Daily Market Update – February 11, 2015 (Close)

Yesterday was a nice surprise.This morning there wasn’t much reason to expect the same kind of upward movement and the pre-open futures weren’t showing any indication of continuing with yesterday’s gains.

However, those pre-open numbers were benign enough that anything would be reasonable when the opening bell rang, as there’s not much commitment one way or the other this morning.

It was a little surprising to see a nearly 100 point loss develop in the first hour, just as it was then a little surprising to see a nearly 100 point reversal within another hour, then another 100 point downturn by mid afternoon and yet another by the close. 

In a week where there’s very little economic news the Wednesday “Petroleum Status Report” was in a position to take on more importance than it usually does. It’s not a report that I typically pay attention to other than to watch the immediate reactions to the inventory news that are similar to the back and forth movements often seen when earnings are released in the after hours trading.

The reaction is often a combination of reacting to the news, reacting to the expectations and trying to figure out whether the news is good or bad and then applying some kind of reverse psychology analysis to all of it.

With some hint from the Saudi Oil Minister of expectations for demand increases in the next year more and more attention is going to be paid to inventory levels for as long as energy prices seem to be in play and right now those prices have been moving in big chunks in both directions.

But that’s also been the case for just about everything other than the US Dollar.

Stocks for certain have been gyrating, but so have interest rates and precious metals. Oil is now just another of those asset classes that is having a really hard time deciding where it should be going.

Today’s report will get plenty of scrutiny, but even then the next question is whether the market decides to re-couple or de-couple from energy prices. In a normal world it’s usually de-coupled, but over the past month or two it has spent more time joined at the hip with oil prices than behaving normally.

Today the market had many faces while the face of energy was singular and mostly strongly lower as there are indications that despite fewer rigs drilling for oil, the US is actually pumping even more oil at the moment and adding to supplies.

What does all of that mean?

Whatever it may have meant today it will be forgotten by tomorrow, or maybe mean something different altogether.

With 3 new positions opened this week I’m not anticipating doing much else that involves spending money, for the rest of the week, particularly as I don’t have much in the way of cash reserves. My hope i
s that the next few days can add to those cash reserves or at least position next Friday’s monthly option cycle ending contracts to be more likely to be assigned.

Or rolled over.

The idea is to generate income, but as the market may be poised for increasing volatility the preference is to  preserve cash and use existing assets to generate income, sometimes even rolling over positions that might otherwise be assigned.

That becomes more likely as forward week options show more volatility than the expiring week’s options and the differential in buy and sell premiums increases.

Right now, there’s not much in the way of added premium for selling in the money options and as long as near term volatility is higher than longer term, it is relatively more expensive to buy back those in the money positions.

However, if that forward week volatility starts showing more increases, that situation may change and could result in preferring rollovers to assignments.

That would be nice, except the wish for volatility to increase has been a long and ongoing one and I’ll believe it only when I see it.