Move of the Week: July 11, 2022

This week we have the inflation numbers coming out on Wednesday.

My general thesis is, at least on the S&P 500 Futures (/ES), we may grind around or chop slightly higher into 3925 or perhaps a little more, and then head downward. The inflation number announcement on Wednesday is probably the catalyst for that move south. A couple of daily closes above 3925, especially Wednesday or after, would have me revisiting my bearish bias for adjustment.

So since I’m bearish, the key points for this week’s trade:

  • I want to be far, far out of the money. The inflation number will almost certainly result in some volatility. So I want to be well outside of whatever happens, to the tune of several hundred points.
  • I want to be further out in time. Typically I like to go 3-4 weeks, but this week I’m looking out six weeks into the future so I don’t set myself up to take as much heat on Wednesday if everything crashes and burns. Of course since I’m selling naked /ES puts primarily, I can always roll to buy more time, but I’d like for things to work out obviously without tying up too much margin in to recover a trade.
  • Later this week I may also come in and sell the call side to create a short strangle, but I wouldn’t do that until after the inflation numbers are released and the market adjusts to that.

After letting the open play out and seeing that sharp move down into the mid-3800s, I think this 10 delta ES put 46 days out is a good play – you’ll bring in a little over $1,000 in premium on about $4,600 in margin, for an annualized return on risk of 172% if you let this expire worthless. Of course we’ll target to buy it back about halfway, at around 10.50, for around a $500 profit.

The move: SELL -1 /ESU22:XCME 1/50 AUG 22 (Wk4) /EW4Q22:XCME 3370 PUT @21.25 LMT

Move of the Week 7/11/2022
Move of the Week 7/11/2022 – trade statistics

 

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