Working Your Way Up the Ladder

Let’s face it…futures trading can at times be counterintuitive. Traditionally, there are two prices – the bid and the ask. The bid is the highest price that everyone else is willing to pay for something. This is where you’re supposed to sell. The ask represents the lowest price at which everyone else is willing to sell something. This is where you’re supposed to buy. Retail futures traders have been expected to trade at the mercy of the market makers’ bid-ask spreads. OptionsHouse begs to differ.

The Futures Trading LadderIntroducing the Futures Trading Ladder

New to OH 2.0, the Trading Ladder allows you to place orders that make intuitive sense. Do you see the red and green bars under the Bid and Ask columns? Click on any green bar under the Bid column to join the buyers and to become part of the overall market bid. Click on any red bar under the Ask column to join the sellers and to become a part of the overall market ask.

For example, if you wanted to buy futures at 2355.00, you’d click on the green bar to the left of the 2355.00 strike. Note that the green bar has the number 286 in it:  That’s the current number of futures contracts already bidding 2355.00. You’re going to be joining them. Hence, if you were to place an order to buy 10 contracts, you’d see that number rise to 296, as you’d now be represented as part of the bid.

You can set your desired quantity, order type (limit or market), and duration (day or GTC) using the blue buttons at the top of the Ladder.

Two Ways to Place an Order

At OptionsHouse, we know that for some of you, speed is of the essence. So if you’ve got more of that “ready, fire, aim” mentality, we have an Auto Send feature. Simply look for the words “Auto Send” at the top right of the Ladder. You can toggle that label between “ON” and “OFF”. If you see a green box with the word “ON” as shown in this image , then you have the green light to instantly send your order to the market without having to devote any precious seconds to double-checking your order.

For the rest of us mere mortals who prefer to be safe than sorry, click on the green box and make sure it turns red so you can see the word “OFF” as shown in this image . If this is the case, then when you click on a green bar, a pre-populated Buy ticket appears so that you can preview and confirm your buy order. Clicking on a red bar will bring up the Sell ticket so you can confirm your sell order. Happy Trading!

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OptionsHouse Blog – OptionsHouse

New iOS App Trading Tips & Highlights

Options Chain

Options are a big part of the OptionsHouse experience. The Option Chain on the mobile application offers a way to quickly build an option spread of your liking or create a simple option trade. You can quickly scroll through the expirations and choose the one(s) you would like to view.

Make trade selections by tapping on the prices in the Bid and Ask columns of the Calls and Puts sections. As you build out your spread on the Option Chain, you can view your selected options locked to the top of the chain. You don’t have to constantly scroll through your various selections to double check that you have selected the correct contracts for your trade.

You can also customize your Options Chain experience by changing the settings. Control how many strikes you see, whether or not you want to see non-standard expirations, centering the near value, or even controlling what data points you want to see such as Volume or Delta. View those data points for calls or puts by tapping on Calls or Puts right below the expiration selection bar. Once you finish building out your spread, complete your trade by tapping on the trade icon in the bottom navigation bar. Inside the trade feature, you can make more edits to what you have selected in the Options Chain or just quickly finish your trade.

Positions

Keeping track of positions in your portfolio is important to any trader. When viewing positions on OptionsHouse mobile app, you can customize and quickly scroll through real-time streaming data points for your positions. There are also indicators attached to your positions such as ‘Open Order’, ‘Dividend’, or ‘Expiring’ to give you a quick glance at the status of your various positions.

You can also choose how you view your positions by grouping your strategies or changing which data points you want to see for your positions. In addition to changing which data points you see, you can change the order you see them in.

There are also several trade actions you can make in positions. You can add to a current position, close it, or roll an option by either going into the Position detail by tapping on a positions, or tapping on the Trade icon for each position. In addition to viewing your positions, you can easily navigate and see your order history and balances when looking at your positions.

        

Positions on mobile allows you to quickly glance at your portfolio so you can see your account value and the performance of your holdings in the market. It is also easily grouped with Balances and Orders which gives more detail on your account status and order history.

Trade

When opportunities in the market arise, you often want to seize them as quickly as you can. On OptionsHouse mobile, you can quickly build your trade by using the various trading features on the app.

