Enis’s Macro Wrap – Feeling Foolish

by Enis August 6, 2012 7:45 am • Commentary

Friday’s move to almost 3 month highs in the SPX was certainly unexpected for me.  I had built up an array of August put and put spread positions in anticipation of move to test the 1300-1325 level, and a good chunk of premium evaporated in one day.  Here’s the thing:  the setup was a favorable one to play for a down move.  A lot of indicators lined up, and markets seemed primed in various ways.  So my “process” dictated the bearish bets, no matter the outcome.  BUT, and this is a huge but, I should not have accumulated so much August premium.  I should have been looking for some offsetting trades in case the outcome did not match my expectations.  And I failed to do that, and feel foolish as a result.

But who cares how I feel?  What’s important is what should I do?  Since a good portion of my existing premium has lost its value, I am in premium salvation mode at this point.  I am not as concerned about options that I own past August, but August is my concentrated problem.  So I’ll be focusing on salvaging that over the next 2 weeks.

On to the markets overnight:

  • Very quiet volume and tight range in the SPX futures overnight session.  Asia followed the U.S. and Europe higher from Friday.  Europe opened flat and is now trading +0.5%, and SPX futures are up 0.3%, with the 1400 level in SPX cash 5 points away.
  • The dollar was actually slightly stronger vs. most major crosses, though emerging market currencies broadly higher, in line with the risk bid in stocks
  • Treasury bonds are flat, and 10 year yields in Spain and Italy are lower by 5-10 bps
  • Commodities are broadly lower, with gold the lone exception, up 0.25%
  • Very light week for the economic calendar.  Probably the only release of note in the U.S. is Jobless Claims on Thursday