Market Notes, Options Plays, and *Blue Plate Specials* 10/15 Portfolio Closeout

Market Notes
The market has been in a holding pattern for the past week waiting on the outcome of several noteworthy events. The first is tomorrow’s FOMC meeting where the primary focus will be on what the Fed says (in the way of future guidance) instead of what it does (like adjust the interest rate which it won’t but if it does they’ll be catching eveyone off-guard and all heck will break loose). The second are tomorrow’s mid-term elections where any deviation from the expected results won’t be reflected until Wednesday’s trading session.

Options insurance
With this event uncertainty combined with the fact that market is beginning to quaver, buying some put protection would be prudent. I prefer bear put debit spreads (buy a higher strike put and sell a lower strike put) over straight puts for two reasons: 1. the cost of insurance is reduced (by the income generated by the sold put) but the amount of protection is also reduced, and 2. the effects of volatility are mitigated which is especially important in highly volatile markets.

A speculative options play
Those of you high-risk options players might want to consider at-the-money straddles (buy an at-the-money call and a put at the same strike) on one of the major indexes or their tracking stocks (options on the Q’s and the SPY are cheap and liquid). This strategy works well if you expect a big move in the market but aren’t sure of the direction. I think this isn’t a bad bet at all considering that the market has been under consolidation for a while and when this happens it tends to make a significant move, one way or another.

Today’s portfolio close-out
The 10/15 portfolio was closed out for a slight loss. The 10/18 portfolio will be closed out tomorrow.


[See 4/21/10 blog for further details on how these portfolios were constructed.]

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