Markets are trapped again. Nasdaq and dow have been trading flat alllll day long. I know this might be due to the factthat CPI data is due out on Friday but man this is just boring. Lets find a direction and get moving. WHERE is the volatility???
Answer: Some of us pre-sucked all the volatility out of this market just before the start of this period's front month expiration. Now the wind has been dumped from the sails to help us credit spread traders finesse into expiration without even having to close with another commission or offset. Everything is going as planned. After this option period's unwind through expiration I expect a mini spike up Friday morning on SPX; then another few vol chop spikes next week. Then I think that is basically going to be it for the rest of the calendar year barring any weird geopolitical conniptions. As an option writer my concern is that we are going to be looking back at 2006 with 12-15 VIX as the good ol' days for a while. It could be famine for a while with slow-to-moderate bull up motion. I'm just very glad I established a lot of long equity positions before this last leg up because the selling premium game looks like its gonna be a very limited game for a while. I think it will take a lot of in-the-saddle "work" just to get in on random up/down chop until the next major macro level geopolitical event shapes the major expectation theme for 2007. Where have all the scaredy cats gone when we need the volatility? TS
Core CPI number will be big catalyst. After so many days of going nowhere, we know the market is going to do something drastic. My problem with people who predict based on charts is that they have no clue on the CPI number. I do believe that the fundamentals, eventually are the catalysts of big moves. The problem is that the CPI will be out before the market opens. So I will have to make up my mind before thursday's close to know how I play it.
I am banking on CPI being within the range of expectation +/- some minor indifference level. I doubt the FED lacked advanced copy of what the number would be before their FOMC meeting this week. So my thesis is its all built into the market pretty much already. Since my trading on SPX options closes by the end of trading on Thursday and settles based on a synthetic open on Friday (SET) I am a bit worried about pre-market news. We could have as much as a 10-12 point up/down transient on the SPX at the open and that is getting close to my short strikes. Since I am traveling out of country tomorrow and will be unable to trade I must decide in the next couple of hours what to do. Running my random number now to decide to gamble on getting out with a limit order at a debit of .05 or to get out at market at .10. TS
that's not entirely so, predicting actual top/bottom levels has nothing to do with ability to read charts. Charts point to an area where the market looks OB/OS and reports like CPI can act as triggers. I don't believe there is much point simply reacting to a report, unless one looks at a bigger picture. I used to think that reacting is THE way to be, I am in disagreement with my previous point of view now.
I am short actual S&P from 1398 with calls. I could be wrong and then calls would (partially) offset losses, but if I am right, I will probably bank a lot more than a person trading reports when they come out IMO as at times reaction to the report is opposite to logical interpretations.