It looks like volatility is going to be with us for awhile.  This market is not trading on fundamentals, but rather, it is being driven by emotion. The market is reacting to any bit of news, and as such, it makes it more difficult to time the direction.  Case in point was Friday’s reaction to the appointment of Timothy Geithner as the new Secretary of the Treasury.  After the announcement, the market soared to close up almost 500 points.  It’s not a bad strategy to take advantage of the volatility as evidenced by the pumped up premiums currently available in options.  One of the ways that you can do that is by selling credit spreads out way out of the money.

When I was a child, my mother told me not to play in the street in worry that I may be run over by a car.  Stay out of the street and in fact don’t even stand on the sidewalk.  Instead, play on the lawn in front of the house so you don’t get flattened by an errant car.  The amount of premium available in the out of the money options still allow for a decent return without putting your life at risk.  Do some chart analysis to determine where the “curb and gutter” is located (support and resistance) and then give yourself an additional margin beyond that.  Probability calculators can help you determine the likelihood of assignment.

There is always a way to make money in any market.  You just need to assess the current market conditions and apply the proper strategy.  Robin

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