Is it a bird? No! Is it a plane? No! What is it? It’s a bear being shot out of a canon! And I’m not even exaggerating as this rally may be nearing its first leg but is long from being over. The bears basically had been handed eighteen months to take this market to the woodshed and failed miserably. Every. Single. Time. The price to be paid is going to be enormous because a failure of this magnitude should come with an appropriate punishment.
There is something markedly different about the current sell off and I have spent the last few hours assembling pieces of the puzzle into what I hope will be a useful perspective on where we are heading. As you know the analysis of volatility patterns has become somewhat of a hobby of mine and the more I delve into this aspect of price behavior the more fascinating it becomes.
Friday the 13th has always been a lucky day for me – I kid you not. It’s Saturday the 14th that you’ve got to watch our for. Why you ask? Come on – it’s Evil Speculator 101! Because you finally relax and let your guard down, which is exactly what Jason has been waiting for! Anyway, spending the weekend at Camp Crystal Lake shouldn’t be a big deal to anyone trading the spoos these days. Calling these swings ugly would be a compliment as the clean up crew at the CME has been pulling double shifts steam blasting entrails and dismembered body parts out of the trading pits.
The first round of our IV crush earnings plays was a resounding success and as there’s about a week’s worth of announcements left in this quarter we are pumped and ready for a second helping. If you’re new to options then I suggest you point your browser to to the first three posts in our ongoing tutorial series on option theory. Once you develop a basic understanding of what we are doing and how, selling volatility ahead of earnings announcements may become another profitable tool in your trading arsenal.