10/7/10 pre market analysis $SPY

20 day

20 day chart S&P 500: Clear top @ 1163.5  Lots of gaps to fill into the down side @ 1140-1135 1131-1125 1113-1109.  Another noted point is the 50 day moving average which is at 1147.44.  Lets see if the market pulls back and tests the 50 day moving average around 1147 in the next 2 days.  Will all these gaps be filled probably not, but heres some trade ideas off of this 20day chart.  Some very short term using $SPY weekly expiring in 2 days, $SPY Octobers expiring in 9 days, and November expiring in 44days.

 

A doji candle was the last day we had in the $SPX as you can see it went a lil bit up and a lil bit down on the day hitting 1163 and 1155.

After a long uptrend, the appearance of a doji can be an ominous warning sign that the trend has peaked or is close to peaking. A doji represents an equilibrium between supply and demand, a tug of war that neither the bulls nor bears are winning. In the case of an uptrend, the bulls have by definition won previous battles since prices have moved higher. Now, the outcome of the latest skirmish is in doubt. Meanwhile, after a long downtrend, the opposite is true. The bears have been victorious in previous battles, forcing prices down. Now the bulls have found courage to buy and the tide may be ready to turn.” –http://web.streetauthority.com/terms/doji.asp

Doji

 

Interesting options action in the $SPY oct-8 weekly options where the option prices in what direction it thinks the market is going to go..

SPY closes at 116.03

SPY116:

Call: .69

Put: .64

giving you roughly an even spread at the 116 mark.

loooking at the veritcals:

116/117 bull call spread vertical: .45 making your break even point @ 116.45. which it must break by Friday at market close.

115/116 bear put spread vertical: .35 making your break even point @ 115.65 which it must break by Friday at market close.

both of these the odds are 39.88% that one of these 2 will break even by Friday.  Meaning there is an 80% chance that the $SPY closes either below 115.65 or above 116.45 an a 20% chance that it closes between these 2 numbers.

If you are bearish a little bit more long term a nice trade for you could be a:

november: 113/116 bear put vertical: 1.08. Giving you a break even point of 114.92 This still has 44 days til expiration, and includes elections.  I’ve stayed away from November options because I’m unsure what the market will do come election time.  I do believe that it has priced in the fact that the republicans are going to take over both houses, and if that doesn’t happen then the market may go down more.

One more idea:

October: 114/116 bear put vertical: .67 . Giving you a break even point at 115.33 . If the $SPY hits 114 in 8 days, you make 200%.

 

Trade ’em good.

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