Daily Market Update – October 16, 2014 (Close)




Daily Market Update – October 16, 2014 (Close)

Yesterday morning began with these words:

“Despite yesterday’s decent closing action and despite somewhat positive results from Intel, the market is back to its recent ways and is headed sharply lower this morning.”

This morning you could say almost the exact same thing:

“Despite yesterday’s decent closing action and despite positive results from Goldman Sachs, the market is back to its recent ways and is headed sharply lower this morning.”

At some point that has to get discouraging, but the discouragement should be delayed until there is reason to believe that this correction will go beyond the 10% that was once a fairly common and not overly frightening phenomenon.

Once you get beyond that 10% level the natural concern becomes where the floor will be. Right now, if looking at a chart of the S&P 500 you would look for support levels, which exist at 1816, 1792 and 1742.

At that 1742 level we would be looking at a 13% decline, while the 1816 level is just about a 10% decline from the S&P 500 high point.

The 7% decline in the S&P 500 heading into this morning was just about near the mid-way point between what we’ve become accustomed to and what we used to be accustomed to. What’s strange is seeing interest rates, oil and gold all so low at the same time, as if there are no viable alternatives for people to invest their money.

Yesterday was a really wild ride and today my early thought was that today might be the same as the futures had already shown quite a bit of movement, but paled compared to the movement in the 10 Year Treasury Note yesterday, which actually sank below a 2% level before bouncing about 5% higher by the close of its trading.

As it would turn out there was quite a bit of movement today, but at least the bad part of the movement didn’t last very long. It turned out to be a day with lots of volatility but without real price erosion.

As the day was getting ready to begin it didn’t seem as if there would really be much to do for the morning and perhaps for the rest of the week. Fortunately, that changed and some DOH trades could finally be made.

Even with today’s reasonably steady performance it’s certainly becoming easier to ignore what at first have appeared to be bargains as they took on a different appearance with just a little bit of time passage. That has been a consistent theme for nearly 4 weeks. What looks appealing has consistently been a place where money goes to die.

With only 4 positions set to expire this Friday and at their current pricing, there’s not too much likelihood of rollovers, particularly since 3 of those are monthly contracts and are generally too expensive to buy back if denominated in $0.05 increments.

As the morning was getting ready to start there was even less likelihood of adding any new positions this week, but I continued to hold out hope of being able to sell call contracts on existing positions, despite having been thwarted a number of times earlier in the week as there had been very little call buying activity, as the options market hasn’t been a hotbed of speculation regarding prices moving higher and there has been a much wider than usual gap between bid and ask prices on positions that normally don’t have wide bids.

In those cases that’s a reflection of a seller who is looking at a realistic selling price and a buyer who feels that the realistic is unrealistic and there has been very little effort to bridge their positions.

As a seller I understand the reluctance to give in to the buyer right now particularly since you can easily have a large surge higher at a moment’s notice. Even if that surge is reversed the next trading day, it may be a day too late if your expiration date was the day of the surge.

While “DOH” trades may make sense in an environment of increasing volatility, it may not make sense when there may be reason to suspect that the volatility will move against you.

So while this morning it seemed as if it was right back to that usual pattern of sitting and watching and hoping for some opportunity to sell something on any sign of market strength or individual stock strength, it actually lived up to that hope.

It all started with Chesapeake Energy, as it announced the sale of some assets.

That is a good example, though of the surges that can take place, as I had tried to get a weekly DOH trade for Chesapeake earlier in the week at a $19.50 strike when shares were at their weekly high of $18.22 for an $0.11 premium.

As Chesapeake was trading in the pre-open at $19.55, up $1.78 it is testament to how quickly things can move and necessitate offsetting action under a ticking clock, as contracts expire tomorrow.

On the other hand, how much higher will Chesapeake go on the basis of an asset sale? There’s not too much reason to think that the sale would propel it too much more, so there may still be a quick opportunity there, but even then, too few, far too few of those opportunities this week.

But don’t get me wrong. I was grateful for each and every one.