Daily Market Update – September 15, 2014 (Close)




Daily Market Update – September 15, 2014 (Close)

There is so much news scheduled for this week that the beginning of it seems anticlimactic. except that it’s happening before the anticipated events.

Pre-climactic, maybe?

After the previous week’s disappointments there wasn’t much reason to want to start off the week doing much other than being an observer. It’s hard to justify committing much toward new positions, even perhaps being a little less inclined to plow assigned cash back into the market as readily as I normally would be inclined.

With a large number of positions already scheduled to expire this week and with them being at risk for any number of events, beginning with Wednesday’s FOMC statement and ending with the Ali Baba IPO, the most logical approach to the week is to not put too much of available cash reserves at risk. However, if new positions are added there might be at least some good reason to consider option expirations into the October cycle through the use of expanded options, where available.

That’s a little more tenable as volatility is beginning to creep higher as the market has been heading lower and that process was started last week as most of the rollovers bypassed this week’s expiration, taking advantage of a little bit of awakening in forward week premiums.

As the week was ready to begin it appeared that there was a very mild downward bias, but those early indications so often mean very little unless they’re very pronounced. Otherwise the low volume that creates those early indications doesn’t really give an accurate picture of how things will open, much less unfold as the day begins trading for real.

Today, the same could have been said for the entire morning, as it really didn’t foretell of the decent turnaround that was to come in the latter half of the afternoon that forgot to bring momentum stocks along for the ride higher.

This being the final week of the monthly option cycle usually brings some different considerations. While there are some final weeks of a monthly option cycle that I wouldn’t mind seeing a retreat in prices this is definitely not one of them. After last week’s weakness none of the positions set to expire this week were helped out and another week of weakness puts those positions in some difficulty with regard to either rollover or assignment.

So while I like seeing an increase in volatility, this week my preference would be to let that volatility increase take a breather, but I think that the week is destined to provide definitive moves in one direction or another, although the sum total of those moves may not be very impressive once all of the dust settles.

Today was really a pretty fascinating day as the market and volatility went in the same direction and while volatility increased that increase didn’t appear to really work its way into option premiums. Often times when the market and the volatility index travel in the same direction on any given day and do so by more than a small, trivial amount, there’s usually some catch up that is bound to occur quickly, as the volatility ultimately has to obey some adherence to the mathematical definition that underlies it and traders will bring it back to those standards if it deviated under the influence of imperfect humans.

Knowing that doesn’t really help however, as it would be nice to know the direction, but no one will tell me.

With the FOMC really kicking off the potential risks for the weak, followed the next day by results of Scotland’s independence referendum, there may be good reason to look for any rollover opportunities prior to Wednesday afternoon.

That may be possible for any position that has expanded weekly options, just as it will be a possibility for those that have only monthly options available. Trading, therefore, this week, may follow a different pattern than is the norm, in addition to limiting new purchases and preferentially going to forward week contracts for any new positions.

As far as those rollovers go, those that may use the October monthly contract will also have to factor in the beginning of another earnings season, which starts in just a few weeks.

For now I would be exceedingly happy to just create any kind of covered position that I can for anything that remains uncovered. However, like last week, which maintained its downward bias through the entire week, I don’t think there will be too much opportunity to do so, despite this afternoon’s encouraging comeback.

So, as is the case for any of these weeks that have known risks, my plan is to sit back and see what if anything develops, cognizant of the reality that when there are risks there are also rewards possible.

Hopefully the market is aware of that, as well, and there aren’t too many who are anxious to secure their paper gains at any cost and then be content to watch from the sidelines.