Federal Reserve Chair Jerome Powell's speech gave the stock market a jolt higher, reaffirming expectations for interest rate cuts going forward. Still, I believe the Fed will remain data dependent, which should temper euphoria and keep the S & P 500 in its 2024 range. I want to embrace this range and position accordingly for U.
S. equites to again cool off going into September. Volatility has been the overarching theme for August, and I believe the recent uber-sensitivity to macro data will keep markets extraordinarily spastic.
Uncertainty persists as various data points have suggested slowing growth but, earnings season once again has pleased investors. Additionally, several global macro headwinds have not abated and should continue to drive questions marks into investor sentiment. I remain optimistic in 2024 yet, I believe that the Cboe Volatility Index will continue to gyrate between now and Election Day in November.
Since I see a range trading opportunity in the S & P 500, and we are indeed at the high end of the 2024 range, I want to sell a call spread to create income on a potential move back lower in equities. However, with Nvidia earnings on tap, this market has the ability to keep recovering and push to new highs if the AI darling blows away expectations (again). Using a call spread defines the risk and caps losses in the event new all-time highs follow the Nvidia earnings report due out Wednesday.
The Trade (selling a call spread) Sold the Sept. 20 $565 SPY call for $6.20 Bought the Sept.
20 $580 SPY call for $1.30 Collected $4.90 per one call spread sold This trade was established when SPY was trading roughly $559.
75 and before Fed Chairman Powell spoke on Friday Using spreads to create income either by selling put spreads at the perceived lower end of a range or selling call spreads at the high end of a range allows investors to produce income and define risk in the event a new range is established. DISCLOSURES: Kilburg is short this call spread and long SPY. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium.
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