Opinion: Expiration Week, September 2008

If you turned away from your computer screen (or TV) for a few minutes today, you may not have recognized the market when you returned.

Today was truly a day of ups and downs.  A strong decline at the opening soon faded and the markets rallied strongly into the close.

In between, the Federal Reserve's decision to hold interest rates steady was met with a loud chorus of boos from traders on the floor of the New York Stock Exchange, and the DJIA declined 100 points in less than one minute. 

That decline didn't last long and within 20 minutes the DJIA recovered that 100 points and added another 100.

For investors, it may have been a bit unnerving, but for traders the intra-day volatility resulted in many trading opportunities – or traps – depending on their trading skills.

For me, a short-term investor/trader who is usually short gamma (that means my positions get longer and longer as the market declines, and shorter and shorter as the market rallies), this could have been a disaster day.

But luckily, I made no hurried decisions and withstood the ups and downs of the market. The only reason I mention this is for readers who are following the two real-time trades I recently posted.  No adjustments were made and the positions are intact.

With the fate of AIG hanging in the balance, the market is expected to see continued volatility through this week of options expiration.  If you are someone who traditionally prefers to see options expire worthless, allowing you to collect every last penny, this may be a good month to reconsider.  Paying a nickel or two for short options – just to protect yourself from the appearance of another black swan, is a prudent thing to do.

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