
Weekend readings, 2016/12/30
============================

## Paul Krugman: And the Trade War Came

> Corporate America is still in denial about the prospects for a global trade war,
> even though protectionism was a central theme of the Trump campaign.
> … The … relevant legislation gives the occupant of the White House remarkable leeway should he choose to go protectionist.

*Looks like a trade war is here…read how to benefit from this [here](https://optionworkshop.net/blog/trump-won-and-you-missed-the-rally-now-what-part-2-goldsilver-precious-metals/)*

:::cut:::

[http://www.marctomarket.com/2016/12/dollar-equities-and-yields-fall.html](http://www.marctomarket.com/2016/12/dollar-equities-and-yields-fall.html)

## How Important Is Information from FOMC Minutes?

> FOMC minutes releases can have sizable impacts on Treasury bond yields.
> The impacts are largest when the tone of the minutes differs greatly from the tone of the statement,
> presumably leading markets to change their expectations of future monetary policy.

*Analytical look at whether FOMC minute releases sway financial markets and how so*

[http://ritholtz.com/2016/12/important-information-fomc-minutes/](http://ritholtz.com/2016/12/important-information-fomc-minutes/)

## Near-Term Call Buying in UVXY

> Paper bought over 7700 UVXY Dec30 8 calls paying as much as .20 and as little as .13 throughout the day.

*At the highs today, UVXY touched $8.92, meaning the option buyer here potentially made more than 70c/share or $539K in 2 days on an investment of roughly $130K….wow!*

[http://www.theoptionsinsider.com/near-term-call-buying-uvxy/](http://www.theoptionsinsider.com/near-term-call-buying-uvxy/)

## Can Trump Pick Up Enough Crossover Democrats to Avoid Senate Filibusters?

> Republicans control the executive branch and both houses in Congress.
> That does not necessarily mean Trump can get the legislation he wants passed.

*A great analysis about how easily Trump’s policies can get past Congress*

[https://mishtalk.com/2016/12/26/can-trump-pick-pick-up-crossover-democrats-to-avoid-senate-filibusters/](https://mishtalk.com/2016/12/26/can-trump-pick-pick-up-crossover-democrats-to-avoid-senate-filibusters/)

## Artificial Intelligence, Automation, and the Economy

> This report examines the expected impact of AI-driven automation on the economy,
> and describes broad strategies that could increase the benefits of AI and mitigate its costs.

*Whitehouse article on the opportunities/threats and policy responses as related to AI*

[http://ritholtz.com/2016/12/artificial-intelligence-automation-economy/](http://ritholtz.com/2016/12/artificial-intelligence-automation-economy/)

## Aggressive Call Buying in CLF

> Traders are buying CLF Jan06 weekly 10 calls for .04.
> These options are 20% out of the money with just a week to expire.

*With Trump coming into office, this trade may work if there’s more talk about fiscal stimulus*

[http://www.theoptionsinsider.com/aggressive-call-buying-clf/#ixzz4UMdC5zyy](http://www.theoptionsinsider.com/aggressive-call-buying-clf/#ixzz4UMdC5zyy)

**We wish all our customers and readers a Happy New Year!**

**As always, Thanks for Reading! :)**


# One Easy fix for traders getting stopped out too early or cutting profits too soon

If you’ve traded actively for at least a few months or years, you’ll know all too often the agony that comes
with getting stopped out of a position and immediately, the trade takes off.
A similar but lesser form of agony is felt when a trade has hit your price target and you proudly sell your position.
Except, it keeps going and going...

:::cut:::

I know I’ve felt these emotions more times than I can count.
If only there was some magic indicator which would give me the expected range of the overall market,
I could better set my stop loss and profit taking levels.

Fortunately, I eventually figured out that the VIX index is a simple and solid indicator for this.
[What is the VIX index?](http://www.investopedia.com/terms/v/vix.asp)

I instinctively check VIX throughout the day to make sure it is within "normal ranges" when putting on and taking off trades.
Just take a look at the below chart:

![](chart-1024x588.jpg)
Figure: Data: January 2, 2004 – December 16, 2016

Whenever the VIX is under 17, the S&P500 daily range averages less than 1% (High of day minus Low of day).
And most of the time the VIX is under 14, the S&P500 range averages less than 0.7%.
However, when the index is trading close to 17 or higher, more extreme moves in the S&P500 can be expected with much greater predictability.

Here is a breakdown of the graph in table format:

| VIX Values     | S&P 500 H-L Averages | # of Occurrences | %age of Occurrences |
| -------------- | -------------------- | ---------------- | ------------------- |
| under 11.01    | 0.61%                | 92               | 2.8%                |
| 11.01-14.00    | 0.74%                | 919              | 28.2%               |
| 14.01-17.00    | 0.96%                | 793              | 24.3%               |
| 17.01-23.00    | 1.22%                | 768              | 23.5%               |
| 23.01-30.00    | 1.78%                | 397              | 12.2%               |
| 30.01 and over | 3.35%                | 295              | 9.0%                |

Even traders who do not trade options must pay close attention to the VIX index to avoid exiting positions too early and getting whipsawed.
Equally important, when volatility is low, don’t expect big moves especially in names highly correlated
to the S&P500 index in terms of direction and beta.
In low volatility environments, you must take profits earlier and keep a tighter stop loss.

Here, we’ve provided an easy way to roughly gauge the market ranges for the day, but we could of course dig much deeper.
For instance, we could combine volume, sector and many other factors
in our analysis and come up with more accurate measures of range not just for the overall market,
but also for certain sectors and stocks.

Perhaps, in the future, this analysis will come, but for now, pay attention to the VIX.

Until next time….Always stick with your risk limits and Happy Trading!


Blog #s&p-futures

Weekend readings, 2016/12/30

One Easy fix for traders getting stopped out too early or cutting profits too soon…

Last thing