Well — the Spoos were able to rally out into the end of the day — and to end the week. If you missed the end of the trading session — you missed the final leg up and HOD for the session in the Spoos (ES). The title gives away todays “trading blog”… I trade the S&P 500 — and when I trade the minis, I prefer to use weeklies to manage my RISK. Keyword being – RISK.
The Spoos are one of the most widely traded futures in the universe — that being said, this is why they “move” they way that they do, many eyes and participants around the world trading the same thing… While most people were focused on the December contract for the ES (as roll is approaching here), I was still focused on the September contract. — This is because I was trading the Spoos through the ESU5 (wk2) weekly options. With the ability to trade the weeklies (every 7 days lol), it creates an unbelievable amount of leverage and volatility for the ES, especially come expiration time (as we saw today, and every Friday).
Most investors look at the market so simply; “it has to go up because that data was good” or “there is insider buying, stock will go up”, — those two hypothetical outlooks are not very far fetched — but as “simple” as it all sounds, the market is not that simple. *This brings me to my point of todays post, — MARKETS DO THINGS FOR REASONS MOST INVESTORS/TRADERS AREN’T EVEN THINKING OF…
What does this mean you may be wondering?
Basically– this means that although we are always looking for the “obvious or simple” explanations as to why the market DOES or SHOULD do something — the true catalyst is usually a COMPLETELY different reason. So, the same concept mentioned that we had weekly ES options expiring today at 3pm… THIS is the reason we had our final leg up into the close and through the 3:15 close for ES. It’s easy for the markets to move when traders can leverage up and define their risk (EVERY WEEK!)… So basically, we have an opportunity to move BIG, and QUICKLY as we approach the end of every single trading week (assuming there are options expiring because most products I trade have weeklies). So although AAPL was bid basically since the open, and really started picking up steam into the end of the session, I wanted to say “this was the reason that the ES ended up rallying (and it’s the obvious part of it) — but it was really the ability for traders to manage their risk (so efficiently and not costly) that gave us the ability to Move the way we so often do, especially into option expiration Fridays.
So by using the weeklies — I was not only able to scalp ES to the upside (but I could do it with defined risk, and for free based on the put spread I sold to pay for my put protection as I was long ES future/option. Just like any “trade”, the more I focus on the weeklies, the more I learn about them, and the better I manage my risk as I speculate in the S&P 500 every week.
Besides the positions I consistently manage in Gold GC and Crude Oil CL — The ES is my third most traded product, and it is quickly moving up my preferred list (because of the ability to trade weeklies).
So I choose to focus less on the “analyst noise and old trader tales”, and I study more and more – into the mechanics and boring stuff that REALLY makes markets move!
Let’s try again next week. Have a GREAT weekend! – Happy Trading.
-Bret Rosenthal
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