Last week the market was uncertain about the destination of the further movement of the S&P500 futures. During the entire week the index was moving within a narrow price range (1318.75 - 1336.5). Another earthquake in Japan restrained its further growth, as the Japanese nuclear plants were under threat once again. Moreover the Fed Reserve’s quantitative easing (QE2) is nearing its end. It is not clear whether there will be QE3 or not. Moreover, traditionally April is a bearish month (the period of paying annual taxes), which is also restraining the rally. At the same time the strong zone of support located between 1300 and 1310 prevents the trend for reversing. Consequently the price may come out of the range in any of the 2 directions.
Last week’s actual volatility was below the average – the weekly range was narrow as 17.75pts. The daily volatility was fluctuating from 8.25pts (Monday) to 17 pts (Friday). According to VIX, the expected volatility was low as well (16.5-18.33 pts). The area below 20 is the zone of low volatility. At the end of the week both the actual and expected volatilities were expected to surge because of the situation in Japan.
The forthcoming trading week is going to be rich in significant news releases:
The following news events should be paid special attention to:
· Trade Balance – April 12th
· Retail Sales – April 13th
· Unemployment Claims – April 14th
· Consumer Price Index – April 15th
Besides, Thursday’s G8 summit and Friday’s G20 summit are worth paying attention to. These events may also increase the actual and expected volatility. The main trading tactic is the same: buying volatility right before the news releases according to option strategies. In case of volatility spikes (as long as they are short-term) defensive volatility sales will be suitable as well.
Provided by the Department of Options,
