Click Chart to Enlarge
This chart is a 15 min chart of SPY. I have held a couple contracts of the Aug 191 calls on SPY based on the VIX and put/call extremes I have recently highlighted.
So now options expire tomorrow and so I am looking at fine tuning the exit. What I show above is an external retracement of the decline from Monday to Tuesday as well as an external retracement of yesterday afternoon's mild pullback. There is an overlap of a couple fibonacci levels at 195.35.
I have had a limit order to exit half the contracts at 4.25 which would roughly correspond with the 195.25 level on SPY. So this short term analysis confirms that as a reasonable short-term target.
I have another limit order to exit closer to a fill of the gap at 196.98. The limit order is for 5.40 which is about the middle of the gap down from 7/31/14. That would not even take a 1% rise in SPY to achieve that level, so it is within reason that it could be hit within the next two trading sessions.
The set-up for taking a put or inverse trade is not yet developed, though as we move through expiration I will be keeping an eye on that possibility.
Of note here, while I don't have quantification of this idea, I have consistently noted a tendency in this bull market for prices to generally rise into options expiration, and to experience the most significant corrections following options expiration and into the 1st or 2nd week of the next month. So, if this little rally here is a sucker rally in a larger scale correction, I would expect the move to the downside to pick up as this month ends and September begins. Nothing magic here, just one of the cycle at play in the market that can fill out the picture of an otherwise appropriate technical set-up.
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