Options Outlook For The Week Of April 14: An Ugly Last Week Drives Swings In Price Actions

Ugly week of trading where trader sentiment is likely driving wild swings in price actions.

So riddle this: "Are we not supposed to fight the Fed? or are we not supposed to fight the tape?"

Monday, experts were saying we're going lower so don't fight the tape.

On Wednesday, the same guys were saying don't fight the Fed the selling is over for now.

Then we get Thursday which was the worst day for the Nasdaq in over two years.

Conclusion: no one really knows what will happen.

The fundamentals remain virtually unchanged for the past year: The Fed is still dovish and supportive, China is still in question, Japan can't get out of its doldrums, the US recovery is too slow (which is why rates are going no where fast), Europe is about a year behind the US in their recovery efforts.

The only new variable is the Geo-political unrest on the Russia/Ukraine front. Even there we haven't had any escalation of rhetoric in a while. In addition, this week the west realized that we have more to lose in reciprocal sanctions than the Russians so traders can presume that nothing major will happen.

The only possible fear headline will come over the Ukrainian elections and it will be internal to Ukrainian skirmishes.

Trades: If last week taught traders anything is that these are dangerous times for trading. Both longs and shorts had hurt trades this week. So, traders should work hard to find REAL value and try to go long it via debit call spreads or leaps.

For example, don't try to catch a high-flyer with really high valuation.

Candidates would be Mastercard MA, Visa V, Goldman Sachs GS, Starbucks SBUX, Amazon AMZN (crazy yes, but it's a Gorilla that can't be ignored).

Consider hedging bets by buying put spreads in indices and/or other frothy names like Tesla TSLA, LinkedIn LNKD, Intuitive Surgical ISRG, where valuations are insane.

Traders can also sell spreads in Apple as long as the markets are willing to defend its 505/515 band. Last time it got tested, whales piled into it including Apple itself bought its own stock and on the open market.

* The trap: Be mindful of the trap that still is killing the markets. This is the inverse relationship between the YEN and TLT vs. the markets and the 10-year.

These are inversely trading tick for tick for the past two week. My interpretation is that the "Yen carry trade" is under severe pressure and money has to leave markets to cover losses and margin calls. Essentially, markets are the piggy bank to cover the carry trade losses.

Check out the video below for a recap of this week's outlook: