Feb 282015
 

Market Conditions

This week the market continued to trade in a very narrow range with the SPX opening the week at 2109.83 and closing lower on Friday at 2104.5, down 5.33 or 0.25% for the week. Data released on Friday showed that economic growth had slowed more sharply than originally thought in the fourth quarter of 2014. However, the S&P 500 posted its best monthly performance since October 2011 with the SPX rallying on Wednesday to an all-time intraday high of 2119.59. In addition to the SPX, other major indices, including the $DJI and RUT, rallied into new uncharted territory during the week. Sentiment was boosted Wednesday by Federal Reserve Chair Janet Yellen who made it clear that there will not be any interest rate hikes for a while.

Chart_022715_SPX

Crude oil ended the week down 2.4% at $49.52 and dipped below $48 earlier in the week. The spread between Brent and WTI has grown to $12, the widest it has been since January 2014. This price differential is, in part, due to the fact that U.S. oil output is continuing to grow despite the weaker prices pushing crude stockpiles to all-time highs. Continue reading »

Feb 232015
 

The Weekend Portfolio Analysis on February 7, 2015 briefly mentioned that I have been experimenting with some weekly SPX credit spreads. Today I tweeted another SPX weekly trade that I placed.

Here’s the trade:

Sell 1 SPX Feb4 2040 Put @0.75
Buy 1 SPX Feb4 2015 Put @0.35

Credit received: 0.40 ($40 per contract)
Max risk: $2460
Days to expiration: 4

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Feb 222015
 

Options trading is becoming one of the fastest growing segments in the financial markets. This is evidenced by the growth in options-related products available for trading as well as the exponential increase in trading volume on the various options exchanges.  Exchange-traded options were first offered in 1973. In 1999, the volume of options traded on U.S. exchanges was 507 million contracts. Eight years later, that volume had grown to more than three billion contracts.  Although options have a reputation for being risky investments, they are actually one of the most versatile investment vehicles, hence their surging popularity. Over the course of the next few months, I will be posting a series of articles on the basics of options trading in addition to the Weekly Portfolio Analysis and trade explanations that I regularly post. In this first article, I will examine the advantages to trading options.

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Feb 212015
 

Market Conditions

This week the market traded in a fairly narrow range until Friday when it advanced to another all-time high. The SPX opened the abbreviated week on Tuesday at 2096.47 and closed Friday at 2110.3, up 13.83 or 0.7% for the week.  Despite the drop of crude oil prices on Friday, the market reacted positively to the announcement regarding Greece. The EU has agreed to extend the bailout for Greece by four months under the condition that Athens details adequate plans for reform by Monday. As noted on the chart below, the SPX has moved out of the trading range that it has been in since the beginning of the year.

Chart_022115_SPX

The other major indexes fared equally as well with the $DJI and RUT closing at all-time highs of 18140.44 and 1231.92 respectively. The tech-heavy Nasdaq Composite is hovering near historic highs closing at 4955.97.

Volatility continued to contract again this week the VIX closing at a new low for 2015 at 14.3. This is the first time this year that the VIX has traded below its 200-day moving average.

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Feb 212015
 

Frequent readers of this blog have likely noticed that /CL options trades are a regular occurrence in my portfolio. /CL options have proven to be one of the most profitable strategies that I embrace. This, of course, is due to the high leverage that /CL offers. As with any highly leveraged position, there is much greater risk. And, as we have all witnessed over the past year, crude oil is not immune to huge price swings. Over the past 12 months, /CL has experienced price extremes between $107 and $43 per barrel. However, with proper risk management, I believe that /CL offers great opportunities for trading that are hard to find using other products.

Currently, there is little volatility in the stock indexes as they trade near their all-time highs. On the other hand, /CL has implied volatility that is trading near the upper end of its range (82% IV). This high volatility makes /CL even more attractive offering very high option premiums.

Chart_CL_022115

Continue reading »