Option Trading Newsletter: January 23, 2015

Prepared by the good people at Random Walk, LLC.

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Closing Prices From Yesterday

The Real trading year likely began today.

I expect new highs in the near future with a few strong months, then a MAJOR correction by the summer. All the countries in the world are playing games trying to outsmart and “tinker” with economies instead of allowing the free market to determine where things should be.

All the countries are shooting all their financial bullets over nothing. When that currency is really needed the well will run dry. History has proven that financial engineering is as close to a science as the Ouji board. There are no free lunches, and creating anew (asset) bubble to inflate your way out of a previously created government bubble (housing) that bailed us out of yet an earlier government created bubble (and so on) never ends well. It just takes longer for the hangover to appear than common sense would dictate. There is money to be made on the upside, but real fortunes are going to be lost (and a few made) on the downside. Think 1987, but without a bounce.

Company News

First: POT Class

Scott says it is (in his opinion) 90+% likely that the real trading will now begin for the year. Random Walk has no opinion. Previously POT was demonstrating put on wide, condors all over the math, dominating as much of the strike price chess board as possible. POT people….he wants you to know he is now going to slowly build up steam and kick this in gear.

Second: Vegas Timing

This could not have happened at a better time for the Vegas class. We were a little concerned that this market was going to be stupid for another month.

Today’s Number(s)

Yesterday and Today

Yesterday

At 8:30am eastern Mario Draghi announced that the ECB was buying $60 billion per month in bonds until the end of 2016, and are leaving things open to even a longer period of time. This is higher than the leaked number, and this amount of bonds being bought is greater than the amount outstanding.

The Dow immediately opened up 128 points on this news, and within 15 minutes had the market reverse to a negative net change of over -70 points down for the day. It was shocking actually. I was watching wondering if people had lost their minds. Another day of a 200 point range in the first 15 minutes. This is just too nuts.

Within another 15 minutes (a total of the first half hour) the market was back to the original opening price of the Dow up >100 points. We pretty much rested at those levels for most of the morning until at 1:30 eastern oil started to make a run higher (off deep lows) and the Euro started to fall even more. It was then that we ran up another 150 points. At the end of the day things were so strong I sent an update saying that it was my opinion that the January insanity is over.

OIL

On the day oil turned to be down a little, but a non-event.

Gold

Metals were strong and gold closed above 1,300 for the first time in a long while. Gold is actually up $100 an ounce this month.

The Euro

What can you say other than use words from the old Batman Series, “KABOOM”, “KA POW”.

The Euro is weak and has been for the second half of last year. When we went to Italy the Euro was at $1.34 (to the USD) and we felt that was a great deal. The Euro was down about 2 ½ cents yesterday alone. That is huge for those who do not watch currencies.

The Euro closed at E1.136 tot he USD. This means the currency is down about 16% in 3 months. Imagine if your buying power dropped 16%! That is what happened, but it makes sense. There is not way (American pride put aside) it should be at 1.30, but considering it was above 1.60 for a long time, things are in line with reality now.

Bonds

The US bond held up a lot better than I had suspected. Rates are still about 1.8% on the 10 year.

TODAY

Yesterday I stated in the morning update:

I “think” (but have had a poor track record this year) with

very little conviction that the markets are going to run up big.

I think the whole psychology of the market changed at 1:30pm eastern. You could see it just watching CNBC interviews. Most being interviewed changed their story du jour from focusing on oil and volatility speeches to talking about new highs for the year, earnings, and global economics. How refreshing.

I was tired of listening to analysts talking about how the average American is putting $750 more a year in their pocket (instead of the gas pump) and why that was a bad thing. It is an emphatically large and good thing. SHUT UP IDIOTS. I want to see a giant vaudeville hook yank them off the screen.

Yes…if you are an oil worker in the Dakotas or Texas you have to worry about lay-offs. None have happened yet because oil companies are having a tough time getting people to work for them who can pass a drug test. Apparently too many people are out studying for the test. And if you own oil stocks you may be hurt, but you didn’t hedge. So again…both self-inflicted wounds.

Low oil prices is what this country was founded on. Period.

Read a history book.

If it were not for cheap fuel the industrial revolution would not have progressed at the rate it did. The computer would not have been invented for another 10 years from now.

Cheap oil only hurts the people selling them, like cheap drugs hurts drug dealers.

Low oil prices is the only tax refund I get this (or any) year. They are good. Sending $450 BILLION a year to the sheiks overseas is not only a huge financial negative to the US, but I would go so far as to say it is a national security risk. As Kevin O’Leary on Shark Tank would say, “Stop the madness”.

So now the markets have something to focus on other than watching every $0.10 move in crude futures. Let’s put this stupid thing behind us and worry about what really moves markets – Earnings, the US economy, US Debt Levels (Maybe we don’t want to look at that one too carefully) and levels of “fear” vs. “greed”.

From here….

I think we got a little over our skis today, but with as much fear and pessimism as we had going into the day, maybe we are fine. I suspect that we will be seeing new highs in the Dow in the next couple of weeks, and people will once again look in their rear view mirror and wonder why they got so stupid and afraid over the last 3 weeks.

But this bubble we are in is still a bubble. Now Europe wants some of the helium. They actually could have used it a while ago, but who am I to judge? Now I risk sounding like the other half-wits who control the economy through the banks and want to tweak every little bump like I am smart enough to have a perfect running machine. They had a perfect running machine (so they said) until 2008-2009 and then they didn’t know what to do. I expect the same thing again, but bigger. It is just a matter of when.

Think back to 1998when the Nasdaq was making a run at catching up with the Dow in price. Everyone knew it was overdone, but it still took 2 more years for the bubble to pop. Same thing again, and again and until I am off this planet. Humans are awesome, but we do have a problem when it comes to saying, “this time it is different”. No it is not.

POT is held each Wednesday night at 7:00pm eastern.

SCHEDULE

• More on hedging a long vertical spread (going for or against you)

– Using the E-mini options as a hedge against the SPX and/OR a portfolio of stocks to enable a trader to be able to hedge 23.5 hours a day.

Contract the office at 1- 855 – RWT – 0008 for more details.

Too True To Be Funny

Do I smell a coin flip for President and VP? And how could they meet privately if we know about it?

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Attorney Stuff

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