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SPX expected move for February 27, 2015

Once again investors in Wall Street freaked out about oil and continued selling energy stocks. That would affect our put spread positions in OXY, LGCY, and EVS, which sold hard today. But these trades are a long term trades and thus today’s sell off is not a concern to me. They can freak out as much as they want in Wall Street about oil. I know, oil will not stay this low forever and well established companies such as those mentioned above will go up again.

And it can happen even next month.

What I do care about is my weekly position in SPX. We have a bull put spread open and that trade is set to expire tomorrow. In order to profit from this trade, the market must stay above 2085 by the end of tomorrow’s trading session.

From current levels, the market would have to drop by 25 points. Is this realistic? I believe it is not given the current volatility level.

The only catalyst which may move the market significantly down is tomorrow GDP reporting.

There can be two scenarios with the GDP:

  • the results will be good and markets will cheer it up
  • the results will be good, but the market sells off due to a fear that good results may prompt FED to raise rates earlier (although Yellen assured everybody on Wednesday that this wouldn’t happen)
  • the results will be bad and the market sells off due to renewed economic worries
  • the results will be bad and the market goes up because that will hold FED from raising interest rates

So, as you can see, no one knows what would be the outcome, only crazy investors and traders at Wall Street will know and tell us via a price action of the SPX.

So here is my view where the market may end up tomorrow (of course, this is not a 100% guarantee that it really happens, but statistically more probable).

SPX expected move

How to read this chart:
– The grey box indicates the boundaries where I expect the market to stay next day
– The horizontal magenta long-dashed lines are bearish levels, the second lower line would be a normal max low level, the third lower level is considered as extreme move
– The horizontal yellow long-dashed lines are bullish levels, the second higher line indicates a normal move, the third upper line an extreme move.
– The cyan line is the mean level, where the market would tend to return from extremes
– The long-dashed red line is the same mean level as the cyan one, but for the entire week, while cyan line is for the next day only
– The short-dashed yellow and green lines are the same levels as the long-dashed, but for the entire week, while long-dashed are for the next day
– The lines with a price tag indicates an open trade, the solid line is the critical position. The trade must stay above or below this line (depending on the trade)
– The dashed line with a price tag is a protective option

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