Options Market Update

by Jacob Mintz on August 18, 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 global fears that had hurt the markets recently were seemingly discounted as the markets posted a strong week. The S&P 500 gained 1.22% for the week, the Dow rallied 0.66% and the Nasdaq popped higher by 2.15%.  

For the bulls, the past week left the S&P 500 once again within 1.5% of all time highs. This was likely aided by Small Business Optimism rising, U.K. unemployment falling to its lowest level since 2008 and Japanese Consumer Confidence rising to an eight-month high.

For the bears, it seems that the dip was bought again just as the downside pressure was building. However, there were still a couple of geo-political events that caused temporary market drops this week. Also, Retail Sales came in below expectations, Jobless Claims rose more than expected and Mortgage Applications fell 3.7% week over week.

Volatility


The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13.15, once again nearing its all time low.

On the one hand, I continue to believe that puts are too cheap in this environment of “global uncertainty.” On the other hand, we are again nearing all-time highs, so it’s hard for many investors to see reasons to own portfolio protection.  

Events for the Week to Come


This should be a fairly quiet week in terms of earnings and economic data. Wednesday’s release of the Federal Reserve’s Minutes will almost certainly be the event most traders and investors will focus on, along with the ongoing headlines from around the globe.

What Traders are Saying


While investors and traders seem to have been able to look past the global threats, one large investor recently added significantly to his hedges or bearish positions. Soros Fund Management, run by George Soros, dramatically added to its position in S&P 500 puts in the second quarter.

During the quarter ending June 30, Soros’s fund bought enough puts to potentially short 11.29 million shares of the S&P 500. This was an increase of 606 % from the first quarter.  

While Soros is a legend in the trading community, and this is a dramatic position, I would not read too much into this because we will likely never know the reasoning behind the positioning. While the trade could be an outright bearish position, it just as likely could be that Soros Fund Management is just hedging its long positions. 

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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