The collision of global markets and social mood

Tuesday, July 16, 2013

Having Something On

Something's upsetting Europe today, and it may have been the German ZEW which showed an unexpected drop in investor confidence. Expectations were for 40, but the actual number dropped to 36.3 from 38.5 last month. That's quite a miss.

I continue to see a weak market that heads higher and higher. I have been quite patient. Yesterday I waited most of the day to get filled on my bid for VIX 18 calls. The SPY 100 puts have been tougher to get because I've been bidding for them in such a thin market.

A quick word about these: when I don't like the market, but am reasonably certain that it will keep rising (or falling), I often use deep OTM options to establish (and test) an asymmetric bet against the market. If I remain wrong, because the options are so far out of the money they don't move against me hardly at all (they do, but at a much slower rate of change). But if correct, they do not even need to come close to their strike price in order to yield a fat return.

For example, SPY 100 puts expiring June 2014 went from 75 cents to $1.27 from the May high to the June low. That's a 69.33% gain, and that's good enough for me when I'm up against a bunch of central bankers gone wild.

There are plenty of opportunities to add better positions once the market starts going my way. But sometimes, I just want to have something on.

Regarding the OEX options market, I noticed a bit of interesting activity yesterday. Someone, perhaps as a hedge, was buying deep OTM put positions targeting the S&P 1631.89 gap area as well as the 1580 area. While not necessarily huge bets (200 contracts each), the OEX is a professionals market, so I often monitor it to see where the bets are. But these trades were a bit OTM even for me.

The wave pattern is currently so ambiguous that I don't have any upside targets other than the 1687.18 high. UVOL continues to send warning signals, as do ticks and A/Ds. High yield credit has still not confirmed the Risk On behavior that equities have demonstrated. New 52-week highs are considerably lagging the May levels (which considerably lagged the 2010 levels).

For now, 1652.62 is the first level of interest for me to the downside.

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