How to “Stay above the Fray” of a Floundering Stock Market
The Not So Obvious Alternative that Can Deliver in Today’s Market Climate
Believe it or not, it’s October already. Yellen has spoken, Trump keeps speaking, and just about every investor anywhere is on edge about the schizophrenic stock market.
Jim Chanos continues to call for the collapse of China.
CNBC and The Journal still obsess daily about the interest rate decision and are already speculating on the next Fed meeting.
S & P
The S&P is down over 10% since it’s highs in June. Is the correction over or just getting started?
I’ve seen several of my colleagues over at the CBOE in a frenzy about fluctuations in the VIX.
And the icing on the cake – a local news reporter here in Tampa advising “nervous investors” to call their financial advisors to make sure their “portfolio allocations are correct.”
Yes….good time for that.
What will they do about it?
Strip away all of the pomp and circumstance and they are all trying to answer one core question: What will stocks do next and what should I do about it?
Chanos will probably continue to short the market. Maybe he’ll be right this time.
The CNBC guys (and gals) will be happy no matter what happens – as long as the thing moves.
The CBOE guys will obsess over which side of the market to trade, oblivious to the fact that whether they are trading the S&P, the NASDAQ or the Russell, they still have all of their money and efforts concentrated in ONE market. Get it bad wrong once and you’re out.
And then there is Main Street Joe, who will call his financial advisor and will be given the standard line (taught on day one of financial advisor school) to “stay the course,” “these things happen,” “you’re in for the long run,” et, et…. which, incidentally, is often good advice if you are not actively involved in managing your investments. But if stocks take another nosedive, it’s Main Street Joe who will feel it hard.
Now, aren’t you glad you can stay above all of this nonsense?
Staying above the Fray
Staying above the fray means letting lesser investors worry about stocks, whether to buy or sell, get in or get out right now. By now, you should know the better path. Take pride. Most don’t.
Conversation with my Publicist last week:
Publicist: CNBC called today. Do you see anything exciting this week?
Me: Not a whole lot.
Publicist: (slightly alarmed): Well….oil……..what about oil? Is it at a low? IS IT TIME TO BUY???
Me: Not sure……..probably not yet.
Publicist: (now more impatient): Well what are you doing for your Clients?
Me: Just taking premium….mostly call premium…watching markets drift lower.
Publicist: How boring…
Me: Maybe for you!
See, while everybody is fretting about what stocks do next, and moaning about the lack of alternatives, you’ll hear very little talk about commodities right now. And when you do, the question is always “Is it time to buy?”
“Commodities?” they’ll quip, “They’re in the tank. Who wants to buy that?”
CRB Commodities Index
Commodities have been in a bear market for over 15 months. For call sellers, it can be the best of times.
Right. Nobody wants to buy commodities now. That is why they keep going down. But nobody said you should buy commodities right now, even if you think they’re near a low.
While stock values are doing their best imitation of base jumping, commodities values have remained in a slow, steady trend lower – and have been for some time.
Is that Boring? Uninteresting? Maybe…
Unless, of course, you’re an option seller.
Because the keyword above is trend. It’s a steady, solid, confirmed, long term TREND. The unenlightened masses believe that just because it’s direction isn’t up means its no good. But just the opposite is true.
A Downtrend is Still Your Friend
If you read The Complete Guide to Option Selling, you know that trending markets are some of the best markets in which to write options. An adept option seller can make premium withdrawals from the same trending market for months or even years. A good trend, regardless of it’s direction, can be an income stream for an option seller. And the more boring it is, the better.
The fact that the general public has no interest in participating in downtrends should have no bearing on your willingness to embrace them.
In this blog over the past 4 months, you’ve read suggestions for selling call options in soybeans, corn, crude oil and silver……all taking advantage of this overall trend. True there are individual fundamentals that also made these markets desirable for call sellers. But the trend lower in commodities as a whole played a big role.
Trends can mean steady, attractive returns for an option seller. The fact that the general public has no interest in participating in downtrends should have no bearing on your willingness to embrace them. Outright direction means little to you. You’re an option seller!
Now, maybe that is boring if your idea of fun is trying to pick a low in the DOW. Maybe its boring to TV reporters wanting to talk about he next “big” move.
But if boring means taking steady cash flow out of my investments while everybody else frets about China, The Fed and the VIX, I’ll take boring every day.
James Cordier is the author of McGraw-Hills The Complete Guide to Option Selling, 1st, 2nd and 3rd Editions. He is also founder and president of OptionSellers.com, an investment firm specializing in writing commodities options for high net-worth investors. James’ market comments are published by several international financial publications and news services including The Wall Street Journal, Reuters World News, Forbes, Bloomberg Television, Fox News and CNBC. Michael Gross is director of Research at OptionSellers.com. His published research articles have appeared on Forbes.com, MarketWatch, Optionetics.com, Businessweek.com and Yahoo Finance.
*Price Chart Courtesy of CQG, Inc.
Fundamental Charts courtesy of The Hightower Report
Seasonal Chart courtesy of Moore Research, Inc
***The information in this article has been carefully compiled from sources believed to be reliable, but it’s accuracy is not guaranteed. Use it at your own risk. There is risk of loss in all trading. Past performance is not necessarily indicative of future results. Traders should read The Option Disclosure Statement before trading options and should understand the risks in option trading, including the fact that any time an option is sold, there is an unlimited risk of loss, and when an option is purchased, the entire premium is at risk. In addition, any time an option is purchased or sold, transaction costs including brokerage and exchange fees are at risk. No representation is made that any account is likely to achieve profits or losses similar to those shown, or in any amount. An account may experience different results depending on factors such as timing of trades and account size. Before trading, one should be aware that with the potential for profits, there is also potential for losses, which may be very large. All opinions expressed are current opinions and are subject to change without notice.