Fed Watch 2K17

Interest Rates Expected to Increase this Week

The Federal Reserve is likely to forge ahead with plans to tighten monetary policy this week despite a succession of poor inflation readings as it relies on continued strength in hiring.

Fed chair Janet Yellen and her colleagues on the Federal Open Market Committee are widely expected to pull the trigger on a second rate increase this year, lifting the target range for the federal funds rate by a quarter point to 1 per cent to 1.25 per cent.

In addition, the central bank has been preparing to update a statement of its approach to "normalization" of monetary policy. The new elements would cover its strategy for reducing the size of its $4.5tn balance sheet by phasing out the reinvestment of proceeds of maturing securities on its portfolio.

Core inflation figures headed in the wrong direction in March and April, and hiring undershot analysts' expectations in May, according to numbers released at the beginning of the month. Nevertheless, Ms. Yellen and her fellow rate-setters have not given up on their expectation that America's arrival at full employment will drive inflation back to the central bank's 2 per cent target.

In its May meeting, the Fed said that most policymakers would back a rate increase "soon" if the economy stays on track. Barring a big change of heart, this suggests a quarter-point rate increase is likely to come on Wednesday.

If the Fed moves, that should not mask the underlying concern among some policymakers about inflation's stubborn refusal to accelerate — or for that matter wage growth that at 2.5 per cent in May was no higher than it was a year earlier.

There is accordingly a chance that the Fed will acknowledge the weaker price growth in its post-meeting statement, even though it will not abandon its central case that inflation is heading back to 2 per cent. If inflation continues to disappoint in the second half, the calls from Fed doves for a rethink will grow.

Soft inflation numbers are unlikely to prompt a mass retreat by Fed policymakers from their March forecast that there will be three rate rises this year, including the move in March. But analysts will be watching the so-called dot plot of rate forecasts for any downward drift in 2018 and 2019.

Option Block 626: Comey Fails VIX, TSLA Mystery Deepens

Posted June 9th, 2017

Trading Block: Comey talks before the Senate - the markets shrug. VIX still in double digits, barely. Silver and Alibaba.

Odd Block: Puts trade in Tesla Inc. (TSLA), calls trade in CIT Group Inc. (CIT).

Strategy Block: Mike discusses the importance of having different strategies for different underlying, in similar scenarios.

Mail Block/Options Question of the Week:

Weird Fact: #1 $TSLA position= 26,760 Jan 2019 50 P. Weird Fact #2: 10k OI added in last 2 months (200 today). Why buy these puts?

• Extreme Catastrophe Hedge
• Newsletter Recommendation
• Model S Extended Warranty
• Only an idiot buys these

Comments on the QOTW:

• Comment from BeardfistMcfist - Tesla bond holders
• Comment from Gabe Rich - That's Elon Musk buying? Insider buying?
• Comment from WallStChe - Because the company will be out of business in 2018?
• Comment from Option Drone - Agree, although other alternatives seem even more head scratching

State of the Union:

• Comment from John King - #Fired #FBI director completes televised #Testimony negative for sitting #president & #VIX DOWN .41 to 9.98. Just plain crazy. @Options #USA

Listener Question:

• Question from Butcher Boys: What options trading strategy would you say is best suited to people with absolutely zero knowledge of options?

Around the Block: Comey swing and miss. British elections. Will we make a new all-time high? Fed news conference next Wednesday.

 

Options Insider Radio Interviews: Talking Options with Fidelity

Posted June 8th, 2017

In this episode, Mark is joined by Greg Stevens, Vice President of Product Development for Options at Fidelity.

They discuss:

• Greg's winding path through the derivatives space
• Fidelity's performance in Options Broker Madness
• Fidelity is so much more than just 401k
• Three ways to play: mobile, web, and Active Trader Pro
• Trader tools, including back-testers
• Commissions, margins, and price improvement
• Excelling at customer service
• Does Fidelity offer a virtual trading platform?
• The resurgence of back-testing
• More tools for happy options traders
• Idea generation/trade recommendations
• Investing in the mobile experience
• Charging to close shorts?
• Price improvement: the voodoo of order routing?
• The decline in options volume
• What happened to minis?
• Auctions: yea or nay?

 

Options Playbook Radio 161: Fun with a Long-Term AMD Fig Leaf

Posted June 8th, 2017

In this episode, Brian reviews two paper trades from previous episodes and opens up a third. You can find the backspread with calls on page 84 of The Options Playbook, and the put debit spread is on page 62. Plus, this week we'll look at the fig leaf, which you can find on page 56. This is always available on OptionsPlaybook.com, in on the Amazon Kindle edition.

Today, Brian discusses:

• A review of the AMD backspread
• What did AMD do since putting on the trade?
• A review of the FCX debit put spread
• What did FCS do since putting on the trade?
• Re-introducing the fig leaf with AMD
• Using a LEAPS option
• Setting up the trade
• Picking strikes
• What will it cost?
• Why not just do a covered call?

