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An Interesting Week

Published on September 16, 2007

An Interesting Week

September 16, 2007

(for details pls visit www.OptionPundit.net)

An interesting week as it was and of course a great week ahead, Fed cuts Fed cuts not?

Other then Gold and Wheat, there was nothing much interesting past week. This was, however, one of the lowest pre-expiration weekly gains for my portfolio, simply because “Theta” refused to give any gains. Just for the sake of argument, if by Sept’07 expiration, markets stays where it was at the end of Friday, and IV stays where it is, the returns are going to be spectacular +15% just next week alone. But that is not going to happen. Interest rates’ cut will be announced on Tuesday (I don’t see a reason for a cut but I shall be glad for a cut as it will bring down my mortgage cost). Folks on Wall Street are not chatting “if” but “how much” rate will be cut? Interesting ! If there is a cut though, watch out for Gold.

This week was also another winning week as it resulted over +5% gains. From a poor starting for Sept portfolio due to huge ups-n-downs in mid-late Aug, OPN portfolio is again geared to deliver double digit monthly gains. I am at crossroads though as most of my gains will come next week, but at the same time, this is also going to be a very volatile week. My bias is to close portfolio before 2:00 pm EST on Sept 18th with whatever gains I accumulate.

  1. IV will drop sharply after the announcement, while shorts will benefit, Long will hurt more.
  2. It will be a wild swing, no matter what the announcement is going to be.

spy-iv-sept-2007.gif iwm-iv-sept-2007.gif

If you haven’t yet noticed, let me show you two charts (SPY and IWM) that show how short-term ATM IV is rising for both SPY and IWM, leading to FOMC announcement. This will go down after the announcement so craft your strategy that will help you from 1) Large movement in either direction and b) IV Skew (but do take a note that long IV will also fall but probably not so much).

Later I shall also share on what are key Support/Resistance points where market may move after the announcement and hopefully if I get time, I shall also share few trade’s examples. Stay Tuned.

Hopefully you saw my comment on closing the CAM double diagonal in time to close the trade for almost break-even. Even if you didn’t see that, it can still be closed for almost break even. When I saw it breaking out, I quickly changed my trading strategy and made it part of my Oct’07 OPN portfolio.

Stay tuned, Profitable trading, OP

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