Wednesday, January 2, 2013

After the Cliff....

OK. Let's all put on our "I fell off the Fiscal Cliff and lived!" t-shirts, bask  in the happy glow for a day, and then move on.

The deal passed by the House on Tuesday means that the next crisis will happen at the end of February, when Treasury runs out of extraordinary measures to pay the nation's bills absent an incease in the debt ceiling, and Congress must take a scalpel to the budget in order to impose budget cutting by meat axe.

The Associated Press wrote on the subject on Jan. 1 -- read it here -- and House passage of the final deal last night changes nothing in the analysis.

I've written before of my strange reluctance to put my financial well-being in the hands of John Boehner and Harry Reid, and even President Obama.

So I treated the present "crisis" the way I would a suspect earnings announcement -- I reduced my market exposure to a minimum in an effort to avoid the unforecastable.

I can assign odds of a successful trade when the price Apple's stock breaks above its channel. But I can't assign odds to the psychological and political interplay of Boehner, Reid & Co. (For example, there this fascinating behind-the-scenes account from Politico of how personal the crisis negotiations became.

In practical terms, my avoidance strategy meant that I didn't trade the January options, which expire in a bit more than two weeks.

Going forward, the political calendar gives me a chance to trade the February options without too much risk of a Washington melt-down destroying my holdings' value.

The Februaries expire Feb. 15, a couple of weeks before the do-or-die point in the next crisis. So for my own account, my intention is to resume trading on Thursday, using vertical credit spreads expiring in January for my initial positions.

I'll make a decision in early February, based on how the politics are playing out, whether to exit the markets almost entirely when the Februaries expire, or to continue on with plays on the March options.

I say almost entirely because I shall retain my insurance puts -- deep out-of-the-money put options expiring in January 2014 that I hold as insurance against major systemic risk.

Different subject: In The Week Ahead I said that I would roll out a new set of analytical tools today (Wednesday). That won't be happening after all because of a problem I've found in the perl code that generates reports. My new goal for the rollout is Monday, Jan. 7.

References

My trading rules can be read here. (They don't talk about the trend score because I'm still developing it.)

And the classic Turtle Trading rules on which my rules are based can be read here.

Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

No comments:

Post a Comment