Investors are starting to get spooked by the approaching debt ceiling deadline and no deal in Washington. Stocks accelerated lowered today. If lawmakers managed to get it together and produce a deal the market could rally. Yet a deal is not a guarantee the U.S. will avoid a credit rating downgrade. If we do lose our AAA trading then stocks would most likely fall.
You might hear some market pundits tonight and tomorrow talking about Dick Bove's dramatic call today. Bove is a widely followed banking analyst. He is suggesting investors sell everything and go to cash due to the weakness in the U.S. financial system and insurmountable debt issues. Essentially he feels there is no safe haven investment right now.
Short-term the market is at a major crossroads. We have the potential for a huge rally on a deal or a huge sell-off on no deal. In situations like this trading options offers an advantage. Simple long or short equity strategies don't help when the market direction could move violently in either direction. The safest move would be to exit the market and go to cash, like Bove is suggesting. Alternatively, if you have some long-term positions you'd rather not sell due to tax reasons then consider buying put options to protect your portfolio (granted they'll be more expensive today than they were yesterday).
Another alternative would be to actually pick a direction. If you think the market is going to move one way or the other then you have plenty of options. We only have three trading sessions left until the Tuesday, August 2nd deadline. Tonight I'd rather not try and pick a direction so we're not adding any new plays. Aggressive traders who feel strongly about their choice for market direction may want to consider the double long or double short ETFs to maximize the move.