Select a strategy (e.g. Iron Condor) from the strategy picker for a pre-defined spread template. You can then edit to suit your preferences or if you’re not comfortable with using a pre-set strategy, then you can build a custom strategy by adding legs and building your trade manually one leg at a time. You can edit each leg by tapping on it to open it in edit mode and then save the changes. You can also edit more than one leg at a time.

After building your trade, if you don’t want to execute your trade right away, you can save and view it anytime in Orders. Orders which can be found in Portfolio on the bottom navigation or by going to the more menu and navigating to Orders. In Orders, you can execute or modify the trade at a later date at your convenience.

In addition, there are other selections that you can make along with your trade in order to enhance it such as price types and term selections. Price types for single leg orders can be Limit, Stop, Stop Limit, or Market. For multi-leg orders, you can select Limit Debit, Limit Credit, or Market. You can also tap on the ‘Bid’, ‘Mid’, or ‘Ask’ buttons in the Price section to change the Limit Price. In the Term section, you can change the duration and also select whether your trade is All-or-None.

Trading is an integral part of OptionsHouse mobile experience. For ease of use, you can prepare your trade on various parts of the app and have it be built on the Trade Screen for quick execution. For example, you can build out a spread on the Option Chain, close or add positions in Positions, or execute an order in Orders. Once any of those actions are selected, the trade is built out for you on the trade feature. From there, you can edit your trade as needed or just go ahead and preview. If the trade is satisfactory then just confirm and you are done!

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OptionsHouse Blog – OptionsHouse

That’s The Ticket!

Ready to place a trade? Our Trade Ticket lets you trade anything you want, the way you want to. Let’s dive right in…

Options ChainTrading an Option:

The option chain has all of the information you need to place a trade. From the chain, find the option you want to trade and then…

  • To buy an option, click on the Ask
  • To sell an option, click on the Bid

Trading More than One Option at a Time:

A spread is a trade that contains different options that trade as one group. Each different option in the group is called a “leg”. You can buy one leg and sell another. Or,sometimes you may choose to buy all legs of your spread, while other times you may choose to sell them. With our Trade Ticket, you can even buy and sell legs in different ratios.

On the OH 2.0 platform, to create a SPREAD, you:

OptionsHouse 2.0 Trading Ticket

  • Click on the respective Bid (to sell) or Ask (to buy) of the leg you want to trade
    • This automatically brings up an order ticket displaying the first leg of your trade
  • What if you want to trade another leg? No problem…just click on the Bid or Ask of your next option leg and voila! Your trade ticket now shows both option legs grouped and ready to be sent to the market
  • You can add up to 4 legs per trade ticket

And If You Change Your Mind…

No problem. Traders change their minds all the time.

If you decide you no longer like one of the legs in your trade, simply delete it by clicking on the  button on the right hand side of any leg on the trade ticket.

If you decide to buy something rather than sell it, click on the respective button below the Action column. 

You can also change strikes, expirations, and option type (call vs. put) by using any of the pull-down menus pertaining to each trade leg.

Finally, if you’re just not ready to trade now, click on the  on the top right corner of the trade ticket to minimize the ticket and trade at a later time. To delete the order, click on the  in that same top right corner and it’s gone. No hard feelings.

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OptionsHouse Blog – OptionsHouse

Charting By Candlelight

Even wonder what all the hoopla is about with candlestick charts? On the surface, they’re just colored bar charts (compare the two images below), but closer inspection may help you to quickly determine market trends and possible buying or selling pressure. Our new platform offers 10 different ways (including candlesticks) to display your chart data, and over 100 accompanying studies to help you get the most out of your charting experience.

Bar Chart

Candlestick Chart

Ancient Japanese Secret

Did you know that the earliest known use of candlesticks pre-dates Charles Dow’s technical analysis by about 50 years? Yup, rice traders in Japan were making use of candlesticks back as far as the 1850s! So how do they work on OH 2.0? Simple… there are red candles and there are green candles. In these examples, we assume a daily range, but in general, a candlestick can represent any time period. As you can see in the ensuing images, red candles indicate that the stock opened higher than where it closed, while green candles indicate that the stock opened lower than where it closed. That’s the only difference.

