What, Me Worry?

Frankly I’m stunned by the level of complacency among market participants right now. Just a bit over a week ago the world was about to end and since then volatility dropped a whopping 40%? Maybe I am not seeing the forest for all the trees but I may I not so humbly submit whether or not this in itself is a representation of a healthy equities market? Just saying…

Despite the fact that our own SPX point & figure chart is insisting on a bullish price objective of 1600 I could not fathom recommending to short vega unless you really really know what you are doing and are capable of cutting your positions in a heartbeat as soon as you spot the heat coming around corner. You have been warned and don’t come crying to me if you find one of your cherished body parts twitching on a chopping board (graphic omitted).

Of course we always keep ourselves entertained here at Evil Speculator. But make sure you keep a delta neutral portfolio, or if you know your way around options then may I recommend some long delta plays –  there are many variations on the theme:

Long Call: Positive
Short Call: Negative
Long Put: Positive
Short Put: Negative
Long Straddle: Positive
Short Straddle: Negative
Long Strangle: Positive
Short Strangle: Negative
Put Credit Spread: Negative
Put Debit Spread: Positive
Call Credit Spread: Positive
Call Debit Spread: Negative
Call Ratio Spread: Negative
Put Ratio Spread: Negative
Calendar Spread: Positive
Covered Call Write: Negative
Covered Put Write: Negative

This is just a limited sub sample – there are many ways to skin this cat and I recommend you bulk up on option greeks to acquire some familiarity with how to take advantage of an increase or decrease in vega. What may be surprising to option noobs is that an increase in vega will actually benefit both put and call premiums. So assuming price remains the same you will profit from an increase in vega, no matter if you are long a put or a call. The simplest way to benefit from a rise in volatility is to be long puts, but unfortunately I don’t see a compelling reason to get short equities without being properly hedged.

On to Forex – GPB/USD – sitting on its 100-day SMA and I still think this is a great setup. If you’re not in then wait for a breach of the 25-hour to grab an entry.

Facebook now painting an inside day – you know the rules, so have at it. If not then I recommend a visit to the cheat sheet.

Crude – a quick update. Our long play is in pretty good shape at this point and I recommend you use the 100-hour SMA to slowly advance your stop.
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As dinner is waiting I’m going to rattle through our setups in speed mode: P&G – one of today’s favorites. Great inside day setup BUT given the support on the daily panel I’d be long right here with a stop below the 100-hour SMA.

Mastercard – inside day setup after a little ramp – we like that.

DRYS is putting MA to shame. LOVING this one – come to daddy!

CCJ – it’s getting tight there on the daily and I love that ID setup that would trigger an SMA breach either way. Also loving this one!

Bonds – I think we’ve got signs of life here. Long with a stop below the 100-hour SMA. Speculative.

Copper – – inside day near 25-day SMA – so no more. Another juicy one I won’t miss out on.

Gold – so many ways to play this one! You can do the 100-hour SMA breach, or the daily NLSL reversal. And if you’re the ambivalent type (a.k.a. undecided voter) then use the inside day it’s painting today. And if you take it now I think they’ll throw in a replica of the planned 1 Trillion Dollar Obama coin.

Cotton – come on – you know you love it. But seriously – this is a good ID setup near the 25-day SMA. We like context after all and this one has it in spades.

USD/CAD – slim pickings lately on the Forex front but I do what I can. I’d be short on a breach of both ST SMAs – it’s already below the daily ones and that’s basically what’s holding things up.

Have fun and keep it frosty!!

Cheers,