Weekly Options Recap 12/18/20

As we head closer to the Holidays, markets continue to stay firmly in control of the bulls. This past week had a number of catalysts to produce a stretch of two way price action but instead we saw another push up to all time highs.

We saw bad economic news brushed off as the Fed wrapped up their meeting midweek and reaffirmed their commitment to doing anything necessary to prop markets up.

We also wrapped up the week on Friday with the S&P 500 rebalancing due to Tesla (Symbol: TSLA) being added to the index. TSLA now becomes one of the biggest holdings of the S&P which can have a big impact on the way the S&P trades going forward. We will need to watch this closely in the weeks to come as it could potentially cause a pick up in volatility.

SPY made a new all time high on Thursday at 372.46. This is now our near term point of resistance heading into next week. Should that level break on the upside we will be looking 373.00 373.50 and 374.00 as the next areas of potential resistance.

 

What’s On The Downside?

On the downside we continue to see the 8 EMA on the SPY daily chart hold as sold support anytime we get a selloff. We tested that level at 368.82 on Friday’s session only to see a late day rally to close back above that level. We need that level to break on a closing basis if we are going to get anything going on the downside. Should that level break the next area of support that we will be tracking is between 365.00-366.00 where the 20 EMA and 20 SMA are located.

For most of last week volume was very light indicating tired conditions in many areas. SPY had a hard time passing 50 million shares traded on a daily basis. Friday say a big spike in volume up to 136 million shares. This was expected due to options expiration and the S&P rebalancing at the close.

Volume will most likely drop off a cliff next week for the rest of the year as we get closer to the holidays. Markets close early at 1:00 pm eastern on Thursday and are completely closed on Friday. If you want to get new trades on next week Monday and Tuesday will be the days to do so. As we get into Wednesday and early Thursday we will most likely see price and volume really slow down.

With markets near all time highs after another huge move higher the last few months we are left with many overbought conditions. Heading into January, we will be looking for markets to begin normalizing. In other words we expect more two way price action ahead. We will be looking to take a more cautious approach on the upside until we get a healthy pullback.

Heading into the holiday shortened weeks the next few weeks we will be looking to trade smaller position sizes (50-75% of normal size). We will also be looking to use more credit spreads in order to get the time decay working in our favor. While we want to be active right into the end of the year, we also want to be more conservative given the slower price action that have seen this time of year historically.

In this week’s Weekly Options Recap Video we take a look at where we stand on the key market driving markets like SPY, QQQ, IWM, AAPL, TSLA, C, and BAC. We also take a look at a few trades on our radar going into next week.

We will will cover our holiday trading approach in more detail. Take a look and let us know if you have any questions that we can help with. Mike@netpicks.com

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