April | 2014 | TheAcsMan

After yesterday’s really unexpected gain, that was simply a re-affirmation of what everyone should have already known, that Janet Yellen was more dove than hawk, it looked like today may be a day of rest.

Worries about low inflation seemed to be just the thing that the market wanted to hear and confirmed that the Federal Reserve would continue to be a friend. Of course, when you come to rely on someone or something so much you also set yourself up for disappointment. It’s sort of like the crash after a sugar high.

That’s what today was , as suddenly there were fears of higher interest rates.

Where is the logic or reasoning behind that? What could have possibly changed to drive the markets to wipe out a nerly 200 point gain the day before? Granted that gain may not have been warranted, but as most everyone’s mother used to say “two wrongs don’t make a right.”

But as with most days whatever signals may be sent early in the morning before the official bell rings may not have much bearing on what’s to come. Lately there has really been a dearth of substantive news and the markets have been reacting in fairly random ways, certainly not following any patterns or themes.

Add today to that list of days.

If you listen to the talking heads you can distinguish this recent period from others in the split between those thinking we’re going higher versus those believing that we’re bound to go in the opposite direction. Contrast that to times when there is a preponderance of opinion in one direction or another.

In the latter cases it often pays to be a contrarian, but when everyone seems to disagree about what happens next the market seems to make geniuses out of everybody, depending on what day it is. Alternating ups and downs with much fury signifying nothing.

Following today’s sell off the preponderance of thoughts was that we are now heading for a long overdue correction.

Ultimately, if I could choose what kind of a market I would like to be trading in, this is the one. Markets that go up and down, just as individual stocks that go up and down, yet don’t advance or decline very much on a net basis are absolutely the best to be owning stocks if you actively manage them and capitalize on their perceived value to others.

Hopefully you didn’t go down as much as the market did today and hopefully you are ahead for the year. This is the kind of market where that should be an achievable goal.

With more new purchases this week in quite a while I would like to see the week c
ome to an end with either a lot of assignments or at least rollovers, but that’s not much different from any other week. After today’s session I’d be more than happy to just get rollovers, remembering that last week ended with a sell-off, as well, and I felt relieved to have gotten out of it with a nice combination of assignments and rollovers.

What was different about today as it began was that I was anxious to see the same thing happen again next week although I had still preferred to see myself better diversified in terms of contract expiration dates.

When the day settled out I find myself still anxious to do the same next week but uncertain just how much I’m willing to commit to new positions if there aren’t sufficient assignments tomorrow. It’s again a question of are these prices now opportunities or traps, but I sure would like to have some excess capital in hand to be in a position to find out for myself.

But that too will happen again as it seems that volatility has been experiencing some kind of cyclic pattern in the past couple of years having spikes, valleys, mini-spikes, valleys and spikes again over a 4 to 6 month span.

Just about a month ago we had one of those mini-spikes and have since descended into the valley.

If the spike begins to return, as it now appears to be in the process of doing so, there will be better opportunity to find forward week options more easily and also more opportunity to make DOH trades, which also are keyed to volatility. If that is to be the case that would also mean some market decline is ahead, as increased volatility is usually accompanied by a declining market.

It’s just an example of how you have to take the good and take the bad, as long as the net outcome is good.

On the flip side, if volatility has to be low, as long as the higher market moves aren’t happening without your participation it can just be nice going along for that ride.

But what fun is a ride without some volatility? Those roller coaster photos would never be very exciting if there was no plunge in the making.

I hope you’re having fun.

Apr102014

Daily Market Update – April 10, 2014

TheAcsManDaily Market Update

Daily Market Update – April 10, 2014 (8:30 AM)

After yesterday’s really unexpected gain, that was simply a re-affirmation of what everyone should have already known, that Janet Yellen was more dove than hawk, it looks like today may be a day of rest.

What is different is that I’m anxious to see the same thing happen again next week although I’d still prefer to see myself better diversified in terms of contract expiration dates.

