Credit Spread and SPX Market Update

Friday saw the market rally after an initial sell-off. Volume expanded modestly on the NYSE, but the NASDAQ was showing signs of resistance among institutional buyers. Despite the rally, the week posted a loss.

The first full week of earnings season has been mixed. Positive earning surprises have outnumbered negative surprises by a ratio of about 1.5-to-1. During Q3 earnings season, positive earnings surprises outnumbered negative surprises by a ratio that exceeded 2-to-1. Earnings growth continues to rise, however it does appear to be slowing. Slowing earnings growth will eventually take a toll.

Looking at the chart suggested that the S&P 500 continues to trade within expected ranges and despite the softness we witnessed last week there was nothing to change our view of the current trend. This morning the markets have sold off, with the SPX now down about eight points. Our prior order should have filled as it is only about a dime away from the bid price, but it has just been sitting there.

With the market not touching the bull put spread order, I took the opportunity to re-examine the option chain. I did not want to shave anything off of the limit price because we are so close to what the market is asking and there is plenty of room for the market maker to make their day's wage. However, the sell-off today does allow me to move the spread a bit further away and still get a good credit.

My prior order has been cancelled and I've moved an additional five points away from the money. I'll shave a nickle or dime off of the asking price, which I am willing to do since I have additional cushion. That order is now open and at last check was within a nickle of the bid price.