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How the Market Works

Ka ^ Boom

Posted by kdadmin on September 25th, 2014.

And we’re down.

The short term options markets are a fun place to track the market sentiment. Yesterday, for example, investors were willing to pay $1.90 (x100) for the right to buy 100 shares of SPY (an S&P 500 based ETF) before October 14, 2014. Today, they are willing to pay about $0.89.

If you were an options trader and bought this option at market close yesterday, you could have just lost 1/2 of the value of your position in the first few hours of today’s market open. Yikes. Of course, yesterday, you could have doubled your money in the first few hours. This is why option trading is best left to the pros.

The skinny here is that just because everyone else is afraid, and running for the exits, doesn’t mean that we shouldn’t look for a place to put a toe in to test the water. I’m thinking a 5% toe, to be exact. We’ll see.

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