An options strategy for the very near-term
Okay then, since we’re all being forced to care about what some idiot former Goldman Sachs dude who’s now in charge of figuring out how to keep Goldman Sachs from admitting that it’s all but already completely insolvent and fraudulent, let’s talk about what’s probably the best approach for tomorrow’s action and on into the weekend. That is, the very near-term set up.
I’ve talked to literally dozens of money managers over the last four days. And the only consistency in their comments was that they’re all sure of one of two things:
* The EUcrats figure out a new giant welfare program for the banks who lent all the EUcrats’ bankrupt governments a bunch of money at historically never-before-seen low rates and the markets take off again.
* The EUcrats admit that they’ve run out of money, schemes and lies to waste, create and spin and the markets crash.
What’s the one thing that nobody expects tomorrow and on into the end of the year? I hinted about it yesterday in the chat — flatline. There might be too much bet on both directions such that it’ll really take something outrageous to make the markets actually move meaningfully tomorrow.
So how best to profit on that very near-term set up? Sell volatility. You can buy some near-term puts on the VIX and if the markets don’t do much tomorrow, they’ll like pay pretty big by the middle of next week.
Or you can, as I’m doing now, short some market puts and calls. If the markets spike or crash tomorrow, I’ll lose money being short market options. But when EVERYBODY you know is buying puts and/or calls, you probably want to be on the other side of EVERYBODY. So sell them the puts and calls they’re buying and let’s sit back and see how things play into the weekend and early next week.
Finally, remember that we’ve got lots of calls in tech stocks that we bought when they were much lower and that we’ve got puts in lots of bank stocks that we have been buying into the recent strength. And that means those options will likely move at a higher beta than the broader market calls and puts that I’m looking at shorting now.
Specifically then, you can look at shorting say the December 2011 SPY calls that have strike prices above $127 or so and you can short December 2011 SPY puts that have strike prices below $123 or so.
That’s what I’m doing in a small way, but as usual — NO RUSH and easy does it.
