Breaking Down the Bulls and Bears: This Week's Market Recap | Outlier Insights
Breaking Down the Bulls and Bears: This Week's Market Recap | Outlier Insights
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Outlier Insights.
Markets.
The US economy is on track to grow at a solid pace through the end of 2024. S&P Global's preliminary US composite Purchasing Managers' Index (PMI) registered at 54.4 in September, indicating steady economic growth.
The International Monetary Fund (IMF) has raised its US economic growth forecast. The IMF now projects 2.8% growth for 2024 and 2.2% for 2025, making the US the only developed economy to receive upgrades for both years.
US economic activity remained largely unchanged from September through early October. The Federal Reserve's latest Beige Book report noted a slight increase in hiring and more optimism about the longer-term outlook.
Inflation is showing signs of slowing down. However, the cost of materials and production is still rising faster than companies can increase their prices, potentially impacting profits.
The Federal Reserve is expected to make a smaller interest rate cut of 0.25% at its November policy meeting. This decision is based on the current economic indicators and inflation trends.
The S&P 500 and Dow Jones Industrial Average posted fresh record closes at the end of September. This performance defied the historical trend of September being a challenging month for stocks.
Stock futures showed minimal variation following the S&P 500's record-setting close. Investors are now anticipating the nonfarm payrolls report for September as the next significant market driver.
The S&P 500 edged slightly higher on Friday, halting a three-day decline. However, it still posted a weekly loss due to concerns about the Federal Reserve's interest rate strategy.
The Dow Jones Industrial Average fell 0.6% on Friday and had a disappointing weekly performance. Renewed concerns about the Fed's interest rate strategy dampened risk appetite.
The Nasdaq Composite gained about 0.6% on Friday, reaching a new all-time high of 18,518.61. Major technology companies contributed to the Nasdaq's rise as investors anticipated upcoming earnings reports.
The 10-year Treasury yield climbed to around 4.23%, approaching a three-month high. This surge in yields is pressuring stocks and causing volatility in the market.
Investors are preparing for potential volatility in the coming weeks. Focus is on the U.S. jobs report scheduled for next Friday and earnings reports from major tech companies.
India's National Stock Exchange will retain weekly derivative contracts linked to the Nifty 50 index. This decision comes despite new regulatory rules aimed at curbing excessive options trading by retail investors.
A survey by moomoo and Cboe found increased interest in options trading among retail investors. 67% of respondents reported trading options for less than three years.
Fintech firm Revolut launched a standalone platform called Revolut Invest. The platform offers CFDs and other assets in select European countries, potentially impacting the options trading landscape.
The market this past week showed a little bit of downside, which as per usual, I find it absolutely essential for traders to use these small volatility periods to assess our system and performance. If last week caused any issues, you need to carefully evaluate your approach, positioning, and risk tolerance to ensure there is alignment.
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Erik’s Musings.
I’ve spent over 30,000 hours across 16 years analyzing and trading derivatives. Options traders repeatedly get this wrong. We’re worried about what structure is “best” or “what strike to pick”. These are the least of your worries. Your focus should be different.
It’s important to remember that options are simply a type of security. They have certain qualities that allow for different opportunities but there is nothing inherently magical about them. There is no de facto edge with them.
Your very first priority is identifying a profit mechanism that you can monetize. This can be simple - such as a breakout strategy. Or more complex like modeling volatility and playing vol discrepancies. The story is the same however.
It doesn’t matter if you’ve mastered every element of options. Or have the most robust theoretical understanding. If you buy a call or sell a put and the ticker goes down - you lose. To the same, if you’re able to identify a profit mechanism and capture it.
It doesn’t matter if you’ve bought the call or sold a put, if the stock goes up you’ve still made money - it becomes a question of how much. Profit mechanism first. Signal second. Fit strategy to the opportunity third. It’s that simple.
Be an Outlier
Erik
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