Over the last few weeks, the markets have been wild.
We sold off about 1,000 points off the Dow highs. Then, we found support just under the 200-day – as expected – and shot 600 points higher. And, along the way, way we made great money using DIA puts and calls…
Unfortunately, the Dow is beginning to show signs of over-extension and exhaustion after the latest rally. There’s also a great deal of fear the Fed will announce an end to the stimulus program this week on the idea the American economy is strong enough to stand on its own.
At the same time, though, the Fed knows better. The last time the Fed spooked the market with news that it would end QE3 at the end of October we sold off 1,000 points. And volatility spiked big. That could happen again.
While many believe the economy has improved over the last year (it hasn’t), it would make sense for the Fed to return to a normal policy. Unfortunately, we’re actually far from full employment and wage growth can’t keep pace with inflation. We also have to remember that the global economy is broken.
If the Fed realizes this, and does nothing on Wednesday, the Dow could soar, which would allow us to profit from a decrease in volatility. If the Fed does announce QE3 is coming to a close soon, volatility will spike big.
So, it’s best for us to position for whatever may happen this week.
One, consider buying to open the VXX December 2014 36 calls up to $4.
Two, consider buying to open more DIA calls. The DIA December 166 calls are still on hold. But now consider buying to open the DIA December 168 calls up to $3.50.
We’re simply looking to profit from whatever the Fed decides to do this week. One thing is for certain. A move in either direction could be substantial, given everything at stake.