Options Market Update

by Jacob Mintz on July 28, 2014

This is an excerpt from Cabot Options Trader, your guide to quick profits using puts, calls, spreads, straddles, iron condors and other options trades. Analyst Jacob Mintz explains and recommends diverse investing strategies for big gains with controlled risk.


For most of the last week, the three major indexes were able to look past troubling global headlines and continue their slow ascent to all time highs. However, Friday’s selloff left the three major indexes mostly unchanged for the week. The S&P 500 closed the week up 0.01%, the Dow closed lower by 0.82% and the Nasdaq gained 0.39%.

For the bulls, it was another week of new S&P 500 all-time highs. This was likely aided by China HSBC Manufacturing making an 18-month high, the report of U.S. Initial Jobless Claims’ lowest reading since February 2006 and German Consumer Confidence’s rise to its highest levels since 2006.

For the bears, Friday’s selloff finally slowed the bullish momentum as stocks such as Amazon (AMZN), which fell 10% on Friday, and Harley Davidson (HOG), which dropped by 5.5% on Tuesday, reminded traders that there’s the potential for downside in equities. Also, the situations in Ukraine and Gaza don’t seem to be cooling down, and Goldman Sachs came out with a report on Friday highlighting growing concerns and risks for the markets in the coming months.

Volatility

The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 12.69, after once again trading near its historical lows earlier in the week.

With the situations in Ukraine and Gaza still unsettled, I suspect the floor for the VIX to be around 12. However, earlier in the year, I thought the same thing about the 13-level for this “fear index,” and watched it drop temporarily below 11.  

Events for the Week to Come

This week will likely be the busiest of the month for economic data. The headliners will almost certainly be the Federal Reserve’s meeting on interest rates on Wednesday and the Jobs Report on Friday. However, there’s also Consumer Confidence on Tuesday, GDP on Wednesday and several manufacturing readings on Thursday and Friday.

And earnings season continues, with reports from companies such as
Cummins (CMI)
Corning (GLW)
Amgen (AMGN)
Whole Foods (WFM)
Yelp (YELP)
Exxon Mobil (XOM)
Proctor & Gamble (PG)

What Traders are Saying


On Friday afternoon, Goldman Sachs came out with a report suggesting global equities and bonds may retreat in the next three months. The bank cut its rating on stocks to neutral for the next three months, lowered corporate credit to underweight and predicted that bond yields will increase.  

The report, like many this year, caused minor selloffs. Thinking back over the past year, we’ve seen selloffs because of bond and currency turmoil in the emerging markets, the situation in Crimea, momentum stocks’ aggressive selloff, concerns over the banking system in Portugal and hedge fund titan David Tepper’s market concerns.

For the last several years, investors have digested such concerns and continued to “buy the dip.” And while the issues I just listed were valid concerns, the S&P 500 remains within 1% of its all-time high.  

Jacob Mintz is Chief Analyst of Cabot Options Trader, and a professional options trader. He has developed a proprietary risk management system for options trades. 

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