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Our February Trades Are All Looking Positive

By Jeff Brown on January 30, 2017

The markets inched higher last week… Both the Dow Jones and the S&P 500 rose about 2%. They were slow and gradual rises, which brought market volatility down to near-record levels. The Volatility Index (VIX) closed Friday at 10.56 – one of the lowest closes in the history of the index.

However, this morning we saw the opposite. The spike in volatility that we had been waiting for came. The VIX popped up more than 16%. Correspondingly, the broad markets have all pulled back an average of around 1% as of this writing. This is normal when we see a spike in volatility.

But even with the jump in volatility, all three of our February expiration credit spreads are looking great.

And we are now about 45 days away from March option expiration, so please keep your eyes open for new Four Point Trader alerts.

February Spreads

Feb 2017 $116/$111 bull put spread on the iShares 20+ Year Treasury Bond ETF (TLT)

Last week, TLT reversed a little, going from $122 to $119.71 per share as long-term yields rose slightly. But given the increase we have seen this morning in volatility, we may see some increased buying in bonds, which are seen as a place of safety. This would be great for our credit spread as it will likely cause an increase in the price of TLT.

TLT is currently sitting on its 50-day moving average (DMA) and is trading positively in light of the increased volatility.

The TLT bull put spread is a HOLD.

Feb 2017 $115/110 bull put spread on the iShares PHLX Semiconductor ETF (SOXX)

SOXX had a strong week last week, rising 4%. It is now trading a full $15 above our short-option strike price of $115. Semiconductors do well when investors believe the economy is strong. And that has been the current sentiment in the market, which is great for this position.

I expect that we’ll be able to let this credit spread expire worthless.

The SOXX bull put spread remains a HOLD.

Feb 2017 $130/$125 bull put spread on the iShares Russell 2000 ETF (IWM) 

The Russell 2000 had a solid week, trading up about 2%. Meanwhile, IWM’s 50-DMA provided support, and the price bounced higher after testing the resistance point. A bounce off the 50-DMA happens frequently, as many traders look at this for support and start buying.

This morning’s action has pulled IWM back down to the 50-DMA, as you can see below.

I expect to see another bounce off the moving average, just as we did last week, as the Russell 2000 continues to trend neutral to bullish. Assuming this happens, it will be perfect for our bull put spread.

We currently have a $4 cushion on the trade, and we will watch carefully for any downtrends that might affect our position.

The IWM bull put spread is a HOLD.

Regards,

Jeff Brown
Editor, Four Point Trader

P.S. As always, if you have any questions or feedback, please send them to BonnerBetaTest@bonnerandpartners.com.

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