I’ll be honest, this is as confused as I’ve seen the market in quite some time. Right as we were closing for the day yesterday afternoon, news came out of Turkey that they were drastically raising their interest 425 basis points to 12%. Now, to put this in context, in the U.S. the discussion is almost always whether to raise or lower rates by just 25 basis points.
Frankly, I was of the opinion that anything Turkey does economically shouldn’t have any effect on global markets. In reaction to this news though, futures markets rallied around the world and the SPX was immediately 10 points higher.
As you know, this rally couldn’t even last overnight as SPX opened 15 lower than yesterday’s close, and thus 25 points off the overnight highs. Color me confused. We’re seeing 25 point SPX moves off of news from a country whose GDP is less than that of Apple and ExxonMobil combined.
The point here is that confusion is currently ruling the roost, and it looks like we’re only in for more of the same with the FOMC announcement coming in just a few minutes.
Currently we have a number of long delta positions, and while I’m nervous about holding this many calls, I simply love all the names in which we’re bullish. I’ll individually detail all of these names in the weekly recap this afternoon, but for now I don’t see many options other than sitting on our hands and watching the madness unfold.
If you’re nervous about having too much long exposure, I’ll offer you 3 potential strategies…
Add to your short March 183 Calls.
Turn some of your long calls into bull call spreads. For example – we own the March 45 Calls in LNG, you could sell some March 50 calls to reduce some exposure.
Protect with “lottery” puts. We hardly ever recommend trading weekly options, but this could be a situation where it makes sense. If SPX 1773 is definitively broken (I don’t think it will be) then there is plenty more room to fall. You could consider buying the weekly SPY 176 puts for roughly $0.55, and these could pay off big if the market reacts negatively.
As far as what to expect from the FOMC — we saw at their last meeting that they are making plans to start the taper. Remember that in reaction to this seemingly bearish news, the market actually rallied. As always, it won’t be the news but the reaction to the news that tells the tale.
AI