Charting By Candlelight -Candlestick diagram

Then, the larger the colored area (also referred to as the “body”), the greater the difference between the stock’s daily open and close. The longer the thin lines (often referred to as “wicks”), the greater the stock’s range. As you look back at the chart, lots of red implies selling pressure, while lots of green implies buying pressure. The larger the body, the stronger the pressure.

Dragonflies, Dojis, and Shadows, Oh My!

You can venture as deep down the candlestick rabbit hole as you’d like, and who knows? Candles may become your new thing. But regardless of which of our 10 display types you prefer, don’t forget to try out any of the over 100 available studies, and if you want, feel free to compare multiple symbols at once. Navigation is easy. Simply grab any chart to move it, resize it, or zoom in and out. So what are you waiting for? Log on to our new platform and connect with your inner chartist.

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OptionsHouse Blog – OptionsHouse

Inflation, growth in the cards: 2017 outlook

The year 2017 appears to be a period of changes. In addition to Donald Trump becoming President after the biggest upset in U.S. political history, new currents are flowing in the stock market and global economy. Today’s outlook will review these trends. 

Inflation and interest rates:

The last three months of 2016 saw interest rates and commodity prices rise sharply. This lifted financials like banks and brokers and materials such as steelmakers and chemicals. There may be potential for further rotation into these sectors because both lagged the broader S&P 500 since 2009. Investors will watch economic data and central bank policies for confirmation.

Better growth in developed economies:

Trump’s election has already boosted sentiment among U.S. consumers and small businesses. The Federal Reserve has also grown more confident, especially as business investment and government spending increase. Smaller industrial stocks have been major beneficiaries so far.

Conditions are getting better across the Atlantic as well, with Euro Zone sentiment at multiyear highs and deflation easing. European banks have rebounded from long-lows as a result, and most now trade above their 200-day moving averages. Given the strength in their U.S. counterparts, investors may continue hunting for value in the group.

Russia good, China bad?

The Market Vectors Russia Fund (RSX) is the best-performing major country ETF in the last six months. Traders may look for further strength as economists look for stronger oil prices and potential interest-rate cuts to lift growth this year.

China, on the other hand, ended 2016 with a minor currency crisis. Beijing successfully defended the yuan, lost hundreds of billions in foreign-exchange reserves. There is also evidence that the country’s once mighty export machine is slowing — especially as Trump looks to protect U.S. manufacturers. 

A turn in oil?

The Organization of Petroleum Exporting Countries agreed on Nov. 30 to cut output for the first time since 2008. Crude was on the rise even before the news, and further gains may be limited as Iran and Iraq boost shipments. But the real impact seems to be a lift for domestic producers (frackers and shale), who can now survive with oil in the $ 40s. That’s another positive for U.S. economic growth. 

Retail under siege:

The shift to E-commerce is finally becoming a major problem for traditional retailers, which have few choices but to close locations. There are also supply-chain hazards as Trump’s proposed tax reforms threaten to raise the cost of imported merchandise. Real-estate investment trusts that operate shopping centers, already at risk from higher interest rates, are starting to feel the pain of vacancies as well.

Trouble on K Street:

Certain corporations and their lobbyists have enjoyed a cozy relationship with lawmakers for years, but Trump wants to shake things up. He’s already managed to lower prices for high-profile aerospace contracts and has bashed drug companies over high prices. Given his willingness to name names on Twitter, look for more disruptions to business as usual in 2017.

Electronic payments:

The shift to E-commerce, combined with brisk economic growth in the U.S. and Europe, draws attention to providers of electronic/mobile payments and traditional credit-card firms. India is likely to become a major player in this movement as policymakers force consumers to use less cash.

 Earnings growth is back:

Corporate profits rose 3.1 percent in the third quarter, and are expected to climb at an even quicker pace in Q4. Number-cruncher Factset sees the potential for the quickest gains in more than three years. They’re also projecting better performance on the top line, which means companies aren’t simply cutting costs to hit their targets.

 Autos revving?:

Carmakers and related companies (parts suppliers, dealerships) have mostly outperformed in the last 3-6 months amid a steady flow of strong monthly sales and strong guidance. This fights a bearish tide in the broader retailer/consumer space (as we saw in December), and has lifted auto-making jobs to their best levels in more than eight years.