Do you have questions that you want to have answered on an episode of Options Playbook Radio? Send them to Brian at theoptionsguy@invest.ally.com.

 

Option Block 625: Dealing With Profound Market Malaise

Posted June 6th, 2017

Trading Block: VIX at 960! The VIX is back to flirting with its lowest levels ever. Keep an eye on APPL. The World Wide Developer Conference begins this week. The year-to-date performance of Apple, Amazon, Netflix and FB is +34% right now.

Odd Block: Calls trade in Cenovus Energy Inc. (CVE) puts and calls trade in Dynavax Technologies Corp. (DVAX) and calls trade in MSCI Hong Kong Index (EWH), update from 4/3/17.

Mail Block: Options Question of the Week

Weird Fact: #1 $TSLA position= 26,760 Jan 2019 50 P. Fact 2: 10k OI added in last 2 months (200 today). Why buy these puts?

• Extreme Catastrophe Hedge
• Newsletter Recommendation
• Model S Extended Warranty
• Only an idiot buys these

Listener questions and comments: What do you want to know?

• Comment from Fed Zeppelin - Shorts are learning there's a better option than getting squeezed via equity?
• Comment from Option Drone? - Short CDS or an OTC put in the name.
• Question from Adam Linlan - What's up OB? Thinking about getting a model S. It is not a small purchase (about 85k) so I am a little concerned about the future of Tesla motors. Will it be around to service my pricey vehicle in 3-5 years? So I thought I should purchase some insurance. The longest listed puts are Jan 19. I do not want to pay through the nose so I am thinking about picking up the Jan 100 puts for about $4. By my math if TSLA goes bankrupt, I will be sitting on a cool 96k, more than the cost of my car. If it does not happen then I will probably roll about six months out so it will cost me a little more but all in all I do not foresee spending more than $1000 during the life of the car. Am I crazy for thinking about doing this?
• Question from Parallelism - What site are you using paper on? I would like to learn options using paper.
• Question from GiddyFranciscan - Sell in May and go away. What option strategy benefits from the profound market malaise that occurs over the summer?

Around the Block/This Week in the Market:

• Jun 5: Productivity and Costs, Factory Orders
• Jun 6: JOLTS
• Jun 8: Jobless Claims

This Week in Futures Options 54: The Bacon and Bitcoin Show

Posted June 5th, 2017

Topics this week include:

• Silver
• Platinum
• Crude

Futures Options Feedback: What do you want us to talk about?

• Comment from Production One? @MarkClydeBrant: Bellies!
• Comment from f ili p @FContangotrader: What about bitcoin, no love?
• Comment from Elmman: Can you talk more FX? GBP/USD and EUR/USD.
• Question from Lezen: Which product has the hottest weekly options?
• Question from LJack: Heard you mention CME direct? Is it a broker?

 

Volatility Views 257: Navigating Dangerous Waters with VXX Call Spreads

Posted June 5th, 2017

Today we have special guest co-host: Ophir Gottlieb, Capital Market Laboratories.

Volatility Review: A look back at the week from a volatility perspective.

• VIX Cash: 9.89
• VVIX: 83.83 - Both almost unchanged from last week.
• CBOE Skew Index : 124.55
• VIX Futures till steep

Russell's Weekly Rundown:

• VIX Options: Mon - Closed, Tues - 264k, Weds - 545k, Thurs - 231k, ADV - 722K
• VIX Call/Put: 3.2/1
• Total 8.37m (6.39m Calls, 1.98m Puts)
• OIV - 29, OVX - 31

Volatility Voicemail: Options Question of the Week

AMZN just hit $1000. Will GOOGL do it next? GOOGL $1000 call expiring Friday = $4, $1000 Put = $8. How would you trade?

• Sell $1000 Call for $4 - 21%
• Buy $1000 Call for $4 - 38%
• Sell $1000 Straddle: $12 - 19%
• Sell $1000 Put for $8 - 22%

Listener Questions and Comments:

• Comment from FContangotrader - @Options @OptionPit @OptionVol @RussellRhoads I am very impressed from Mark and his poetry and ABC options and Uber rhyme
• Comment from Production One? - Replying to @Options @OptionPit Meatball long 1W SPX straddle hit! Way to go Marco!
• Question from JavierLBC -Hi guys. I am new. Found you on StockTwits. Did you see 36,000 Sep 25 calls on VIX?

Crystal Ball: Wild and reckless prognostication.

Last week:

• Russell - 10.75
• Mark S. - 9.75
• Mark L. - 10.25

This week:

• Russell - 10.60
• Mark S. - 9.63
• Mark L. - 9.75
• Ophir - 10