Stocks turned higher in afternoon trading on Monday after trading in negative territory during the early part of the session. We had another round of mostly weaker-than-expected economic data, while earnings and a continued focus on developments out of Europe dominated the headlines.
The S&P 500 Volatility Index (VIX) jumped at the start of the session, then fell lower by midday during a see-saw day of action. The “fear index” ultimately closed 7.3% lower on Monday.
It’s funny when you think back to find a clear explanation of what the fuss has been about. The drop in the price of crude oil, I guess? Something to do with a Greek election? Some “will they/won’t they” debate about the prospect for quantitative easing by the European Central Bank?
It’s kind of a blur. All I know for sure is that investors were aghast at seeing prices fall and sent the VIX soaring.
The CounterPoint Options system recommends that investors practice a bit of patience and await a reversal of these conditions — i.e., a restoration of calm and confidence and higher stock prices. Since the early part of the month, the system’s position has been that it will pay to be a confident buyer of call options on the major stock indexes while others play the part of a scared seller. After all, the system depends on its contrarian view of the markets to see through the haze of fear and doubt, and recommends that you take on the risk of owning leveraged securities and fade the angst of the worriers.
In doing so, the system is recommending SPDR S&P 500 ETF (SPY) March calls, based on its viewpoint of a rally in the broad market over the next few weeks.
Buy a 1/3-sized position in the SPY Mar. 31st $205 calls at $2.65 limit, good till canceled. Note that this is the quarterly SPY option expiring on Tuesday, March 31. When filled, set up to sell the position at $5.45 limit, good till canceled.
Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.
