Will the SPX be 2700 or 2800?

Is 2700 to 2800 the new range for SPX?

The SPX is bound to move to 2700 or 2800 within a month.  Floating ballons on possible trade concessions show the SPX and NDX are very susceptible to a move in either direction.  As it stands right now, VIX will have its third up day in a row with SPX higher or flat.  I noted earlier in the week, this is the work of a market looking to go somewhere, just not today.

How to position for a large move

The bigger question is how to position for a move.  Usually a downdraft is a short term thing and very quick.  If the Trade Talks break down they are more likely to do that prior to March 1.  Any negative should send SPX down 1% or more on the Chinese talks failure.  Even very poor retail sales could not pull down the market for long.  I view this as SPX wants a trade deal in the worst way.  SPX is in the same place as it was at the start of 2018 so the year of big earnings growth is discounted.

Chart from Cboe Livevol Pro

Dueling SPX time spreads

Buying straight straddles or premium is a no go for some so there is always the trusty time spread.  A time spread usually only works if the market moves to the short strike.  If we have 2700 or 2800 in our sights that makes the time spread a tough trade since either side is possible.  We could look at a double calendar where we own the post-Mar1 premium and sell the near term premium.  The problem there is closing since all the terms for the short contracts will be in same term and all the long strikes will be in the same term.  As a trade the put spread side at 2700 might not pay enough if we tank.  If anything we want an easy close on a trip to 2700.

Change the term, change the gamma

A concession could be buying shorter term 2700 time spreads with the long side prior to Mar 01 and buying long delta time spreads for 2800 after Mar01.  This way bad news will close out the 2700 spreads early and we can hold the longer term 2800s for a move higher later.  Just a thought to use  the gamma of each trade to best effect if an SPX strangle is distasteful.

Disclosure: SPX, SPY, VIX positions

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