As an options trader you might think that I like volatility, but on the contrary it’s not really the best of conditions for my style.
The trend is my friend, and whether it is up or down really does not matter. I look for the best trends of stocks that have price momentum, velocity and speed. As a buyer of options I need to overcome the time decay enough to make good profits for the risk I am taking.
FIREWORKS NEXT WEEK
That being said, the next week we will embark upon a collision that might really get the fireworks started. It’s not that recent news hasn’t been having an effect.
As Roseanne Rosannadana (SNL fame) used to say, ‘it is always something.’
Since mid May weakness in the yen and Nikkei exchange have wreaked havoc on markets here and abroad. The massive run for Japan’s markets amid the drop huge drop in the yen early this year also stoked a liquidity rally here in the U.S., and now that is being drawn with skepticism.
VIX REACTION
The VIX has risen as the markets have created some fear and uncertainty, namely about how this situation will resolve. Markets hate uncertainty, especially when there are gains to be taken. The VIX futures curve has flattened and now may be considered slightly bearish, the June VIX options expire next week along with several equity and index options.
EYE ON THE FED
Finally, the Fed has a two-day meeting this coming week (June 18-19). Chairman Bernanke will hold a press conference following the decision on Thursday June 20. I look for some clarity and leadership from the Chairman and to stick to the previous script. The goal of lower unemployment and a bit higher inflation are still the targets, all this talk of tapering is probably a moot point until improvement is seen. They must clearly be disappointed with the lack of growth and I suspect Bernanke will once again put the burden on the government.
It is here where I believe we’ll see the markets take a collective deep breath.
Same as it ever was.
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