The SPDR S&P 500 ETF (NYSE:SPY) seeks to provide investment results that, before expenses, generally correspond to the price and yield performance of the S&P 500 Index. To minimize the composition and weighting variance between the SPY and component stocks of the S&P 500 Index, the SPY periodically adjusts the portfolio to conform to changes in the identity and/or relative weightings of the index’s composition.
Now that the Fed has issued their statements, the market seems to be coming to grips with the notion that the punchbowl of free money might be down to the last few ladles. With 10-year interest rates hovering near record lows at 1.6%, and short-term rates at virtually zero, there is little more the Fed can do from a stimulative standpoint. The Fed also just upped its forecast for year-end unemployment and lowered GDP estimates as well.
While corporate balance sheets are in good shape, growth prospects remain muted, especially given the detrimental effect of the strong dollar for multinational companies, such as Procter & Gamble (NYSE:PG), PepsiCo (NYSE:PEP), Coca-Cola (NYSE:KO), etc.
Given this lackluster environment, with valuations neither expensive nor compelling, and barring any significant disruption in the Euro situation, I look for the S&P 500 to remain range-bound for an extended period, with a price target for the SPY of $135 by September expiration.
Based on SPY’s closing market price of $132.44 for June 21, and using a target price of $135, and a target date of Sept. 21, 2012, option strategies to consider include buying an October put butterfly, buying an October put condor, buying an October call spread, or using another options strategy that best fits your trading style and risk-return objectives.
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As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities.