17th
Quitters Prosper
I know nobody on tumblr cares about this, but I did start this blog for a different audience. The fact that my tumblr audience is larger than the intended audience does not escape me, though.
I once again liquidated my equity positions. Since an epileptic monkey choosing stocks by throwing darts could have made money in this rally, it’s not surprising that I sold for a profit. This is not the first time I’ve liquidated during this rally, though I liquidated just about everything this time. I might start buying stocks again after October, most likely January. I keep holding onto GLD, for better or for worse. My other holdings are required for covered calls. All other stocks and ETFs were sold. I’ve increased my options plays. I now have several strangles on the market (I still hate one-way bets on this market), and I expect the options strategy to be the best strategy heading into October. I’m keeping enough sideline money to establish strangles again in October and November. Most of my portfolio is simply cash, though. There are several reasons:
I don’t trade currencies, but the dollar appears to be at a very important technical level. Most people seem to be betting on a collapse, but some think a violent reversal is in the cards. The dollar weakness has been almost perfectly correlated to market strength, so this makes an option play strictly superior to betting on equities. I admit that it does seem a little stupid to trade in instruments that are at least 7 orders of magnitude less liquid than currency trading. I’ve been the entire day’s volume of trading on a given option contract before. It would be impossible to be the only dollar trader, particularly with the small sums I’m trading.
GE Beating S&P 500 Means Stocks Gaining Momentum: Chart of Day — Stupid headlines like this make me want to get out of the market. This has been a junk rally. Poorly rated stocks have outperformed highly rated stocks. Heavily shorted stocks have outperformed buy-and-hold favorites. Bankrupt companies have acted as perfect market proxies for multiple consecutive days. If stocks actually are gaining momentum, options can capture the upside. If people realize they’ve invested in crap, the bottom of the strangle will be far happier than those betting on upside.
There’s no money on the sidelines. Money market levels are now back down to where they were pre-Lehman. People are just as invested now as they were then.
It’s a quadruple witching hour. Stock index futures, stock index options, stock options and single stock futures all expire today, something else that contributes to volatility.
Volatility is at a recent low. The VIX is still high for rational times, but it’s as low as it has been in a year. That makes the option strategy somewhat cost efficient. Watch the VIX.
Stocks are at important technical levels. This suggests against a sideways market, which is the prime loss condition for a strangle.
There’s another way to look at some of this data. The crisis could be ending, and volatility could continue back to rational levels. The reduced volatility would be extremely conducive to a sideways market. Then a strangle is strictly inferior to an equities play. Worse, swing trading won’t be able to compensate. The fact that the market is flat as I write this only makes me a little concerned.
