Landing in the Middle

 | Apr 15, 2014 | 11:52 AM EDT
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The close yesterday left many people scratching their heads. Then we pushed higher today, only to see a 20 handle reversal from the highs. Why not? We saw 10 handles down and 15 handles back up in the last 90 minutes of trading yesterday. I tried to scalp the SPDR S&P 500 (SPY) a few times, unsuccessfully I might add, and the volatility is even more obvious on a one-minute bar for traders.

Maybe I shouldn't admit to some losing scalps when they weren't published. However, if you are going to try and scalp any index, we are back to smaller positions with wider stops. That being said, ignoring stops now in either direction will be very, very painful. Yes, we can get reversals like we saw yesterday, but that is the exception more than the rule.

On the basis of the short-term chart, we are right in the middle of the $181.50 to $183.25 trading range. Momentum indicators and moving averages slightly favor the bears, but I don't see an edge in being either long or short here. Over $183.25 on a 15-minute bar close or under $181.50 should set into motion the next 40-50 handle move in the direction of the break.

SPY, 15-minute

Intel (INTC) will report tonight, and this one has been enjoying the recent resurgence of the old value names that are being bought. I can't say I'm in love with Intel here. There just isn't an inroad to the cloud for it, and "devices" are living longer lives and moving to smaller scales. I see the downside as more than the upside here. On the upside, $27.25 looks like a short-term cap, while $25 could be seen on the downside.

I am going to avoid being long the April 17th options on this one. The current implied volatility is running 50%-60%, while the historical volatility is only 18%, so there is going to be a huge hit on that part of the premium. The May 16th options, on the other hand, are sitting in the 22%-23% range, so while there will still be some hit likely to that part of the option premium, it is going to be significantly less than the April options. 

I am a buyer of the May 16 $26 put and $27 call straddle. I am then going to add some calendar spreads on both sides, going long the April 25 $26 put/$27 call strangle and short the April 17 $26 put/$27 call. The total cost of the trade I am targeting is $1.14 or less. I would normally look at a few additional puts on this name, but there is a lot of volume in the April 17 $28 calls, so I'll just keep it close to the vest here.

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