Daily Market Update – September 29, 2014 (Close)

Finally, after a week of 5 trading days with triple digit moves that really had no reason for being, today could have been one of those days where there was an identifiable reason.

If you asked just a few days ago no one would likely have said that pro-democracy demonstrations in Hong Kong were on the horizon.

That is the kind of surprise that markets don’t like to see. Certainly the market in Hong Kong didn’t like the uncertainty and their market saw volatility spike by 20% in a single day..

So unlike all of the previous trading days of last week when there was no reason to suspect that anything was brewing, at least based on the pre-opening futures trading, today wa a little different. The futures had indicated a triple digit open to the downside and at its lowest point during the regular trading session that DJIA was down nearly 180 points.

While the pre-opening futures don’t usually give much indication where the trading day is heading, that’s less the case when the futures are making a strong statement.

Granted, a 100 point move in the futures today isn’t what a 100 point move was 5 years ago, but it is still something that you don’t see with great regularity neither in the futures nor in the regular trading session. The difference is that when it is in the futures there is almost always a reason that can be readily associated with the move, whereas there often doesn’t have to be any reason for the regular trading session to blow off some steam in either direction.

So this morning was just another of those to watch and see where things go.

The surprise was the repeated attempts to come back from the losses. That’s something that wasn’t seen at all last week during the three large losing sessions.

With only a single assignment last week I was hoping that Friday’s double dip purchase of Comcast would have been assigned as today was the ex-dividend date, but my shares weren’t, which came as a surprise, as shares finished well in the money. Later in the morning after tallying subscribers, as is usually the case when an ex-dividend position is in the money, the collective experience was the same. In fact, no one reported assignment, but in this case, I think assignment would have been preferable.

While the early market drop may have made some of  the week’s positions look even more appealing, I really didn’t want to spend too much of my remaining cash down, particularly since last week’s rebounds were all short lasting.

However, the prospects of selling new covered call positions decreases as the market is poised to go lower, although there may come that point that the volatility rises enough to start making the “DOH” kind of trades feasible again.

As this week’s Weekend Update article suggests, that rise in volatility is a good thing if you’re selling options, but it’s much better if it comes in an orderly manner, as was the case last week with all of the gyrations and relatively little net movement. With Friday’s strong close an equally strong drop today will add to that volatility and will add to the value of those premiums, perhaps even finally making out of the money premiums attractive to sell.

If you paid attention today and watched the volatility, while it did come off of its day’s highs, it was actually up quite a bit for a day in which the overall market was only down by 0.2%.

In turn, the VIX was nearly 7% higher.

That’s because of all of the intra-day volatility. That’s precisely the kind of market activity that leaves little in the way of damage, or at least must less than an unrestrained drop lower and no subsequent bounce. The good thing is that while there isn’t that much net change in the market there is a large net change in volatility.

That’s why all of those alternations in direction are so nice to see. 

With a number of positions set to expire this week and with the currently indicated price action making those assignments less likely, the likelihood is that any new purchases will still look at this Friday for their expiration, in an effort to create a greater chance of not only generating current income, but in having a greater possibility of assignment so that the cash can be recycled for use next week.

While there is an Employment Situation Report coming at the end of this week and we are coming off of the disappointment from the previous month, that report will be on the back burner as we watch and see what will develop in Hong Kong over the week.

The ebullience over the Alibaba IPO in China may give way to something else if authorities lose the ability to exercise some restraint and so while waiting to see what develops we will be held hostage to those events that were very much downplayed over the weekend and reportedly have not made their way into the Chinese news media on the mainland.

Insofar as events in China increasingly have an impact on our own markets this may be another interesting week, although being a bystander may be the way to go.

With only a single new position opened today, I don’t expect too much more. The other trade that I was hoping to open, one in MetLife started moving higher early in the session, as I was getting an order ready and it never returned close to the $53.50 level and today didn’t seem like the kind of day that you really wanted to chase anything.