This was another highly unusual week in the markets. We had no trades in our SPX Daily Outlook due to the extreme volatility in the market. Such volatility is extremely rare, and we’ve never seen 10 days in a row with no trades. In the last 10 trading days we’ve seen 6 days with over 1.4% gap at the open (3 days over 2%). In the last 5 years a gap of 1.3% has been extremely rare. This market is not normal, and such huge gaps with such extreme swings in prices have made the options extremely expensive.
This is makes day trading weekly options, very difficult. Part of being a successful trader is knowing when to trade and when not to trade. In our opinion, when the options are so expensive, it is best not to day trade them. For example, when the option on SPX is near 40 a contract, it means the SPX must move 40 pts just to make 100% profit. That historically has not been a good risk to reward ratio, as even if we see a huge move in the market, we only stand to make 100% and we are still risking a -70% loss. We prefer to trade when we can make over +100% gain with less than a 10 point move.
Over the past 2 weeks, we’ve seen our 3 target levels achieved everyday! So, a trader can certainly continue to use our SPX Daily Outlook to trade the market, if they desire. But we believe it is best to wait. This volatility will settle out. Eventually the markets will return to more normal trading. So, we are keeping our powder dry and will be ready to trade as soon as market conditions are more favorable.
Below are our comments for each day of this past week.This content is for members only.