Spanish and Italian bond spreads are widening in Europe this morning. After spending most of March under 5%, Italian 10 year bond yields are 5.3% this morning. Its starting to look like we could see a third year in a row of drama in Europe during the Summer. The market has basically gone up in a straight line for months and will likely use this as an excuse to correct at some point.
My thinking has been that a correction was likely to start somewhere between April option expiration and the Facebook IPO in May. We are seeing weakness this morning continuing from yesterday, partially as a result of European headlines and partially because the market is so extended. The reason I kept put spreads in place was because I recognize the possibility that a correction starts earlier than I am planning for. I still think its unlikely we see significant weakness before April option expiration, but with protection cheap it still makes sense to play it safe.