Don’t Let The Market’s Optimism Fool You

Long time no see. Had the market been a little more stable over the last several trading sessions, I might have tried to make more appearances. However, stability is not in the cards, not until the market is appeased with a bailout. As of right now, there is a 85% probability that Congress approves this bailout before Oct 31st, which is why the markets snapped back the way they did. I don’t think I would assign such a high probability to that, which is why I am trying my best to discount the government from my trading decisions.

Don’t let the market’s optimism fool you, we have yet to form a bottom. However, the flush we had on Monday was a good cleansing in the short term. However, the longer this legislation takes to pass, and the longer the credit markets stall, the worse off our beloved market is.

I reduced position sizes, number of trades, and total risk capital over the last couple weeks, and am now starting to throw a few bones out to the market. However, it is imperative that you take note that our derivatives market has turned to $hit. Volume and open interest has dried up, bid ask spreads are a joke, and implied volatility is at comical values. Until the VIX (^VIX) settles south of 30, stop buying options. Seriously.

As market conditions return to normalcy, I will try to throw out some more frequent updates. Realize that I am working around the clock during these crazy times, trying to find an edge, as most traders are. This prevents me from being in two places at the same time.

Until the next update, be well.

Posted in Categories: Contributor, External Research, Options, Stocks.

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