Happy New Year

Last Year:
So some of my banker friends have become stand up comedians... no really... they have... AND knowingly... as in, these guys intend the world to laugh when they talk ...( the first 6 months of the year when they were saying things and the market was crying...)
That pretty much sums up the year that was... on another note I am very proud of these friends for being creativity and having the desire to pursue other dreams than to structure complicated stuff.

Next Year...

I am a contrarian trader this year as well... still a buyer of gamma/volatility... especially on the 3 month, 6 month front and especially one touch options /wings etc. however, the key idea is to SELL your options when they are worth a lot instead of waiting till expiration date.

Mean Reversion with some downward drift is the theme of the market:
I see that the market has a lot of movement... the last active trading day was a more than 3% movement day.... or an yearly vol of 50% ish...which is a lot. That vol means that roughly an at the money option would cost 12.5% of the notional. However, if you notice, we have been moving in the 750- 950 ish range for a while now; since October 6th we have moved from below 1000 to almost back to 930 now. We have still generated a lot of volatility... how could this be? this can only occur if the market does a lot of mean reversion.... So if you want to trade somewhat contrarian this is the time to do it...

How to trade contrarian?
My view is contrarian with a short bias (i.e. I still do believe that the market is going down overall just not on the same trajectory as most people)... In other words, I buy options when I think they are too cheap, I wait until the market moves in my direction and then I sell the option without trying to exercise it. Interestingly, if I had tried to exercise the options, I would have made $0.00 this year....
A concrete example: I bought Jan 20 expiration 950 strike calls ( on the S&P) when the market had tanked to 815 levels. Then when the market rallied back to 930, I sold my calls. In between, I waited patiently.
Caveats: The waiting can be painful. If the market remains at 815 then I make no money, If the market tanks even more, then I make no money and if the market rises to 930 on Jan 19th , I will still make no money... so select your strikes wisely...
Decay: Naturally, I have to pay the cost of those calls when the market does nothing... that is the decay- the optionality decreases everyday so it can definitely be the case that the market doesn't move and your option decays like a dead horse.

But why might this strategy work? high intraday vol and lots of mean reversion, which you can take advantage of by placing LIMIT orders. Don't run into buy at the market price. In other words, have a view BEFORE hand... put in a price you will be happy to own something at



I think going long the dollar in the next few months may be a smart trade. if wrong , get out of it and wait on the sidelines.

Don't risk more than 5% of your capital on any one trade... especially involving options...Be conservative in these highly volatile times...

Enjoy and Happy New Year!