 Less takeover activity:

While Trump’s victory has lifted confidence elsewhere in the economy, his populist tone has stymied dealmaking. Bloomberg data shows global merger volume down 16% in the fourth quarter, and remaining below 2016’s pace so far this year.

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OptionsHouse Blog – OptionsHouse

Did You Know? – Symbol Wheel

Did you know?

To help you get the most from the OptionsHouse platform, this series of tips is designed to save you time with handy shortcuts. This installment focuses on the symbol wheel on our new mobile app.

Tip: Tap the delta at the bottom of the screen in the mobile app to bring up the symbol wheel for a quick and easy way to look up symbols and view previously viewed symbols.

Quotes are an important part of the mobile trading experience, and one that our new mobile app has optimized. Our patent-pending1 symbol wheel offers a quick and easy way to look up symbols while providing a history of the last five symbols that were searched. The five most recent symbols are fully selectable, which provides a quick way to access quote information with just a few taps—instead of having to retype the quote if you navigate to another screen.

Symbol Wheel Features:

  • Easy to access once you log into the app; just tap the delta at the bottom of the screen to bring up the symbol wheel.
  • You can look up a quote using the search widget at the top of the symbol wheel, or just click on the search icon at the top of the app screen. The most recently searched symbol will appear directly beneath the search widget at the top of the symbol wheel.
  • Provides a live stream of the prices for the last five symbols you’ve searched.
  • Price changes for each symbol are color coded for easy legibility: red for losses, and green for gains.
  • Left-handers can flip the quote wheel’s orientation to the opposite side of the screen just by swiping left or right

Source: OptionsHouse

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OptionsHouse Blog – OptionsHouse

Meet The Team – Ryan

Welcome to the fourth and final installment of our “Meet the Team” series, where we introduce members of OptionsHouse’s dedicated Customer Service team. (To read our first three profiles, click on Paul, Rachael and Maggie.)

Today, we’re profiling Ryan, a Customer Service Representative on the Active Trader Support team. Ryan has been a retail investor since a young age and, with the expertise and can-do attitude he brings to work each day, is a strong asset to the OptionsHouse team and our customers.

  • Earned a bachelor’s degree in Business Administration from Northern Illinois University, and an MBA in finance from American Intercontinental University
  • Began his career in 2009 as a Financial Advisor at Waddell and Reed, and held a similar role at Cetera Financial Specialists
  • Started at OptionsHouse in the spring of 2015
  • Has retail investing experience with a myriad of investment vehicles and products
  • Holds Series 3, 7, and 66 designations, and is currently studying for the Series 24

Q: Tell us about the Active Trader Support team. What types of questions are you fielding on a day-to-day basis?

Active traders are sophisticated, proactive, and by definition, actively in and out of the markets—in fact, some of them make thousands of trades a year. And they are one of our largest customer segments at OptionsHouse. The Active Trader Support team has seven representatives dedicated specifically to meeting active traders’ needs and helping them work towards success. We support a wide range of client requests, which span from navigating margin calls to account funding.

Options trading has a variety of moving parts and our goal is to help clients navigate each step. I help clients understand the nuances of implied volatility and the Greeks, how options are priced, how you can create different spreads to capitalize on different moves in the market, and what needs to happen at expiration to make money.

Q: You work with a diverse range of clients. From your experience, what differentiates a great trader from a good trader?

To me, it comes down to the education of the trader and the amount of research and understanding they have of their strategies. A lot of clients will put in a strategy that they hear about on TV, read about online, or that they get from a friend, but they don’t fully understand the implications.

Many of our sophisticated and long-term successful clients will do substantial research prior to putting on a position, and they’ll know when to get out for a profit and how to minimize losses. One of the most common pitfalls I see is traders holding on to a position for too long because they don’t have a clear exit strategy. Great traders understand it’s not a winning trade until the position is closed out.

Q: It seems as though you’re in tune with the active trader. What else does OptionsHouse do to make life easier for the retail investor?

It’s never been a better time to be a self-directed investor. Technology has evolved. Spreads are tighter. And the investing playing field has never been more level. With that said, our platform can be scaled to meet the needs of many users, from first-time investors, all the way to the most experienced professional traders. The platform grows with you as you get more advanced.

