Options Market Update

by Jacob Mintz on April 14, 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 Week in Review

The past week saw significant volatility as the S&P 500 closed plus or minus 1% four out of five days. The S&P closed the week down 2.65%, the Dow dropped 2.35% and the Nasdaq fell by 3.1%.

For the bulls, it was a tough week as the growth stock selloff spilled over to the general market. That said, Consumer Confidence beat expectations, initial jobless claims came in at their lowest level since May 2007 and publicly traded companies issued a record number of dividend increases in the first quarter.

The bears had a big week as the growth and biotech carnage continued. The Nasdaq lost 4.6% over the past three days, which was its worst three-day stretch since 2011, the QQQ had its worst single day in three years and the IMF lowered its global growth forecast.

Volatility


The Chicago Board of Options Volatility Index (VIX) closed the week at 17.23, a rise of 23% for the week. In last Monday’s market write-up, I said that I was shocked at how low the VIX was with growth stocks breaking down. I was proven right as traders are now rushing for put protection.

With the VIX at 17, I’m becoming more and more interested in selling market volatility. I like to buy volatility when everyone wants to sell it, and sell it when everyone wants to buy it.  

Events for the Week to Come


This week will be a four-day week as the markets are closed for Good Friday. There are plenty of economic data points coming out this week but more than likely the focus will be on the growth stock selloff and whether it continues to bleed into the rest of the market.  

Holiday weeks tend to be bullish; however, if the market falls apart on Wednesday and Thursday, I’d expect further selling into the close on Thursday as investors won’t want to hold large equity positions headed into a long weekend.

What Traders are Saying

Traders are fairly quiet right now as option volumes have been dropping as the market has been sliding. I would interpret this as general confusion on the state of the market.  

Big traders are just like you and me. When they get confused or scared, they start pulling back on trading. No one wants to get long in front of a 10% market drop or short the bottom in a stock like Facebook if it’s about to pop 5%-10%.

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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