This weekend’s Striking Price column was guest authored by Stephen Solaka of Belmont Capital. He discusses where volatility for the market is going into 2013 and compares where we were this time last year. This time last year, if an investor chose to hedge a $1 million portfolio against a decline of 15% or more over the course of 2012 the cost would have been $60,000. Recently the same sort of hedge cost $34,000 due to the lower volatility of SPY options now compared to this time last year.
He also mentions something in passing that I have been hearing whispers about. The fiscal cliff situation that is playing out in Washington, DC is not the only situation that will focus the market’s attention on our nation’s capital. Apparently Congress will need to make a decision on raising the debt ceiling in March. We may be in round one of two rounds of government induced market volatility.
Options Action –
I’m very grateful for my DVR every weekend as I watch Options Action and try to keep up with their suggestions. Being able to fast forward through the fiscal cliff discussions and get to the trading ideas. However, like last week, we never got to trading ideas. After the stock market close on Friday everyone left the White House with no new deal in place. The market result was a drop in S&P 500 Futures prices before that market closed.
The discussion was free flowing again which can result in some interesting thoughts. The technical analyst was asked about support levels for the S&P 500. His response was that we are past support levels and that trading action is fairly ugly. In addition, he noted areas that are often considered safe havens are not moving as you would expect. That could be an indication that market participants do not see safety anywhere until after the politicians come to a decision. It is worth noting he never pays attention to VIX and that market had quite the week last week.