Daily Reflection: 05.10

11 May

The market has plenty of room to run at this point and both the bulls and bears can make a great case for which direction the move could be. While volatility does remain in the upper 20’s, we are sitting at a halfway point between prior highs and Thursday’s lows. This is a spot where we like to put on directional option positions. Oddly enough the DOW has been the strongest out of this latest downturn while the NASDAQ and Russell have just barely made it to their halfway back mark.

Strong stocks like CMG and MO have been dragged down by the market, while weak stocks like AMAG and MON continue to slide. Remaining as close to delta neutral with our option portfolio at this point in time is how we position ourselves for the greatest profit opportunity.

With May expiration only 11 days away and volatility inflated, July premiums may be the way to position you in these directional plays. For those who think a sharp reaction is to come this week, then May options will be an effective way to take advantage.

On a weekly basis of market volume so far throughout 2010 we have seen heavier volume on down days versus up days and today is no different. While we did show stronger than average volume, it was considerably lower than the past two days. Most of last week’s volume is probably due to electronic sell programs and these programs will now be reset with the new price action that we’ve seen here. If we begin to move higher investors may see it as a sign to jump on board and this “chasing” will push prices higher.

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