by OptionPundit on July 30, 2010
For the past few days, Markets have shown amazing resilience to make a comeback from triple digit losses (I am referring to Dow) netting out no significant change. But one thing is for sure, intraday moves are becoming larger. So pls start to pay close attention to market internals. I don’t know which direction markets are headed, but what I sense is a nervousness on the part of market participants. Neither bull nor the bears want to take any strong position. As I mentioned earlier, Ms Vega is here to stay for while and it’s better that I start to pay more attention to her.
I haven’t seen wider media mentioning an important change that has occurred and is continuously changing option trading landscape, and it is introduction on weekly options. Sometimes, opportunities are better without much fanfare. Earlier what used to be a monthly opportunity, is now being offered 4x. Welcome to the amazing world of weekly options.
The introduction of weekly has offered options traders far more opportunities. Albeit, it is a double edged sword. If not managed properly, it is also a recipe to lose money faster. I have been analyzing weekly and posted some nice real time free ideas where we booked gains like +25% on AAPL, +13.6% on FSLR, +19% on BIDU and many more. However, due to recent increase of volatility and intraday move, a stable income generating strategy is not in place yet. I shall update here once we have something in place, I am continuing to experiment with real money. Click here to stay connected for real time alerts.
So you don’t miss the power of weekly, let me give you an example- next week’s GOOG 490 Call, as of this writing when GOOG is at 482, is $4, so google needs to move $12 before these calls will be in the money. If you are a premium seller and look at Theta alone, that can bring about 10% of the cost of options/day, of course assuming GOOG remains below 490 by next Friday. While on the surface, it doesn’t seem like a big deal, but when you start to think of rolling weekly over to next which is hedged by leaps, the results can simply be amazing with potential to deliver over 15-20% /month. For the latest list of weeklies, pls click here.
Watchout- The theta and gamma are something to watchout for. Pls ensure you understand greeks well before you plunged into the weeklies.
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by OptionPundit on July 28, 2010
Pls allow me introduce you to Ms Vega.
Ms Vega is my personification for Implied Volatility. As of this writing, there is almost 3% IV difference for SPY ATM options, VIX is at 24, VIX Oct futures are at 30, a 25% difference!! Though nothing is certain in the markets, this skew does indicate that market participants are “unusually uncertain”.
Stock markets are an interesting place as Market participants tend to have a short memory. With a few percent market rally, bears turn into bull and vice versa and most often the reason is “when the facts change, I change too, what do you do sir”?
A lot of technical chartists have turned bullish, Dow Theorist Mr Richard Russell has indicated that both Dow Industrial and Dow Transports have indicated bullish signal by closing above June high. Mr Russell also gave dire warnings and suggested members to tell friends that hard rain is coming, they sell everything and that by the end of this year they won’t recognize America as it appeared to him that it was one of the most predictable and dire market top. Don’t get me wrong, my intentions are not to disrespecting anyone here, but the point I am making is that Mr Market can humble anyone, anytime. Now just because Dow and Transports bettered June High, doesn’t mean we are in a primary Bull market, both of these needs to prove by crossing their April high first before anything meaningful can be concluded, else we are stuck in this sideways zone.
One of my favorite thinker is John Hussman. He doesn’t like what he sees from the economic fundamental perspective. Once ISM Purchasing Manager’s index data drops below 54, it is highly likely that we are about to see double dip. Pls click here to read in details. Another thinker, Bond King, Bill Gross of PIMCO thinks that world is lacking in “aggregate demand” and has not yet adjusted to the new normal. His latest investment outlook discusses the impact that slowing world population will have in the “new normal” environment.
PIMCO’s continuing New Normal thesis of deleveraging, reregulation and deglobalization produces structural headwinds that lead to lower economic growth as well as half-sized asset returns when compared to historical averages. The New Normal will not be aided nor abetted by a slower-growing population nor by cyclical policy errors that thrust Keynesian consumption remedies on a declining consumer base. Current deficit spending that seeks to maintain an artificially high percentage of consumer spending can be compared to flushing money down an economic toilet. Far better to create and mimic other government industrial policies aimed at infrastructure, clean energy, more relevant education and less costly healthcare services. Until we do, policymakers will continue to wave their hands in front of the electronic eye – waiting for the flush, waiting for the flush, waiting for the flush, with very little success. Try another way, Washington. El-Erian, Sachs and other 21st century policy thinkers have a better way to push the handle.
Pls click here to read the full outlook.
We are in a range 11,250 and 9,600. Unless any of those are gone, we are in a range. We may expect sudden burst of euphoria or panic sell-off but nothing is really being achieved. For option traders, this can be a good thing depending upon how one uses it and what sort of risk management strategy is used. There are lot of option trading strategies that can be used for sideways markets including the most widely followed Iron Condor strategy. Calendars can be tricky unless chose carefully. Though the strategies that worked in traditional markets may not work so well and returns may not be spectacular but I think Option Traders are still probably better placed to benefit from this sideways move.
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Until then, keep trading the options way and start to love as I call Mr. Theta and Ms Vega.
Profitable Trading, OP