Additionally, all of our reps that serve clients are licensed, which is not the case at some other online brokerages. Self-directed account holders have the ability to contact a team of professionals that can help them out and really know what they’re talking about. It’s awesome to see that kind of customer service at work on a daily basis.

We also regularly have webinars that teach clients how to use the platform to its fullest capability. There are a good deal of resources and tools that clients can use to positively impact their trading. To ensure our clients have a strong understanding of the platform, Maggie and I orchestrate Basic Platform Overview and Advanced Platform Feature webinars. Education is really an area of opportunity for our team to give clients ample resources to learn how to take advantage of all the features in our platform so that our clients make more sophisticated investments and trades.

Disclosure: The opinions expressed by the individual above do not necessarily represent or reflect the opinions of OptionsHouse.

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OptionsHouse Blog – OptionsHouse

Election Results after One Month

This week marks one month since the surprising/shocking victory by Donald Trump. Not only did the election result surprise many political prognosticators, but more importantly for self-directed active investors, the stock market’s rally which has occurred post-election, has also shocked and surprised many market talking heads. The overall market as measured by the futures on the S&P 500 is now higher by 178 points from the depths of the election night lows of 2028.50!

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E-mini S&P Futures, 1 month including overnight sessions (source: OptionsHouse)

This 9% rally has the market back at all-time highs but it tells only a small part of the story. The bigger story in my opinion has been the rotation from growth stocks into value names which has occurred since Election Day. Investors have been piling into financial and industrial companies such as Bank of America and Caterpillar at the expense of tech darlings such as Apple, Amazon.com and Facebook.

The iShares S&P 500 Value Fund (IVE) rose 6.3 percent in November, while the iShares S&P 500 Growth Fund (IVW) gained just 1.2 percent. The 5.1 percentage-point differential was the widest divergence between the two portfolios since March 2001, as the dot-com bubble collapsed.

picture1

IVE vs IVW, 1-yr chart (source: OptionsHouse)

This past month investors have fueled the rotation by feverishly buying financial companies such as Bank of America (up 32.5%), industrials like Caterpillar (up 16.22%), and energy names including Marathon Oil (up 30%). They’ve made room in their portfolios by apparently lightening their holdings in large technology names such as Apple (-.66%), Amazon (-1.0%) and Facebook (2.1%).

In our opinion, two major catalysts lay behind the move. First, Trump and a Republican-controlled Congress are expected to pass infrastructure bills, tax reforms and deregulation. That has apparently boosted sentiment toward companies that benefit from accelerating gross domestic product. It’s also reduced the appeal of secular-growth companies like FB or AMZN that expand their revenue independently of swings in the economic cycle.

Those hopes of accelerating GDP gains have simultaneously lifted bond yields, creating a potential earnings windfall for banks that benefit from borrowing at low short-term rates and lending at higher long-term rates. Traditional growth names such as FB or AMZN with high price/earnings ratios have suffered because higher interest rates typically drive investors toward stocks with lower earnings multiples.

Economic data, including durable-goods orders, jobless claims and manufacturing indexes, have supported expectations for faster economic growth as well. That, in turn, has bolstered transportation stocks such as airlines (UAL +22%, LUV +18.5) and trucking names (SWFT +15%, MRTN +22.5%) –other members of the “value” category.

Two other catalyst for this election rally have been the Organization of Petroleum Exporting Countries’ decision to cut oil production for the first time since 2008 boosting Energy and drilling names (XOP +21%, CHK +38%, COP +12%) as well as railroads (NSC +15.5%, UNP +16%).
Steel makers, another top major group, (AKS +95%, X +83%) absolutely exploded to the upside, likely benefiting again from Trump’s win. He’s certainly pontificated against Chinese competitors and their alleged dumping schemes.
The opportunity and challenge for investors going forward is to determine which of the “promises” of the campaigning candidate actually become reality in his new administration. It likely will continue to be an exciting time in the markets!

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OptionsHouse Blog – OptionsHouse

Margaret Glennon

Welcome back to our inaugural “Meet the Team” blog series, where we introduce members of OptionsHouse’s dedicated Customer Service team. (To read our first two profiles, click on Paul and Rachael.)

