Selling August call spreads on S&P Futures

Yesterday we had the FOMC announce that they were leaving interest rates at 2%, and more importantly, their statement was
“Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.”
This lead the markets to continue their upside move for the day. As today unfolded, we looked to see if yesterday’s move was again a one day wonder, or if there was support for a further rise. Although the markets opened lower this morning, we did see a gain to the upside in the major indexes.

In analyzing the daily chart and technical indicators on the S & P September futures, we believe the rally is losing strength in the short term. Although price has moved higher in the past few days, we are not seeing the same in the Relative Strength Index, (RSI) (see the arrows on the chart).
We recommend selling the August 1325 call on the S & P September futures contract and buying the August 1345 call for a collected premium of 1.80 points or $450 less commission and fees. The spread is 3% out of the money, and we feel will not be reached within the next 10 days. Margin on the position is less than $3500 and maximum risk is 18.2 points or $4550 plus commission and fees. (1345 - 1325 = 20 points -1.8 premium collected = 18.2 points.)We would look to risk $600 on the position. Return on risk would be 9.89% in 10 days if options expire worthless.To discuss setting up a monthly S&P Income generating program for you, give us a call. 908-787-2089

Stephen Zielinski

Mercury Capital Management, LLC

Website http://www.mercury-capital-management.com/

There is a risk of loss trading futures and options. Past performance does not necessarily indicate future results. Trade with risk capital only. Commodity trading is not appropriate for all investors. This recommendation is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures and options trading involve risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this market letter be construed as an express or an implied promise, guarantee or implication by or from Mercury Capital Management that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance.