VIX

Don't have long. $17Sept VIX Calls trading at 7.30. Will give more details later.

Options strategy for the week

Before I begin any options strategy, I will say that I am still waiting for the market to get shellacked like I thought it was going to in August. Sure, there has been some good news, but neither the world nor the american economies are as robust as they were 3 years ago.

That being said, I do not want to bet on a direction of the broad market. I don't think the market should be above 10,000 but the market seems to think it's moving in the right direction. So rather than make any bullish or bearish bets, I'd like to trade on volatility  so that I can benefit whichever direction the market ends up moving.

Now to the trade:

I'm looking at a long straddle on AMD.
Buy July 9.00 Calls: 1.11 Debit
Buy July 9.00 Puts: .95 Debit

Net Debit: 2.06 per contract.

This strategy will be profitable if AMD moves above 11.06 or below 6.94 by expiry. I wouldn't necessarily hold this until expiry though, if the implied volatility is higher fifteen days from now than it is right now (48.22%), the move will not need to be as sharp as it does at expiry. So this bet is that volatility is going to increase.

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Performance check: AAPL Trade from August

At expiry the trade netted +$5798.00 per contract.

The White Swan

At risk of following the herd, I have a long strategy on Apple. With just about every analyst predicting Apple to shoot through 300, my ideas may look conservative. On the same token, it seems that unless Nasssim Nicholas Taleb is a prophet, there is a negligible amount of risk. The idea is as follows:

Buy January 2011 270Calls at 11.70 a piece
Sell January 2011 220Puts at 12.96 a pop

The strategy will be profitable so long as AAPL doesn't drop under 218.74 between now and January. If it stays between 270 and 220 you'll net a nominal gain ($126/Contract), and if it pops above 270 as several analysts predict, there is potentially unlimited upside.

It might not seem too prudent to be long when so many economic indicators (including my previous post) are short the market, but Apple seems to have been able to defy the broad market -- and with a powerful lineup of new products (I'm typing this from a new macbook pro, which is AMAZING) and no end to the I-pad, pod, phone, mac craze -- I think it's a safe bet.

Bond Market 8/26

The bond market seems to be predicting that the drop in the equities market over the past two weeks is just the beginning of what's to come. To many people it's not news that the bond market can be used as a leading indicator in predicting the stock market, the chart below illustrates how the Dow reacts to rises and drops in the bond market, and how the two have correlated over the past three years.

Bond Market as a Leading Indicator for the Equities Market

This fact, combined with the macroeconomic news in the past several months (Housing starts, Eurozone, Debt fears)  leads me to be bearish on the market in general. There are no sectors that I see escaping a drop of 10% or more from current levels over the next 6 months.