Wednesday, March 22, 2006

S&P Freeze: Day 5

The world has fallen asleep. Or, the world fell asleep right before expiration (normal) and then forgot to wake up (less normal). Regardless, the S&P has been in a mindless, tight range for almost 5 days now succeeding in frustrating just about any strategy.

To comment on my prevous stance on "break out higher to re-initiate put positions", the long put strategy is unchanged. The market did break out higher as I expected and then reversed sharply. Buying OEX 590 puts was the right play into that rally. The challnge now is to stay with them until the market proves that it wants to go higher. That proof needs to come in before time melts our premium. Doesn't look like the best odds out there, but we're sticking to our guns. Now, if the proof proves the opposite, then there's money to be made.

In addition, our views on Housing, Oil and Metal Miners have remained the same, - again until the market shows its hand.

Outside of that, this is the right time to do nothing. Think about this: most options traders have five (well, four and a half now) weeks to April's expiration. Normally they only get four. So, given this "free" time, traders are unwilling to take on any significant positions until they "have to". So, combining this fact with an absence of any other catalyst, it is quite understandable that the market isn't willing to make any headway.

I realize that the whole universe is thinking the same thing. Well, don't run in front of the universe unless you want to get run over. It's always better to make a lot less then to lose a lot more.

If there is anything to be exercised in the options world today, it's patience.

Cheers,
/Dmitry

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