached agreements that eased concerns about European bank failures. Most investors believed that Europe's leaders would come up short with reaching any semblance of accommodation to the Euro-bank concerns. Also, money managers' second-quarter portfolio adjustments as quarterly options expired helped fuel Friday's gains and squeezed short traders into pushing prices higher. Institutional investors appear to be betting on higher stock prices in the near future as traders have moved from mostly buying puts to hedge against a market drop to acquiring calls anticipating follow through on the recent price move.
Investor Analysis
The S&P 500 Index daily chart above indicates that stocks have reversed course off the recent price lows and are trying to break towards the higher prices established in May.
Possible Strategy
Investors who want to trade on a further upside price move are considering a simple strategy to profit from the S&P 500's possible move higher. For example, buying a SPY ETF (Exchange Traded Fund) July expiration call option – SPY (NYSEArca: SPY) represents S&P 500 Index. Purchasing the $136 strike price call would cost $1.95 per share (based on yesterday's close, but would generate gains the further S&P 500 moved above $138 anytime prior to July 20th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/
By Gregory Clay
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