Recent Trading

Today's market direction is probably going to be determined by the unemployment news.  This economy is in serious trouble, as if you didn't already know that.

If the market rallies on the news, I plan to buy in some cheap put spreads that I sold as part of an iron condor.  If I cannot get them at attractive prices, then I plan to buy some inexpensive insurance as downside protection.

If the market falls, I'll close out some cheap call spreads, and look to open some new RUT Apr iron condor trades (if IV increases).

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I haven't been trading much in recent days.  The open iron condor positions are faring well, primarily due to the IV crush that we've seen.  The passage of time hasn't hurt either.

The downside is that I feel under-invested.  I'll live with that because I don't want to force trades and I assume there will be ample opportunity to open new positions in the coming week or two.

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Options volume has been establishing new records year after year. And with significant increases.  Is that going to end in 2009?  Volume and open interest have been declining for three consecutive months.  The year has a long way to go, but hedge funds are either out of business or smaller than they used to be, and that may be enough for the streak to end.
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4 Responses to Recent Trading

  1. income trader 02/06/2009 at 10:05 AM #

    Hello Mark,
    I have felt under invested as well. The volume issue is one that I believe hasn’t been discussed much in the financial media. The lack of volume both in the equity markets and options markets is troubling to me. I am of the opinion that many participants left the market in late 2008 and will not be back anytime soon. The average middle class American has had 40 to 50% of his/hers 401K chopped off. The extreme volatility and the duration of this much higher than normal volatility level is having a very pronounced effect on overall participation. Many folks have left the markets and will not return. We can’t forget we have been hit with two very tough, major crisis relatively close to one another (2000 and 2008).
    I remember periods of higher volatility (1987) but I am not sure there has been a longer period where volatility has hovered at such elevated levels. Do you?

  2. Mark Wolfinger 02/06/2009 at 10:18 AM #

    This is more volatile than anything I can remember. And the fact that VIX has decreased by almost 50% from its high does not mean that volatility has gone away. I believe the only period of comparable volatility occurred in the 1930s.
    1987 was much more volatile – but for a much shorter period of time.
    I agree that individual investors have been scared away. Can you imagine what it must be like for those who were hurt in 2000 and finally ventured back into the markets in 2007? Ouch.
    But to me, the major reason for the decline in volume is the fact that hedge funds have become less important. With many out of business, and others with many fewer dollars in their coffers, as a group, hedge funds are trading less stock and fewer options.

  3. duane slyder 02/06/2009 at 2:41 PM #

    Volume is down, but some of my trading systems are working better than ever. Not sure if it is the high IV so I can get a nice profit quicker, the lack of retail option buyers, or what. I’ve been told that 1987 was awful for option traders but then there were numerous years of great years. Is that starting to occur again? Too soon to tell.
    Oh and I am underinvested too. Not going to be fully invested for a while.

  4. Mark Wolfinger 02/06/2009 at 2:55 PM #

    Hi,
    In Oct 87, MMs did not want to trade. For example, the market might have been 20 to 30 for a put option with a strike price of 30.
    No fun for most. Customers had to pay way up to cover.
    But those who were solvent make out just fine. That did NOT include me.