Comments on: Trade & Market Update

By: Jon D

Jon D — Thu, 29 Oct 2009 15:35:49 +0000

How are you guys going to react to today’s positive GDP #’s? Selling more Bear Calls or Bull Puts?

By: Barney H

Barney H — Wed, 28 Oct 2009 17:05:09 +0000

Thanks Brad!
This certainly has been a tough month for risk management, and I really appreciate your conservative, thoughtful approach. If I do anything with RUT today, it’ll be with a 490/480 Put spread (to make sure I have some margin below the 200 day average). Hopefully tomorrow will be a good day for the top spreads!

By: bradrr

bradrr — Wed, 28 Oct 2009 16:52:16 +0000

Unfortunately, there is not much more information that we can look at other that what we’ve already analyzed in the Sunday advisory. We have been seeing negative divergence for several months and the market is due for a pull-back. The market is richly priced and “priced for perfection”. Per the broad-based diffusion economic indicators, 2 of the 3 that we monitor continue to climb or are at least are holding steady. The other, the Aruoba-Diebold-Scotti business conditions index that we showed a few weeks back in the Sunday advisory has pulled back a lot. Tomorrow’s advanced Q3 GDP number will most likely be good, however if it’s not, then this market could pull back hard since investors are looking for any reason to pull the trigger and run from this overextended market. And the RUT might drop down to its 200 day line near 510. I personally would like to see what the GDP number looks like before opening any spreads this month since we still have 18 trading days to go. I think we have plenty of time to still open our bottom spreads; but time is running out for our top spreads.

By: Barney H

Barney H — Wed, 28 Oct 2009 16:08:27 +0000

At the moment the RUT is trading at 575, below the 50 day moving average of 585.
I’m thinking of opening a RUT 500/490 Put spread, which is well below the 100 day moving average of 560. I might be able to get a credit of $0.40.
If tomorrow’s 3Q GDP is good, then the trade will be very safe… if the 3Q GDP is not good, then the correction will continue and I will have entered the trade prematurely.
Most economist think the recessionis over; so the 3Q GDP should be good… but what other information could I use to decide to do or not to do the trade? Thanks!