Today, we’re profiling Maggie, a Platinum Client Relationship Manager. Maggie is a high-energy, retail investment strategy pro who serves as a day-to-day contact for our Platinum clients (those with high net worth and significant assets with OptionsHouse).

  • Began her career in 2006 at wealth management and retirement planning firm Oak Partners, Inc.
  • Has been in her current role since April 2015, and previously served as Sales Team Lead
  • Over 10 years of experience in the retail investing industry, including exposure to a wide range of investment vehicles and advanced trading strategies
  • Vast experience working in retail trading support with high net worth investors

Q: Tell us about the Platinum team. Who are Platinum clients? What type of support have they come to expect?

The Platinum team has six dedicated reps that work with high net worth clients and active traders to deliver integrated money management services and a personalized customer experience. For example, we provide assistance with tax information, funding and troubleshooting corporate accounts, or, if help is needed, setting up a managed money account or IRA.

Since we’re such a focused team, it’s easy for Platinum clients to become familiar with us. They have direct call and email routing to us, which leads to really low wait times and, many times, near real-time responses. We believe that the constant contact we have with our clients is a positive factor in their long-term success. We’ll even execute one-on-one demos with new Platinum clients and help with trading strategy adjustments.

Q: In previous posts, we’ve heard that the strong collaboration on the Support team is a key driver of success. How does the Platinum team work together?

On the Platinum team, each of us has an area of specialization in addition to a solid working knowledge of what it takes to be a successful retail trader. There’s a “go-to” person for almost everything—portfolio margining, tax questions, you name it—we each have a niche in which we have specialized knowledge. The camaraderie is great too, and since we all sit close together, rarely does a day pass when I haven’t picked up a new approach or tactic from another Platinum team member.

Q: Now that we’ve talked about the Platinum team, and how your team works together, let’s focus on how you collaborate with clients.

We’re constantly soliciting client feedback, and we apply their insights into platform enhancements. A couple recent changes that were developed based on Platinum client ideas include instantaneous ACH clearing and integrated “Day Trade Excess” so that clients can see their daily trading limits within the platform.

One thing that I’m working on now with clients is the beta version of our next-generation mobile app. Throughout the process of revamping our mobile trading offering, we’ve reached out to active traders and Platinum clients to participate in beta testing, and their feedback has been really insightful. We’re also migrating from Adobe Flash Player to HTML5; the more robust technology will make our platform even faster. To sum it up, the feedback loop we have with our clients helps us ensure we’re providing them with the best technology, features, and trading experience possible. Because, ultimately, a successful trade for a client is a successful trade for us.

Disclosure: The opinions expressed by the individual above do not necessarily represent or reflect the opinions of OptionsHouse.

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OptionsHouse Blog – OptionsHouse

Post-Election Meltdown

On Tuesday evening, not only did the world witness a stunning and historic presidential election, we also witnessed a stunning and historic market reaction.  Safe to say that when voting started on Tuesday, expectations were set for some overnight volatility during the 2016 Presidential Election decision, but was anyone really prepared for what happened after the exit polls? News media stations were comparing it to another Brexit.

During the evening, the S&P 500 stock index futures market went from up 17 points to down 124 points; a 124 point swing, in a matter of 3 ½ hours.  That is a $ 7,787.50 move on one single contract.  This 7% drop actually caused circuit breakers to halt the market in a limit down move.  In fact, all of the stock index futures markets experienced the same type of move in the same amount of time.  Markets were in a complete tailspin until about 3 am CST when finally, Donald Trump was declared the next U.S. President. As he delivered his acceptance speech, markets were absolved of their uncertainty, and took a breather.

Before the outcome was announced, the stock index futures markets were not the only asset class experiencing heavy trading volume and ranges.  Interest rates, metals, and currencies all got their fair share of action during that same time period.  The 30 year bond futures plummeted 3.5%, gold spiked almost 4% and the US dollar index dropped 1.5%. This event was heard, seen and traded around the world.

Regardless of your political choice, you may have felt pain in your trading portfolio last night, or felt helpless about the final result.  However, there is near 24 hour access to the markets through futures trading.  This gives traders the opportunity to establish new positions, hedge portfolios, or even scalp the massive overnight ranges.  Much like Brexit, the majority of the violent market moves linked to the U.S. election happened overnight.  By the time equity traders got to work Wednesday morning, the market had significantly changed.  This is often the case during major world events, whether anticipated or not.

