eot-position-update-October-8-2014

October 8, 2014

Market Snapshot

I told you so…

Last week I pointed out that there was some weird stuff going on in the market.

We had weakness in global economic data, a Fed that was ending QE and signaling that rates would begin to rise rapidly by mid-2015, a US Dollar that was quickly strengthening, and investors that were fearful the entire thing was on the verge of collapse.

It was pretty clear to me that the Fed had sent investors the wrong message.

Well, today the Fed released the minutes from its last meeting and they’re backtracking on their recent hawkish commentary. They’re quick to point out that a strong US Dollar and a slowdown in global economic growth poses a risk to the US economic outlook.

Here’s the thing…

The last few weeks have been very odd for the financial markets. It was a combination that added up to increased risk and heightened volatility. In fact, the CBOE Volatility Index (VIX) has been near the highest levels we’ve seen this year over the last few weeks.

As option buyers, the increase in volatility isn’t our friend. It makes buying call or put options more expensive. So, I’ve been hesitant to put on new trades because I’m not willing to overpay for an option because market volatility is heightened temporarily.

In short, it was a treacherous time for our existing trades and an even worse time to initiate new trades.

Thankfully, now that the Fed has changed their tune (as I expected they would), things should improve. I’m expecting some of the market dislocations to be resolved. That in turn should drive down volatility and the option premiums we pay to buy put or call options.

Put simply, that’s good news.

Remember, this happens from time to time. Things get out of whack and don’t seem to make much sense. It’s not unusual and there’s no reason to panic. In fact, these types of situations create new opportunities for us to make money.

After the last few weeks, I think the conditions for buying options are rapidly improving. I’m looking for a new trade right now… I’ll be sending it out later this week.

So stay tuned… it’s time for a big money making push during the 4th quarter to close out the year in style.

Category: EOT Update