Options Market Update

by Jacob Mintz on September 15, 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.


The S&P 500 closed lower for the week for the first time in five weeks, breaking the longest streak of advances this year. For the week, the S&P 500 lost 1.10%, the Dow fell by 0.87% and the Nasdaq slid by 0.33%. 

For the bulls, even after last week’s losses the S&P 500 is still within 1% of all time highs as the U.S. economy appears to be the shining star on the global stage. Aiding the bull case, Consumer Confidence beat expectations, NFIB Small Business Index came in within half a point from the highest readings since 2007, and the average price of gasoline fell to $3.42, its lowest level since February.

For the bears, Friday’s selloff ended the five-week market rally on concerns that the economy is recovering at a fast enough pace to justify higher interest rates sooner than anticipated. Also, both Chinese and German imports missed expectations and the MSCI Asia Pacific Index dropped 1.8 percent, extending a streak of seven straight days of declines.   

Volatility

The Chicago Board of Options Volatility Index closed the week at 13.31. While this was a rally of approximately 10% for the week, the “fear index” continues to sit at extremely depressed levels.

I anticipate the VIX to rally in the days to come as the market awaits the Federal Reserve’s decision on interest rates and the referendum on Scotland independence on September 18.

Events for the Week to Come


I expect Monday and Tuesday to be fairly quiet ahead of the Federal Reserve’s decision on interest rates, followed by Fed chief Janet Yellen’s press conference.

That said, Thursday’s referendum on Scottish independence has many traders extremely concerned, as the economic ramifications of Scotland leaving the United Kingdom are somewhat unknown. 

What Traders are Saying


Traders were closely watching energy companies last week as Brent crude dropped to its lowest level in more than two years amid concern that global demand is slowing. Brent has fallen more than 15% since the middle of June.

While the decline in the price of Brent crude and gasoline prices can be a boost for the consumer, many fear that the declining price could be a warning sign that economies in Europe and Asia could be slowing. 

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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