This particular world event, although expected to move markets, was amplified beyond prediction.  Surprisingly though, if you were just waking up at the end of this post-election day, you may have not even noticed the bloodshed.  Shockingly, it resulted in a huge buying opportunity.  Both the stock index futures and the US dollar index made peaceful transitions to erase all the overnight losses, and astonishingly, to close at session highs of the day.  Nothing short of amazing.  It’s almost as if it were all a dream.

 

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OptionsHouse Blog – OptionsHouse

The Sun Still Rose

The 2016 presidential election is finally over. Even with all of the rhetoric, hyperbole, and fear, the sun still rose this morning. And it should be no surprise that it will do so again tomorrow. As sure as the sun will continue to rise and the Earth continue to spin, companies and people will continue to adapt to whatever changes may (or may not) come.

Clearly there were some extreme knee-jerk reactions in the futures markets overnight. People were obviously scared of the uncertainty of a Trump victory.

picture1Source: OptionsHouse

But as the markets opened this morning and people had an opportunity to truly digest the information, calmer heads have prevailed. We discussed in a blog just a week ago some things you should consider when managing your portfolio in uncertain times, namely (1) having a diversified portfolio, (2) maintaining an appropriate risk profile, (3) using protective options strategies, and (4) remaining calm and sticking to your financial plans.

In fact, these aren’t just principles you should consider in uncertain times, they stand true for managing your portfolio all of the time. We cannot predict what the future is going to hold other than the sun will continue to rise and the economy will continue to adapt. By adhering to these principles and keeping a clear head when managing your portfolio, you can be more confident about your own financial future.

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OptionsHouse Blog – OptionsHouse

Winners and Losers at high noon

The overall market has dramatically and quickly digested the election result this morning. Overnight, fear dominated the investing stage in the futures market with the major index futures down limit! However, the recovery began before the opening bell and continued in the equity market before lunch. It is truly remarkable how quickly an open and free securities market can determine and disseminate value of companies.

As I mentioned the macro market has recovered – a 1000 point swing in the Dow Jones Industrial Average from the overnight lows. However the market is telling us there are winners and losers with the unexpected result. It can be beneficial to take a step back to get a clearer picture of what is driving the market.

Looking at an OptionsHouse Sector ETF watchlist I created makes this obvious.

picture1

 

 

 

 

 

 

 

 

 

 

 

XLU Utilities and XLP Consumer Staples are down. Possible indicating that the expectation is for higher interest rates if the economic activity increases. This also is likely the reason that the XLF Financial sector is the best performer. They tend to benefit from higher rates.  Dodd-Frank regulation may be less adversarial in the future as well.

Health Care and biotechs inside of this sector are exploding to the upside – the thought that Obama care will be unwound and pharma regulations may be reduced as well.

Industrials as well are strong this morning.  Infrastructure spending and cyclical economic growth hopes are driving this strength. Steel is strong today within this sector possible indicating the foreign imports of low priced steel may be stopped.

Technology is underperforming Apple and Amazon both down big today. Apple may be puzzling as they have been in the headlines as possibly being able to repatriate the billions in cash they have made overseas under a Trump administration. That may be true but a larger theme today in my opinion is today is about cyclical economic growth not sector growth. What I mean here is the tech companies are typically high valuation growth stories, somewhat insulated from economic conditions. They grow because they are innovators. Today the post-election strength and recovery of the market is being driven by the expectation of higher economic activity. Meaning industrials, materials, financials and energy… Value companies which would benefit from this economic uptick. Two other ETF symbols show value (IVE) vs. growth (IVW) companies. I suggest adding those two symbols to your watchlist to add clarity to what is happening each trading day.

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Value shares are up 1.6% while growth is lagging only up 33 basis pts.

Like I said it can be beneficial to take a step back to get a better view.

It will be interesting to see if these trends continue and if the promises of a new administration can deliver. The market is a very efficient mechanism to determine the correct value so you will know quickly when the outlook changes.

