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Forks and Roads


May peace be with you!


Nobody on the road, nobody on the beach
I feel it in the air--the summer's out of reach
Empty lake, empty streets, the sun goes down alone
I'm drivin' by your house though I know you're not at home

(Don Henley)

The afternoon lift has started to shift as Boo stands his ground and bulls start to drift. The action had been splendid as the brokers, breadth, cyclicals and small caps took the baton and ran due north. Contra-hour arrived on cue, however, and some serious spillage by the semiconductors tempered the collective enthusiasm. Now, as we ready ourselves for the all-of-a-sudden hump, we've got to pick a critter or stand aside.

We've been talking volatility over on the Buzz and the commentary is salient on a few fronts. First and foremost, it is this trader's humble opinion that a sizable disconnect exists between perception and reality as a function of eight year lows in the VXO. We've got an election coming and while clarity is clearly bullish (uncertainty is not), the potential for unwanted shocks increases in kind. Further, and this isn't a catalyst as much as an observation, it remains my view that our structural issues are bi-partisan.

Now, before you fire off that email, let me qualify the above view by saying that it's impossible to "game" an event that we can't see and have no way of predicting. My point is that trading, in its purest form, is about identifying the vig between what is and what's perceived to be. I am not playing "for" an event but I believe there is a low-risk way to protect my book and cheap enough "specs" (on the downside) to warrant the incremental exposure.

As a derivative thought to these derivative thoughts, John Succo--who I maintain is the single best option trader alive--added these vibes to the dicsussion. "The VIX can be perceived as a gauge on perception: option traders make judgments about prices that are mostly subjective and do indicate market sentiment. But don't underestimate the ramifications of VIX. I was just talking to Fleck about the level and structure of option prices. A low VIX has real implications on leverage. A low VIX means that participants are really selling options low, not just thinking about it. A low VIX means heavy supply of options. This creates a situation where there is a large open interest in options with low prices. Options with low prices have higher gamma. The higher the gamma, the higher the leverage-and there is very high gamma in the structure of options." Thanks Succ--and Minyans who want to learn more about these instruments can read John's excellent tutorial on derivatives.

Sir Elmer will dominate tomorrow's tape while Conference USA will continue to dribble out information. My near-term view remains the same--I'm allowing for some "clarity" jig but using the lift as an opportunity to add some defined risk downside puts. Nothin' crazy, just edging back into the fray while respecting both sides of the trading equation.

I'm gonna jump so I can post this while the postin's still good. If you've got an interest in participating in our Minyan-wide "lets get into shape" bet, please ping Collins for more information. Tomorrow's opening bell is post time, although I'm a step (and a pound) ahead after today's disciplined diet. Hey--if nothing else, it's motivation for me to whip the kid into shape (pun intended) while raising some money for the kids. At the end of the day, that's all that really matters anyway.

Fare ye well into the bell and, once again, THANK YOU JOHN DUNN FOR BEING THE GOOD MINYAN YOU ARE.

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