May 12th, 2008
**Read my monthly column "Futures for You" in Stocks and Commodities!!
The long bond found a bid despite stronger equities and weaker crude oil. Today was a slow news day, but that will all change mid-week when the latest CPI data will be released. Bond traders have been struggling between inflation concerns and worries over the stability of the economy. Accordingly, this release may have a bigger reaction than what would normally be the case. In fact, the market may have a hard time picking a direction in tomorrow's session in anticipation of Wednesday morning data.
I had originally anticipated 119 to be resistance, but given the last two trading sessions the volatility doesn't seem to support this assumption. Instead it seems as though 118'03 will be a major obstacle for the markets and may mark the near-term high.
The recent decline in volatility is preventing me from recommending premium selling in this market. In recent newsletters I was hoping for a rally to resistance levels in order to begin selling call options, however at this point I would like to see an increase in volatility before doing so. In other words, if circumstances work in our favor the CPI report will spark a spike high to create higher implied volatility built into call option pricing to allow short calls positioned well out of the money.
On the other hand, with premiums relatively cheap you may want to buy a June 115 put for 10 ticks or less as a lottery ticket play, and possibly even a 120 call for 10 ticks.
Option Recommendations
**There is unlimited risk in naked option selling.
Flat
Futures Recommendations
**There is unlimited risk in trading futures.
Flat
Carley Garner
Alaron Research Team
800.935.6492
cgarner@alaron.com
www.CommodityTradingSchool.com
There is substantial risk of loss in trading futures and options.
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