I hope everyone had a fantastic Christmas with their family and friends. I for one was treated to an amazing turkey dinner prepared by my sister who is an awesome cook. In fact my Christmas gift from her every year is a new cookbook she puts together with all her favorites over the year. So needless to say I ate a little bit too much yesterday, but in the spirit of Christmas it’s all good. Nothing a few extra workouts this week can’t fix.
Since the celebrations for many of you will continue through the new year I’ll keep the daily blogs short and sweet this week by just reviewing a few of the charts we’ve been tracking all year long.
For some people the story of the year will be the meteoric rise of Bitcoin. However since such a small percentage of investors are actually involved it’s more of just a point of interest rather than anything that affects the markets. At least not yet, but we’ll see what the future holds for cryptocurrencies.
To me the big story was the record setting low volatility and total lack of any sizable pullback in the S&P 500.
It’s been quite a run since the US election last year with no pullbacks greater than 3% and not a single month with negative gains. It’s looking like we’ll be adding another positive month to the list here as we close out December.
It’s hard to quantify how much of this is due to the excitement surrounding the new Trump administration. It’s likely a combination of both to be honest. Increased optimism for the proposed changes coupled with a vacuum of major market moving events. The result is the lowest historical volatility on record. And not by a little bit either. It’s by far and away the calmest market in history.
We often talk about implied volatility, which the VIX index is a measure of. It’s what the market expects to happen going forward.
20 day historical volatility is what has actually happened in the previous 20 trading days. (just called HV20)
It has been impressive to say the least. That’s pretty much the worst market environment possible for an option trader because we thrive on selling volatility. When there is none to sell, premiums are extremely low and it makes it very difficult to get any good Iron Condor set ups. Hopefully things will change going forward through. If history is any guide, nothing lasts forever.
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