How To Play Options Market Following QE

Now what? Nothing has fundamentally changed with this historic move by the ECB. All fundamentals are still the same: the US is doing well, Japan is still mired in deflation and in the middle of a potentially disastrous experiment, China is still growing but at a rate that is doubted by many experts, emerging markets are struggling especially with the oil crash of late, the Eurozone just entered the intensive care unit. All these have been ongoing for the last two years. The only change this week is that now the Threat of Draghi not being able to deliver on his EQE promise has been eliminated. So in theory we should see fewer equity sellers just based on that fact. So traders should resume with their thesis from 2014 leaving room for a little more upside while guarding against the occasional correctional period. Notice I didn't say correction; perhaps we are now in a new normal where corrections occur in short spurts and in concentrated areas to relieve enough pressure and stave the usual market-wide 20% correction of yore. A major worry now comes from the bond market; not enough attention was paid to the fact that Friday the 10year rates had a mini crash down over 4% and that the bond market is in resuming its break out mode. This combination has the tendency to crush rallies. Friday's redness came only to the Dow and some to the SPX. The Nasdaq closed green. Now markets are at a point of contention which next week will likely resolve itself.

How to trade? The options world offers many ways to structure relatively safe trades to short undeserved market pops while leaving room to the upside. Also by hedging the shorts with a few carefully place longs. These are uncertain times so options premiums are hefty. So selling risk outside of the trading ranges will pay the bills for this trader. Traders should be careful interpreting the ranges at play. There are those of us who can read the proverbial tea-leaves better than others so seek those with clarity on trading ranges.

Earnings season is in full bloom with many names like Apple and Google are still due to report. This brings about great opportunity but alas it leaves investors at the mercy of traders hasty interpretation of the results. Meaning that even great results get sold due to dislike of a term or two in the conference calls. So if possible, traders should avoid full unprotected positions into earnings. Most often the best earnings plays are set just after the event. Patience will pay. Google has had a phenomenal run after getting tested and is going into earnings vulnerable to a sell off. It could have a violent reaction to earnings. One outcome puts it over 600 and the other reaching to close the gap about 100 lower than current levels. This makes it more of a gamble than an investor so lotto tickets only please. Apple will deliver excellent sales of iphones but will disappoint on ipads. These two facts won't move the stock much. Markets are still looking for the flying car. This earnings report tho they won't deliver a flying car, they might be able to deliver a hoverboard (reference to an 80's classic movie) via much better than expected news from ApplPay. The stock could reach and break 120. If not then it too is vulnerable to revisit the recent lows.