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William Frejlich

William Frejlich's philosophy is that money management is the cornerstone behind any successful trading plan and his weekly newsletter and trade tips emphasize that philosophy. Contact Mr. Frejlich at (312) 264-4356

In early July I wrote a special report about Covid 19 and what affect it may have on futures markets. For this tip I will refer specifically to the stock indices. At that time they had crashed during March and were in the midst of a very strong V-shaped recovery. At that time the S&P had fallen from lifetime highs at 3480 all the way to 2150 during a two week stretch in March. I commented in July that I felt lifetime highs could be seen before years end and in fact futures did rise all the way to 3576 on September 2. They then saw a correction to 3198 by September 24, climbed back to 3541 by October 12 and currently are trading at 3440. I am now looking to purchase e-min S&P puts and will have suggestions for both the December and March options.

The reasons are twofold. First is the coming Presidential election in two weeks on November 3. Obviously this year’s political atmosphere has seen the most extreme  polarization in that arena in history and the election and the days following the election almost certainly will be the most contentious ever as battle lines are drawn. Each side feels this is the most important election we have seen or will see in our lifetimes and the odds look high that we will be seeing much unrest in the country one way or the other. Looking at this from strictly a market effect standpoint, markets do not like unrest. If the elections comes and goes without much fanfare these puts may never pan out depending on the outcome. However, as many believe it is certainly possible to see mass protests and rioting in the weeks following the election and if the results are disputed, this uncertainty could very possibly result in traders heading for the sidelines sparking a sharp pullback. The second reason I am suggesting put options here is the long term effects Covid may have on the economy in general. Obviously while certain sectors have thrived like never before, many small businesses may have to permanently shutter their doors and the restaurant and entertainment industries will take a long time to recover.

For these reasons I will be suggesting a combination of December and March put options. For the first part relating to the election I would suggest December puts as they do not expire until December 18, 2020 a good six weeks after the election date. For the longer economic term factors I would use the March puts as they do not expire until March 19,2021. Either way I am expecting a rocky ride and these options may offer a hedge to a nervous stock market.

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Bill Frejlich

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