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What Options Are Telling Me


Options are telling me that people are now more worried about missing a rally than anything.


I am pretty busy selling deltas (stock) up here against our positions. Wells Fargo (WFC) has rallied 3.3% today yet they crush volatility in option prices. This is a major move in stock and the reaction of people always amazes me. But it is really due to call selling from overwriters.

Just like a major increase in option prices tend to make markets rally (as explained), a crush in volatility sets up the market to fall back. Again, much of this rally is due to a sort of short covering where those long expensive puts panic and "puke" them out.

And it starts over and over again, a process that tells a lot if you look between the lines. Options are telling me that people are now more worried about missing a rally than anything.

All this in a backdrop where central banks are more and more active in the markets and more secret about those dealings. Rumors abound that the Fed will eliminate Owner's Equivalent Rent from CPI. Does this surprise anyone?

The "socialization" of markets is a vain attempt to control economic cycles. It slowly eats away at capitalism in favor of collectivism. Motives change. But the process is cumulative. Central banks have introduced more and more credit into the system as their "control" factor. Everyone waits with baited breath what a bureaucrat has to say about how much credit he is going to offer, for everything he says really has to do with this.

Stay the course. Risk is only increasing.

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