Options Market Update

by Jacob Mintz on April 21, 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 markets bounced back last week and posted solid gains for the three major indexes.  For the week, the S&P 500 was up 2.69%, the Dow gained 2.36% and the Nasdaq rallied 2.38%.

For the bulls, last week’s rally was truly impressive as the S&P 500 had its best week since July 2013. The bull case was helped by the Fed Beige Book statement that economic growth increased in most regions and Janet Yellen’s reiteration that the Fed is committed to “accommodation to support recovery.”

It was a tough week for the bears, as the growth stock selloff failed to spill over into the rest of the market. However, the bears could point to gasoline prices rising for the 26th straight day, Chinese GDP coming in below expectations and U.S. housing starts missing expectations.

Volatility

The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.36. This is likely a temporary low as the effects of a long holiday weekend distort the reading of market fear and movement.

Regardless of the temporary figure, with the way the market is moving these days I feel that anything below 15 in the VIX is a buy. The risk/reward in owning premium/insurance is just too great with the continued weakness in so many former market leaders and the continued uncertainty in Ukraine.    

Events for the Week to Come

This week’s economic data releases are relatively few. Therefore, market participants will continue to watch earnings releases and how the stocks react to both positive and negative reports.  

The list of companies reporting earnings this week includes:
Halliburton (HAL)
Netflix (NFLX)
McDonald’s (MCD)
Amgen (AMGN)
Apple (AAPL)
Caterpillar (CAT)
Ford (F)

What Traders are Saying

The way the market has shaken off the growth and momentum stocks’ weakness has been truly impressive. However, many traders are concerned that the recent rotation into more traditional late cycle sectors is something to watch.  

For instance, the utilities, health care and materials sectors have recently led the markets, while discretionary, financials and technology have lagged for the past several months. We also saw this phenomenon at the peaks of the bull markets in 2000 and 2007.

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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