Surge in VIX Extends to Commodities – Opens Door for New Option Sales
Good afternoon. This is James Cordier of OptionSellers.com with a market update for May 19th. Well, the VIX has been in the news recently. All-time lows for the stock index barometer that talks about the volatility and, basically, there has been absolutely no fear whatsoever. The stock market, of course, has been rallying to practically new highs nearly each week for the first quarter or two of this year, 2017, and absolutely VIX trading below 10, the lowest level seen in decades. Basically, investors want to simply go long the stock market, and for many reasons – 0% interest rates and really nowhere else to look for any type of return.
Well, a lot of ideas — was the U.S. was the best house in the neighborhood? Always stronger than China, always stronger than Japan, and always stronger than the European nations. That changed dramatically this past week. U.S. auto sales and other parts of the housing market here in the United States are starting to show signs of easing. At the same time in Europe, many nations, France, Italy, and Germany, are actually doing quite well. What is this doing? This is causing a little bit of mayhem, not only on Wall Street, but also a lot of investors thinking about possibly taking money out of the U.S. and going into Europe and other instruments. Of course, what’s happening in Washington D.C. recently isn’t really helping matters. Just before visiting with you today, I was watching the DOW fall practically 400 points today. I think that’s the largest sell-off since last September.
Things do seem to be changing. The U.S. economy does seem to be cooling off somewhat. The stock market, of course, near record highs practically constantly every time you look at the newspaper. That seems to be changing. A lot of investors are starting to think that simply closing your eyes and simply going long stocks may not be the best investment in the world. At OptionSellers.com, we’re not rooting for the stock market to fall, but what we are rooting for is a little bit of volatility. We had very large positions in short options over the last 6 months, allowing decay to happen in mainly gold and silver calls as well as coffee calls. With volatility coming down and the price of those markets falling, we’ve been able to book great profits so far in 2017.
We’ve gone to quite a bit of cash recently if you look at your account. We are margined less at what our target level is, basically trying to be patient and waiting for volatility to come back into the market. Well, we just received that. We are going to be, I think, rewarded quite well in not selling options when volatility is at all-time lows, but trying to be patient and having some powder dry so that when volatility does come back to the market we are able to take advantage of it. That’s what we see happening here in the next 2-3 weeks. Volatility is back. It’s back in a big way.
As you know, for all of you that have read our book and followed our valuable materials, you know that volatility is the catalyst of higher premiums and that is, of course, what we are looking forward to selling. We will be looking at putting an additional 15-20% of your capital to work over the next 30 days as volatility has now begun to pump up premiums on both puts and calls. Again, our two favorite trades going into the summer of 2017 is short natural gas and short soybeans. Not only are these two of our favorite seasonal trades, but the fundamentals bear that position to work quite well going into the 2nd and 3rd quarter of this year.
Anyone wanting more information from OptionSellers.com can visit our website. If you’re not already a client and wish to become one, you can speak to Rosemary about possibly becoming one. As always, it’s a pleasure chatting with you. I’m looking forward to doing so again in 2 weeks. Thank you.