What Trading Options Have You Not Considered Yet?

The Volatility Index (VIX)is an important indicator of market turbulence. Recently, it emerged that traders were utilizing cutting-edge algorithms to manipulate the VIX by posting quotes on the S&P 500 options index without actually buying or selling any of the underlying financial instruments. This surprising revelation was made by a whistle-blower, and the market movements resulted in substantial costs for investors across the board. The VIX, otherwise known as the fear index gauges volatility in the equities markets. The higher the figure, and the sharper the rise, the greater the selloff. There are many ways to gauge the performance of equities markets, notably:

  • Inflation Rates
  • Employment Figures
  • Economic Indicators
  • US Dollar Index (DXY)
  • Probability Analysis of Interest Rate Hikes

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The Volatility Index was hovering around 10.0 – 12.0 from September 2017 through January 2018. However, by February, the volatility index momentarily spiked above 47.5, before retreating to its current level of 26.24. The numbers themselves are simply reflective of thisbearish sentiment, and the fear mongering taking place in stock markets. The 50-day moving average for the VIX is 13.56, and the 200-day moving average for the VIX is 11.41. The current level is double that, indicating that bullish sentiment on Wall Street has temporarily receded, and the bears are out in full force. Based on the above graphic, it is clear that the S&P 500 index is entering correction territory which means that a 10% decline in the overall level of the index has been reached. The current performance of the major 3 US bourses for the year to date is as follows:

  • The Dow Jones Industrial Average is down 0.98% for the year to date however, it has a 1-year return of 22.83%
  • The S&P 500 index has a year to date return of -0.84%, and a 1-year return of 16.12%.
  • The NASDAQ composite index has a year to date return of 0.98%, and a 1-year return of 22.29%.

Clearly, despite the negative hype in February, the longer-term performance of US equities markets remains bullish. This indicates that the fundamentals of market dynamics are strong. If we look to the US economic indicators, it is clear why traders should remain optimistic in their trading decisions says Wilkins Finance guru Marcus Powell:

“The US GDP growth rate was last measured at 2.6%, and the unemployment rate remained steady at 4.1%. Currently, the inflation rate is 2.1%, and the interest rate is at 1.5%. These are positive economic indicators, and they point to a fundamentally sound economy. If we turn our attention to business confidence, the rating of 59.1 index points is bullish. Anything above 50 represents an expansionary economy, or positive sentiment. Both the services PMI and Manufacturing PMI are above the critical 50 benchmark at 53.3 and 55.5 respectively. These are important growth triggers for traders.”

What Trading Options Are Likely to Make an Impact in 2018?

The usual suspects will remain hot favourites this year, including bank stocks, financial stocks, and believe it or not equities in general. We are in correction territory, perhaps even heading towards a short-term bearish market – but that does not mean that the equities bull run is over. Corrections allow traders and investors to capitalize on value-driven purchases of blue-chip stocks. If you can score Google, Facebook, Bank of America or other stock at discount of 10% to 15%, why not buy into the markets?

The rise in interest rates is inevitable – this is part of a long-term strategy of quantitative tightening that the Fed has adopted. The current interest rate is 1.5%, and is likely to jump 25 basis points by Wednesday, March 21, 2018. Rate hikes help bank stocks and financial stocks, given that they make their money from interest-related repayments. As a rule, the safe money is always on bank stocks at times like this. Derivatives trading can protect against stock market declines with things like put options on bank stocks, call options on gold, and further diversification of financial portfolios.

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