Daily Market Update – June 17, 2014




Daily Market Update – June 17, 2014 (9:30 AM)

With the past few Tuesdays not having followed the pattern of moving higher that expectation has disappeared and the market looks as if it will begin trading on the mildly lower side, pretty much as it has done almost every day for the past few weeks.

With the FOMC statement to be released tomorrow it’s also not too likely that there will be much in the way of committed trading today or tomorrow in its advance. That that was the theory last month and the market also broke with its Tuesday advancing pattern, but surprisingly traded much strong on Wednesday in advance of the statement’s release..

Suddenly, however, there is some discussion about a possible surprise being contained in tomorrow’s FOMC statement and it all revolves around $5 billion.

Where that $5 billion comes in is that the taper was a process to reduce the $85 billion of monthly Federal Reserve purchases of Treasuries and other debt instruments that was to be done $10 billion at a time during each month until the entire $85 billion in purchases was concluded.

Apparently the people of the Federal Reserve are comfortable with managing an economy in the trillions but they may not have realized that 85 isn’t evenly divisible by 10, so that leaves a month where there may be a possibility of reducing Federal Reserve purchases by $15 billion instead of the $10 we had become accustomed to seeing.

That $5 billion may make some people nervous and may be the reason given if there is a sell off following tomorrow’s statement release if the amount of taper is increased to $5 billion.

None of that makes much sense.

No one is arguing the opposite occurring if the Fed decides to instead have only a $5 billion taper in a single month, perhaps to conclude the program or even split that last $5 billion price into the remaining 5 months expected for the taper to continue its run.

With a couple of new purchases yesterday I’m not certain of how many more there will be this week.

This may end up being a very quiet week for adding new positions and instead focuses on trying to position current positions for the next monthly cycle.

While the fate of those positions appears to be good in terms of a combination of assignments and rollovers I don’t particularly like having so many at risk at one time, subject to a singular event just two days before expiration.

I keep harping and bemoaning the low volatility, but one of the other detriments to low volatility is that it  cheapens the premiums disproportionately for forward weeks, making it difficult to justify selling longer term options in an attempt to diversify holdings by time.

While there are some open contracts for next week and even July, it would be better if there were more even distribution by expiration date. That would make it easier to ride out any sudden moves higher or lower and still collect a reasonable fee for having sold the option contracts. But for the past few months that hasn‘t been the case and weeks like this one creep up hoping to survive any potential surprises or knee-jerk reactions.

So today isn’t likely to be one in which I expect to do much trading, but would still welcome even a gratuitous Tuesday advance that might increase the chances of selling some calls on uncovered positions.

I’m not expecting much, but in most markets you’re most likely to be disappointed when you have expectations.