Option Investor

A Return to Serious Volatility

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We thought the prior week was exciting but it only seems to get better in terms of increased volatility. The good news was a fill on three more oil plays and a serious breakdown in OSTK.

The dip in oil prices last week gave the airlines some lift and the rebound in oil this week has yet to push them lower. The big short covering rally on Thursday also floated all boats and planes and we have yet to see the tide go back out.

Having all the remaining oil plays triggered on the watch list left it empty and with summer ahead of us I could not see adding any new calls. I did come up with a couple new puts for your approval.

The volatility in the market place would be good if we were trying to sell something as it increases the prices of options. Unfortunately it also makes it hard to pick plays or rationalize what is happening to the current ones. Earnings season can cause serious zig-zags in prices as other stocks surprise investors with different results. That is exactly what we are seeing now.

I believe that the Dow will eventually break 10,000 and 9800 will return as critical support. This does not mean we are going straight down but I do believe the summer will be choppy with a downward bias similar to 2004. The only difference may be a little sharper drop to start the process as we have already seen.

Now that we have a relatively full portfolio I am going to be much more particular with future entries until an upward bias returns or we achieve what I believe to be a bottom as we approach the end of summer. Leaps traders (as opposed to investors) should be ready to enter numerous positions towards the end of summer and early fall. That is historically our prime time for profitable entries.

Since the oil plays are basically all the same, geared to an increase in crude oil as the year progresses, I am not going into a lot of detail on each individual entry.

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