Simpler Sentiment – Weekly Wrap Up 10/7/16

The market continued to remain range-bound this week, with the S&P 500 remaining in a 20-point range and closing out the week just 15 points lower on the week.

The Nasdaq 100 was only off 11 points and remains just off the all-time high from last month. The Russell 2000 has the worst week, ending Friday with the lowest close in more than two weeks.

The VIX spent much of the week down around 13, but closed out the week at 13.48. The VXST, the short term Volatility Index ended at 11.47, showing less short term volatility expectation.

Our traders started the week with an overall neutral view and their combined view again proved to be right.

A friend was telling me that he is going on vacation and would like the peace of mind of having protection for his stock portfolio. We discussed various ways of buying puts for some portfolio insurance and the cheapest way for him to get that protection.

But talking to him further, we decided that his best bet was to sell his stocks, move to cash and buy some calls and call spreads to replace some of his upside exposure. The reason for this is option skew. For ETFs like the SPY or QQQ and for most equities, out of the money calls have lower implied volatility, and therefore a lower relative cost then out of the money puts. So while you get similar exposure with long calls as you do with puts against long stock, the former option is almost always a better value.

As I mentioned, one of the advantages of being a smaller retail trader is that you actually get to move to cash and be nimble in the way that big institutional traders can’t.

Coming Up Next:

Trade The Election 2016

Join John F. Carter and Raghee Horner to discover how traders with over 50 years combined experience are preparing to take advantage of the upcoming election chaos.


Chris Brecher

Chris Brecher Stock Vice President

Chris Brecher grew up in Jacksonville, Florida. Though he went to college for Paleontology and Marketing, he settled for being a Stock Broker. In watching the brokers in his office lose every time by taking shots in options, Chris wanted to find out who was making money on the other side.

Leave a Comment