Thursday Fervor – Draghi Catches the Markets as they Fall

SPX DAILY"Help me now I'm calling you

Catch me now I'm falling

I'm in your hands, it's up to you

Catch me now I'm falling
." – Kinks   

We told you we would be DOOMED!!! back on the 11th if the Russell were to fail 1,050.  That was 5% ago and we expected the S&P to follow to 1,890 (10% off 2,100) and we've overshot that to the downside, all the way to our major support line at 1,850 on the S&P 500, which lines up with:

  • 15,840 on the Dow (-10%)
  • 4,000 on the Nasdaq (Must Hold)
  • 9,350 on the NYSE (-15%)
  • 960 on the Russell (-20%)
  • 15,750 on the Nikkei (-25%)
  • 9,350 on the DAX (-15%)

So the Nasdaq and the S&P are the only major indexes not to have gone negative (so far) but both are on the edge and, if they fail to hold their Must Hold lines – there's no reason to think they aren't going to join their brother indexes in stock market Hell.  So, let's not cry about it but rather come up with some hedges that will pay BIG MONEY IFF that happens.

The S&P's ultra ETF (SDS) moves up twice as fast as the index moves down and is currently sitting at $24.  If we assume just another 5% drop in the S&P, that's a 10% pop in SDS to $26.50 and our worry window is short, so a trade we can protect ourselves with is:

  • Buy 50 SDS March $24 calls for $1.70 ($8,500) 
  • Sell 50 SDS March $27 calls for $1 ($5,000) 
  • Sell 3 AAPL 2018 $80 puts for $10 ($3,000) 

That net's just $500 in cash on $15,000 worth of spreads and you do have an obligation to buy 300 shares of Apple (AAPL) at $80 ($24,000) if it drops another 17% so you need to REALLY want to own AAPL if the market tanks but, of course, you'd also have your $14,500 gain on the…
continue reading