 

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Time to get back to reality

The market will not stay worried about the market for the next 2 1/2 months just because Trump was elected President. We now return to the factors that actually impact sentiment: Buyers and sellers, companies and news. There will be earnings, there will be takeovers, there will be holiday shopping and there will be job reports.

While the comparisons with Brexit dominate the news, there is one major difference: The British vote involved the single issue of withdrawal from the EU. (And even then, the ultimate impact of that move is unclear — if it even survives the UK Supreme Court’s ruling early next year.) Trump’s victory, on the other hand, has much straightforward impact. Yes, there will be some pressure on trade partners like Mexico and China. But that will also take months/years to unfold… which takes us back to our first point: over those months and years we still face the reality of buyers and sellers, companies and news.

In the end, the market is like a pool: Its level is based on the amount of water (supply of equities) and the dimensions of the pool (investors). Trump’s election is a 400-pound person doing a cannonball in from the high board. Yes, it makes a big splash.. but over the long run it has much less impact.

That’s not to say it will be a smooth ride. There continue to be some signs of worry in the economy (jobs data has been somewhat weak recently) and of the possibilities of downside in oil. (API & EIA inventories both missed and the OPEC ministers are heading into their Nov. 30 with nothing in terms of production cuts.) The market was not massively impressed by the recent earnings season and there seems to be a lack of sector leadership in the market… but now we’re back to reality: Buyers and sellers, companies and news….

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Options Strategies to Generate Income in Your Portfolio

We previously shared an article by Steven Sears, who writes The Striking Price column for Barron’s. It was the first of a two-part series to help the novice investor get a clear-and-concise, straight forward description on the basics of options trading. The first part of his series was on the basics of buying options. The second part of his series was on the basics of selling options in order to generate income in your portfolio. It is a very well written piece and is definitely worth reading for someone brand new to equity options.

Afterwards if you desire a deeper dive into these concepts, please check out our series of articles for Stock Traders who want to use options to gain a potential competitive edge:

Options 101 For Stock Traders– What Are Options?

Options 102 For Stock Traders – Generating Income From Your Shares

Options 103 For Stock Traders – Buying Stock at a Discount

 

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Final Countdown to the Presidential Election

The US Presidential election is finally upon us. Traders should be braced for volatility in the marketplace for the remainder of the week.  While the stock index futures market is still just slightly below our all-time highs, this may not continue to be the case once a winner is declared.  However, we do not know when that winner will finally be declared.  Considering this has already been one of the most heated elections in history, it wouldn’t surprise me if it was much like Game 7 of the World Series.  Or this could even play out to be another election similar to the 2000 Bush/Gore result. Luckily, most futures markets trade almost 24-6 and can be shorted just as easy as going long if you are looking to protect yourself from possible increased volatility.

While futures trading hours vary per product, most of the major futures markets that would be impacted during the election, have plenty of volume in the overnight sessions.  These markets include the already mentioned stock index futures, and also include energies, metals and interest rates markets.  Once a winner is declared, markets will likely react quickly to the long awaited outcome.  This means traders can take advantage of the futures market outside of regular stock trading hours.  We witnessed this particular scenario back in June with the Brexit vote.

Most of the directional change and massive market movement all happened before the opening bell the next day after Brexit.  If you were just tuning in that morning, you completely missed the move.  And these significant moves didn’t just happen in one market or asset class.  Look at the US dollar, gold, or the 30 year bond futures.  As the e-mini S&P 500 was tanking, other markets were taking off to the upside with just the same amount of fury.  This very well could be a similar situation on this Tuesday evening during the US Presidential vote.  This is an important trading opportunity for both initiating positions and hedging portfolios.

During these significant market movements, there could be notable opportunity to catch a forceful move in either direction.  A benefit of trading futures is that regardless of the direction, up or down, you can make a trade to suite your needs.  Often times, that  is not the case in equity markets, especially during extended hours.  In fact, most brokerage firms do not even allow traders to short during that time. While it may sound uncomfortable or un-American to short the stock index futures market, historically speaking, bearish moves play out much quicker than bullish moves in this scenario.

Whether you chose to trade futures during this historic event, or even sit on the sidelines, the expected volatility to enter the marketplace during this event is undeniable.  The world is watching, waiting, and hoping to trade based off the outcome of the US Presidential 2016 decision today.

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