Daily Market Update – September 29, 2014 (9:30 AM)
Finally, after a week of 5 trading days with triple digit moves that really had no reason for being, today may be one of those days where there is 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%.
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 is a little different. The futures are indicating a triple digit open to the downside.
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 may be another of those to watch and see where things go.
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 I will tally subscribers, as is usually the case when an ex-dividend position is in the money and see what the collective experience was, but in this case, I think assignment would have been preferable.
While the likelihood of decreasing prices may make some of the week’s positions look even more appealing, I really don’t want to spend too much of my remaining cash down.
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.
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.