Saturday, June 25

Credit Spreads

SFO has a good article on one of my favorite options strategies. The best thing about it, is the fact that with credit spreads, time is on your side.

But the downside is that right now in the equities options markets, implied vols are low. People have already been selling those at-the-moneys for all they're worth, and you may just be the last in line. Your wages (pay per hour) would be very low at this point, so why bother?

Then again, if the skew was in your favor, you could probably find a good backspread or two and just wait it out. Sometimes even negative surprises can be a good thing.

Charting the Volatility Index

Successive hundred point drops in the DOW due to higher oil prices, caused a rise in the VIX from it's low of around 11; straddle buyers should be happy.

When she bottoms, she bottoms quickly. People get nervous before earnings season and in this environment of higher short rates and higher commodity prices, they may not want to risk a nasty surprise. So some will sell early and come back to buy after the dust settles.

Maybe the Summer will be interesting after all. The down days came on heavier volume in the DOW and left a lower high behind, hinting at an intermediate term downtrend in the stock market.

But in order to make that official, the DOW would have to drop below the 10,000 mark, making a lower low; not an easy thing to do without a small dose of panic.

And that's something the straddle buyer would love.

Thursday, June 23

Black Robes and Goose Steps

The long march continues, as the Leftists on the "Supreme" Court lead us further down that glorious road to serfdom.

"Taking" is a tradition here in the land of the free; the very foundation of progress. Without it, how could we plan for our glorious future? Should chaos rule, instead?

Your house is your's--unless we want it. Then it's ours... so it can then become his. Let the will of " the people" be done.

And let this blather about your rights, be done, too. You stand in the way of progress, waving some old parchment that's of no interest to us. You will be crushed, and your parchment will be buried, and we will drown your cries with the sounds of our boots, clapping the ground as we march on past.

Your quaint attachment to this notion of rights, is outdated in this era of public-spiritedness and planning. Our rulers are benevolent, and much smarter than you. And only by their will, can some progress appear. Let their will be done.

On what basis do you challenge them? You are a selfish peasant who seeks to deprive the community of what it needs. When instead you should be rejoicing for the opportunity to serve. No more evidence of your individual corruption is necessary. By your challenge, you display your guilt.

The people march forward in stone-faced columns, with empty hands and hollow eyes. Following the goose-stepping imposters in their shining, black robes.

With nothing in particular on their minds.

volatility crush

Summer's here for the options markets; volatility is nearly nonexistent as the VIX sinks to 11. This means both calls and puts are being sold by the professionals, who don't expect much activity in the stock market--at least not for the next 30 days.

Are they right? Probably yes, for now. But at some point nearer to the end of Summer, in this post-election year, shopping for puts will be the prudent thing to do. Especially if options prices remain this low. Short term money is getting tighter now, by the Fed's design. They pumped enough into the system prior to the election to keep the incumbents happy, and now it's time to soak it back up. Same old story.

With commodity prices continuing to move up putting the squeeze on margins, the third quarter results could have an excellent chance of coming up short. And surprises are very good for options buyers.

Tuesday, June 21

Uva uvam vivendo varia fit.