Options Trading After the “Bad” Unemployment Report

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I am looking at my options trading indicators this morning and despite the heavy sell-off they are presently mildly negative but turning positive relative to where they were prior to the open. I think we are very likely to close up from the initial open down of 1.7%

Whelp, hindsight being 20/20 the market was in no mood for false promises, punishing indexes across the board by day’s end. It is a good lesson to remember to stick closely to your day trading indicators and not anticipate movements.

It’s one thing to see your trading indicators start to go positive, but it’s a whole nuther kettle of fish to actually act on “almost positive” indicators, know what I’m saying? Indicators that are middle to slightly negative after being very negative are STILL negative after all. That is NOT how the “little guy” day trader makes money.

Rather, the little guy day trader waits until his or her leading indicators are full positive (or full negative) and then jumps on and rides the wave. Getting in ahead of the wave invites WIPE OUT. Best to wait until the wave has shown it’s true nature (rising or falling) before deciding whether to paddle harder to get ahead of the rise (buying call options) or to let it crest and pass (buying put options).

(author expansion 6/12/2010)
Last week was the first net positive week for the major indices in a long spell, basically since the week of the flash crash May 6th. It would be awful nice if we saw some positive news (like the nitwits at BP finally got their act together down in the gulf), maybe some increasing demand both in the credit markets and consumer markets. It would seem the initial shock of the Greek debt issue has produced some initiatives in the euro-zone and amongst G-8 / G-20 members that might get THEM ahead of the curve. It is clear the market was not impressed by Greece’s debt problems and is determined to root out any other weak hands prior to returning to “business as usual” in the credit markets.

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The word most governments and private borrowers should have heard loud and clear is that the lending spigot (at least for now) comes with a great deal more scrutiny than it did in the past. Having said that these improved and more streamlined borrowers ought to be better prepared to face the coming economic challenges than they were 6 months ago. I for one am more optimistic about business prospects than most these days. After all, we all have to continue living our lives, consuming at least some baseline of goods. Scenarios worse than that minimum baseline consumption are possible, but so undesirable that being “right” and betting on that kind of catastrophe successfully would not yield (net) favorable outcomes.

Think of it this way: would you rather be right in a world where the S&P 500 collapsed to some doomsday figure like 300 or 600 (recent lows indicate this low probability event possible) or would you prefer to be wrong in a world where the S&P 500 was at 2000? Let’s face it – the world with S&P 500 at 2000 is a heck of a lot more desirable than the alternative.

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