March 17th, 2023

Leprechauns vs Witches Battle Today

Today is St. Patrick’s Day and over the past 25 years the S&P 500 ended higher 77% of the time on March 17th, with an average gain of 0.94%.  

After the recent banking mess and a week of volatile trading before the Fed announcement next week, it would be nice to see a 1% rally.  

Let’s think about this for a second.  What’s the next “big” level in the S&P 500?  Aren’t we trading right around 4000?

Here’s a chart using the ETF, SPY.

The current price is 396.11 and what’s an additional 1% from the current price?  Wouldn’t you know, it’s 400.

Look at the open interest on the 17-MAR expiration of the SPX (10x the SPY).

There’s a combined 239k contracts at the 4000 level. There is a lot of open interest just 1% away from current prices, and history is saying there’s a good chance we could see some green at the end of the rainbow.

But WAIT!

What’s the second part of the headline for this article – something about witches? Yes, today is triple witching day, which means it’s one of four days a year that stock options, stock index options, and stock-index futures contracts all expire on the same trading day!

It turns out that triple witching is neither bullish nor bearish, but it does bring an increase in volatility, especially the last hour of the trading day, known as the “witching hour.” Traders are often left scrambling to close, roll, or offset expiring options.

If you’re looking to sell premium, tomorrow should bring the volatility and that should raise option prices, which are already elevated due to the banking crisis and the upcoming Fed meeting. It’s a good time to be a premium collector.

So, who will win the day? The seasonal St. Patrick’s Day rally? Or will the witches cause havoc on an unstable market?

Are you ready for either scenario?

Stocks in the Nasdaq have outperformed throughout the recent banking crisis. That brings us to a possible trade idea today.

Wingstop (WING) has been on a run since the start of 2023, and continues to break higher while the rest of the market is in turmoil.

What is interesting about the stock is that since 2/15, the stock struggled to get above 176. You can see the wicks on the top of the candles for the last month, meaning that each day the market tried to break above 176, it was brought back down lower. And then yesterday happened.

While I don’t like selling bull put spreads on up days, I would watch the next day or two and see if we get a pullback, as long as it stays above 176.

How could you trade it? Well, if you sell the 21-APR 160 put and buy the 21-APR 155 put, you can collect 0.85 in premium right now (I wouldn’t take less than 0.70), and if the stock does pullback some, that premium will go higher and give you a better entry.

Normally I’d want to see 1.00 or even 1.25 or higher in credit for a bull put spread, however I like the seasonal probability, the chart pattern, and the support line. The trade idea is below the support line, so that’s why I’d be willing to take a little less than my normal credit, but it doesn’t hurt to put the order in for 1.00 or more and see if you can get filled.

That’s it for me this week. There’s a lot of chop in the market and next week’s Fed meeting can bring more volatility. Take it easy with position sizing. Make sure you’re comfortable with the trade size because you never know what tomorrow will bring.

Have a great weekend and have a safe and happy St. Patrick’s Day!

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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation.