Options Market Update

 

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.



Once again, the S&P 500 seemed on the verge of a breakdown on Wednesday, only to regain all of the day’s losses, and then finish higher for the week. For the week, the S&P 500 gained 0.67%, the Dow added 0.60% and the Nasdaq rallied 0.09%.

For the bulls, Monday’s rally was the market’s best day since early May as merger and acquisition activity remained strong including Berkshire Hathaway’s purchase of Precision Castparts. Also, another large market drop was bought this past week as has been the case so many times in 2015, and Consumer Sentiment and Retail Sales were better than expected.

For the bears, yet another attempt to drive the S&P 500 far below the 200-day moving average failed, and was met by a strong rally. However, China’s unexpected decision to devalue the yuan signaled to many that China’s economy is in worse shape than expected, and that there will continue to be a “currency war.” Also, the price of oil continues to fall day after day, and concerns are again growing about many oil companies’ ability to survive in this environment.

Volatility


The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 12.83%, virtually unchanged, but it had traded above 16 on Wednesday. The index is trending to the lower end of its recent range.

The VIX continues to be a great indicator of potential price action in the overall market. As I noted in an intraday Market Update on Wednesday morning, while the S&P 500 was down over 1.3% the VIX was not exploding higher. This is often a great signal that the big market players are no longer rushing out to buy protection or bet against the market, and that there is the potential for a market rally. That’s exactly what happened later that afternoon.

Events for the Week to Come


The potentially biggest market-moving event for this week will be Wednesday’s release of the Federal Reserve’s Minutes, which will provide a look at the Fed’s thoughts on the state of the economy and interest rates. However, a lot has changed since these Minutes were taken, especially China’s aggressive currency moves of this past week. Thus, the market may not be able to read too much into the release, as the information may be outdated.

What Traders are Saying


Having spent last week at Cabot headquarters and the Cabot Investor Conference, I have a couple of interesting thoughts on the market and Cabot Options Trader/Cabot Options Trader Pro:

Cabot analysts are trading the market very cautiously right now. The weakening breadth, which I have highlighted in the last several weeks, was a real source of concern for all analysts.

Cabot Options subscribers at the Conference would like me to incorporate more ideas from Cabot Analysts Tim Lutts, Mike Cintolo and Roy Ward. This is a strategy we have used successfully in the past, and I will use more aggressively going forward. 

Cabot Options subscribers at the Conference asked me about many of their current stock positions on which they do not have options positions. I gave them ideas to create yield as well as hedge. Please don’t hesitate to email me if you are looking for such assistance.  


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


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