We have no active signals currently and are not anticipating anything triggering today. The markets gapped higher on news Larry Summers withdrew his bid for the next Fed Chairman. He was seen as a controversial pick who would raise rates and end Bond purchases (QE) sooner rather than later. The market likes this news because it is addicted to the liquidity being provided by the Fed and is now pricing in extended low rates and QE.
I have been suggesting the S&P was approaching strong resistance at 1690 all the way up 1700 and 1710. With the FOMC policy announcement and option expiration this week I thought this week could mark a high in the market before a more extended pullback. However, I never expected the rally to be on a Sunday night 1% gap higher. Nevertheless, it feels like the giddiness of the bulls could finally be running into some resistance as the week wears on.
We can’t rule out a run in the December S&P futures (ESZ3) to about 1710, but we feel like the upside will be limited to around this level. I like the idea of selling SPY $173 October calls into this move while the volatility is high, and the options are overpriced.
The October $173′s are currently trading for $1.10 but I would place a sell order at $1.40 which is $140 in premium per contract. They have about 30 days to expiration, which puts them in the midst of what tends to be the window of quickest premium erosion (assuming stocks retreat, or at least slow down).