Market Summary
Take a look at the SPY daily chart below and notice how the index has been trading in a tight price range for the past month. The S&P 500 index is trading flat for the year. The December 20th Investor Report mentioned "... With less than two weeks left in the trading year we might be starting to see a Santa Claus rally to the upside as some money managers might attempt to push the prices up so that the market at least ends the year flat. Trading volume is typically lighter this time of year as traders start checking out for year vacation. Since there will be fewer participants and less trading volume, it becomes easier for traders to push to push stocks higher..." As expected, investors pushed prices up higher to the top of the recent trading range.
Investor Analysis
The December 20th Investor Report also said "...traders appear to be motivated to push the S&P500 index into the black to join the other major indexes. There is still a lot of money on the sidelines, plus some investors have bearish positions. Today's big move was classic short squeeze that forced traders to buy back short positions driving prices even higher. As more sideline money enters the market it won't take much for prices to get back to recent highs..." As noted in the SPY chart above the index price has back up to the $126 resistance level. Now appears to be the opportune time to consider a trade similar to what is mentioned in the 'Strategy' section down below
Possible Strategy
Many traders are considering credit spread trading strategies to take advantage of the non-directional nature of the current market price action...selling an out-of-the-money (OTM) stock or option and protecting the position by simultaneously purchasing the exact same investment - even further OTM. For example, selling a January $131 strike price SPY call option for .55 (Yesterday's closing price) and simultaneously buying the January $136 at .05 would generate a .50 credit premium to the investors account multiplied by the number of shares represented by the option contracts..." Sign up for the http://blog.theoptiontrader.com for additional option trading strategies.
By Gregory Clay
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