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 were able to look past the situation in Ukraine this past week as the S&P 500 advanced by 1%, the Dow rallied 0.80% and the Nasdaq finished higher by 0.65%.
For the bulls, it was another strong week as the S&P 500 hit all-time highs just a couple of days after the situation in Ukraine seemed on the brink of trouble. Also helping the bull case was the Jobs Report that came in at 175,000 jobs added vs. expectations of 149,000 and the U.S. PMI, which hit its highest level since May 2010.
For the bears, Monday saw a big gap down, only to see a big bounce back on Tuesday as the market dips continue to get bought, no matter the news. The bears could point to the unemployment rate ticking up from 6.6% to 6.7%, possible rotation out of growth and biotech stocks and just how fragile the emerging markets can be as Russia’s stock market was down 10% on Monday.
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 14.11 having traded as high as 16.50 on Monday. In my opinion, any level below 15 is WAY too low complacency with the Russia/Ukrainian situation far from resolved.
Events for the Week to Come
This should be a relatively quiet week for economic data so I expect market movement will be tied to the situation in Ukraine.
What Traders are Saying
The market’s ability to shrug off any bit of bad news continues to divide the bulls and bears.
The bulls can point out that it’s impossible to fade a market that continues to make new highs every week.
The bears would push back that this exuberance in the face of mediocre economic data and troubling world events is another sign that the market is becoming a bubble.
I fall somewhere in the middle of this debate. I’m shocked that the market has rallied virtually 150 S&P points without any hesitation from its lows of just a couple of weeks ago. That said, it’s hard to fight this strength—day after day we find the market higher as there seems to be a “bid under the market.”
My only true conviction in this debate is that with the VIX trading at 14 and the S&P 500 at these “elevated” levels, this seems like a perfect time to buy puts against your personal portfolio. “Buy puts when you can, not when you have to.”
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.
Subscriber comments on Cabot Options Trader