Sunday, February 12, 2006

Week Behind, Week Ahead

There are times when I am deathly afraid of being bored. This isn't because of lack of hobbies (I have several, one of which used to be my fulltime career) but because boredom often spawns an incessant need for action. Action out of fear of not making money.

Well, I haven't felt that way since Jan 06 when the market broke out higher and we were overbought with seemingly nowhere to go. Over the past few weeks the equities market had the chance to negate all of the yearly gains, Gold rallied and sold off, Oil tanked against everyone's expections and the VIX/VXN started to trend decisively higher reflecting a rise in anxiety. In addition, the market keeps hinting at an imminent cliff-dive while managing to frustrate the bears with "nah, I was just kidding" type of a follow-up rallies.

The realized volaitlity over the past few weeks has given us the opportunity to capture healthy profits which we hope to retain during the expiration week. Continued volatility is welcome and ,judging the new levels of anxiety, fully expected.

  • We will continue to capture long gamma opportunities in the Oil sector. Plus, while I am no longer a growling bear I am definitely at least a cub, so I will make direcitonal recommendations to our fund.
  • The equities markets overall (NDX/SPX/etc.) may try to break lower, but I think there is too much money on the sidelines and too much anxiety (judging by rhetoric posted all over the net) for them to really break down. So, further "scary" dips will be viewed as buyable.
  • Gold sector put in a top but I doubt it's a big one. More downside is in the cards but that presents an opportunity to sell OTM spreads.
  • Finally, we expect VIX/VXN to establish slightly higher levels than what we've been seeing for the past few months. Not looking for VIX to hit 25, but a range between 13 and 16 is quite probable.
See you Monday, bright an early!



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