Volatility, both historical and implied are VERY low. Blindly selling put premium would NOT be recommended at this stage in the game. Generally speaking, I have an affinity for premium collection strategies. As anyone who has sold option premium knows it's all about NOT giving back 6+-months worth of gains when vol pops and risk is re-priced. Consider the fact that historical (6 month) vol is at the low end of it's 40 year range.....only lower for a stretch in the mid-late 90s and in 2007 (that one didn't end well).
Compounding my concern about a "mean reversion" move over the next 30-90 days are the return of "animal spirits" as measured by the Options Speculation Index. The put/call ratios appear very call-heavy as well.
Yesterday, we saw yet another (5th in 7 days?) Hindenburg Omen.
Last point on Equity Indices (and related credit markets)...... for those that believe the Fed can reduce purchases/stop them entirely, consider the breakdown of Equity (S&P) performance when the Fed was NOT engaging in QE over the past four years. (Yes there have only been 29 weeks without active FOMC support). Cliff notes.....when the FOMC does more than $5bln in POMO on any given week, prices go up and yields go down. Same idea, different degree when they buy less than $5bln (except rates struggle). Stocks turn red in the absence of POMO historically. Chances are the Fed won't be at net 0 purchases until the middle of next year, and Fighting the Fed is a good way to go broke, but there is correlation....and causation. Either way, I find it hard to believe that Stocks will continue levitating if/when the Fed steps away. Furthermore, the market is a forward looking/discounting vehicle. As such, we may see the "discounting" begin at some point this year.
Potential Catalysts (near term):
- 8/21 FOMC Minutes
- 9/5 Japan Money Supply Target and ECB Meeting
- 9/9 Congress comes back to work after August break
- 9/18 THE BIG FED MEETING (Taper begins?)
- 9/22 German Elections
- 9/30 Next potential US Govt. Shutdown (without funding resolutions)
Briefly on the Metals -- Gold did NOT break the $1,350 level (yet). No new highs. Silver, however is markedly outperforming and made slightly higher highs today. If you read me regularly you know I advocated for the Gold/Silver ratio being attractive (expecting it to shrink) when it got up to 66-67. Hopefully readers were able to capitalize on Silver's outperformance. There was a considerable amount of money to made there assuming you have the stomach and bank roll for the risk. I would be slightly apprehensive to chase it right now, but if we get back to 64-65, my tune would change.
Is Silver breaking out (again)? Downward sloping line broken? We'll see.