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Good Market For Time Decay

Published 05/18/2016, 04:47 PM
Updated 07/09/2023, 06:31 AM

The bulls and bears are in stalemate. Whenever the S&P 500 index starts to approach recent highs, the bears pull it back. For example, look at the SPX chart for April 20th. Intraday, SPX hit the high from last November around $2111, but then it pulled back and declined until May 6th, when it bounced off strong support at $2040. Both yesterday and today, SPX has tried to break down below $2040, but that support level has held thus far. Economic data in the U.S. support the so-called Goldilocks scenario: not too hot, but not too cold.

Whenever the market breaks out to the upside, the bears take control and pull it back. But the bulls take control whenever the bears pull the market down toward support levels. Today was a good example. Traders didn't like the implications from the FOMC minutes that a interest rate hike appears more probable for June. So the markets plunged. SPX hit $2035 but then the bulls pushed it back up to close at $2048.

Markets hate uncertainty and this presidential campaign provides ample material for traders of all stripes to be concerned. When you combine the political uncertainty with mediocre economic data, a volatile, sideways market is the result.

Iron condor spreads on the broad market indices are a good choice for this type of market. Those options gradually lose value as time passes and the market wanders sideways. But these positions need to be managed. If the market trends strongly in either direction, the position must be hedged and/or adjusted.

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