Just about a month ago we had one of those mini-spikes and have since descended into the valley.

If the spike begins to return there will be better opportunity to find forward week options more easily and also more opportunity to make DOH trades, which also are keyed to volatility. If that is to be the case that would also mean some market decline is ahead, as increased volatility is usually accompanied by a declining market.

It’s just an example of how you have to take the good and take the bad, as long as the net outcome is good.

On the flip side, if volatility has to be low, as long as the higher market moves aren’t happening without your participation it can just be nice going along for that ride.

But what fun is a ride without some volatility? Those roller coaster photos would never be very exciting if there was no plunge in the making.

Apr92014

Daily Market Update – April 9, 2014

TheAcsManDaily Market Update

Daily Market Update – April 9, 2014 (Close)

Another seemingly flat morning, which basically means nothing and that was certainly the case today and even more so in the latter half of the afternoon as the market closed at its impressive highs.

The late Mark Haines, of CNBC, used to observe that the pre-opening market tended to have very little in common with what occurred subsequently. He often would say that on mornings when there was a decided move in either direction and so often he was right.

Lately the pre-open hasn’t been much of a barometer, In fact, the first 90 minutes of trading haven’t been a very good indicator, either. For anyone looking for themes or patterns there haven’t been many lately, other than the poor predictive capability of the first hour of trading.

Maybe with Alcoa kicking off earnings season last night the consideration of basic fundamentals, especially earnings, will become the theme. The only thing is that was precisely the same kind of hope over the past couple of earnings seasons, as well, and that sort of thing only lasted a week or so. Once the financials were done with their reports the rest didn’t really matter.

Today’s early morning trading appeared fairly listless which isn’t altogether unusual, as this afternoon brings another FOMC minutes release. Most traders don’t really want to commit themselves in a significant way before any major announcement or event, especially if there’s any unknown component that may be released. So they sit and wait, maybe make a few incidental trades here and there, but mostly wait and then suddenly spring into action as the fastest of the systems runs its initial algorithm on the words themselves.

Maybe it’s just another of those signs of getting older, but it seems as if those monthly releases are coming much more quickly than at a monthly pace. Still, the one due today has gotten unusually little attention or mention.

While there wasn’t not likely to be much new in the release that hasn’t stopped knee jerk and delayed reactions alike as the words are parsed and interpreted for meanings that were never intended.

Today’s FOMC release was worth waiting for, but it did seem as if traders had some sense of, if not good news, then at least no news, as the market opened stronger than the futures would have indicated and built on those gains going into the release. Once the FOMC statement was released the markets just added further and didn’t waver or have any second thoughts, as they so frequently do.

While I didn’t expect much in the way of personal activity yesterday I expect even less today, although I wouldn’t mind any other opportunities to sell more call options on uncovered positions and begin looking forward to next week, which already marks the end of the monthly option cycle, which seems to also have come very quickly.

Because earnings reports are now a factor it would be nice to at least squeeze a few more cents out of positions while awaiting the news and using some forward weeks, whose premiums are enhanced a little by the uncertainty of earnings, to give some time cushion in the event of adverse reaction to the
news ahead.

Looking forward to next week starts, as usual, with hoping for the rollover or assignment of as many positions as possible and once again, this week has too many positions with contracts set to expire.

As in recent past weeks the holdings aren’t terribly well diversified across the calendar so once again there’s a fair amount riding on the next couple of days. That’s not a position that I like being in and continue to be anxious to see a rise in volatility, as long as it waits until next Monday to begin in earnest.

Just to be clear, markets usually fall when volatility is rising, so let’s get through this week first and see those rollovers and assignments happen. Then the volatility can start to rise and bring with it better prices for all of that reserve cash to be put to use.

If only it was all that easy.

PS: For those interested in something a little different, take a look at “Playing Leapfrog with MolyCorp” which explores another put related strategy that seeks to limit risk and enhance reward, especially with risky kind of positions.