Weekly Options Recap 10/30/20

Going into last week we had been talking about how the potential was there for some big moves primarily due to the headline risk.

We had the election uncertainty, the increase in Covid-19 numbers, and the big earnings numbers out of the tech stocks like AAPL, AMZN, GOOGL, and FB. While the tech earnings were actually decent, the market still sold off as stocks were already expensive going into earnings.

Markets have been pricing in a lot of good news for months now and were in need of a cool down.

Covid Concerns Continue

The main concern last week was with the pickup in Covid-19 numbers worldwide. We are already seeing new rounds of shut downs being announced over in Europe and it’s only a matter of time before we see it happen here in the U.S. Markets don’t like uncertainty and there is certainly a heightened level of uncertainty going into the winter months of the pandemic worsening.

Will The U.S. Elections Affect The Markets

With the elections on tap this coming week we will continue to see a volatile market environment. We expect to see big moves in both directions which means risk management will be crucial. We plan on continuing to trade smaller position sizes along with more vertical spreads over the next few weeks.

With volatility so high, options prices are also very expensive right now. This is ideal for using more credit spreads at the moment.

Our SPY Technicals

From a technical perspective, we saw SPY break through some key support levels last week. We not only broke through the 50 SMA and EMA but also broke through the 89 EMA as well mid week. We are tracking 2 key support levels on the downside going into next week. We have a swing level at 319.50 from back in September and then the 200 EMA at 319.21. Should we get down to those levels we would expect the bulls to give a good defense there.

Should we rally higher next week we are looking at resistance levels at the moving averages that we broke down through last week. The first area is at the 89 EMA up around 331.

Volume certainly picked up last week with the 100 million share level reached on SPY Wed-Fri. This indicates conviction behind the move lower and makes it easier for us to get in and out of trades at good prices.

In this week’s Options Recap video we cover where we stand on many key markets going into next week. We also highlight a handful of new trades that we are looking at for next week’s trading as well. Take a look and let us know if you have any questions that we can help with. Mike@netpicks.com