It’s The Running Of The Bulls…

It’s The Running Of The Bulls…

Posted On August 3, 2022 3:39 pm

I’ve been very impressed with the market’s strength and what seems like investors flushed with the Fear of Missing Out (FOMO) emotion. The bullish action is a huge disconnect from what continues to be negative sentiment. This is a case of watching what they do, rather than what they say.

I’ve been leaning bullish, and looking at the momentum in the market currently, for good reason.

Options 360 has enjoyed some great momentum as well. Recently, we closed a bullish SPY position for a 23% gain over the 8 day holding period. Where else can you put down any amount of money and pick up a gain like that in just over a week?

The market shows no sign of slowing down.

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One clear sign is the surge in call buying over the past two days. So far this week, 7 out of every 10 options trade were call options. This is a year to date high and approaching levels seen during the retail option craze of 2021. This time we are seeing institutions buying large blocks of calls not just in individual names, but the major index ETfs like SPY and QQQ. 

I think some of the reason for this action is simply that money managers had become very underexposed as they de-risked during May and June. As you can see the percentage equity allocation had dropped below the 2020 pandemic levels and matched the depths of the 2008 financial crisis.

This speaks to the high level of uncertainty created by inflation and the Fed’s ever changing policy positions.

Now, with commodity prices seeming to have crested, it looks like the Fed, which trotted out a bunch of hawkish comments yesterday, is getting what it wants without having to get too aggressive with rate hikes.

This may become a unique case in which the market fights the Fed, and wins. And if the market is winning, you can expect Options360 and its members to win too.

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.