Perfect time to dive into the options market
Today's Financial News - Posted March 30, 2009
It is going to be another big week on Wall Street. As Washington turns towards pessimism, investors are bailing out of the equities market. It is the perfect time to jump into the options market.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Just like that, the rally ends. After several weeks of up-beat sentiment from the Washington podiums, the news has soured and the risk-adverse are fleeing the markets once again. Expect plenty of volatility and lots of red as investors digest a busy weekend filled with news.
The biggest news, of course, comes from Detroit. The Obama administration is playing tough and threatening bankruptcy. More importantly, they are pushing all the hard decisions into the future, a tactic becoming all too commonplace.
Our leaders are even making a few human resources decisions. By booting General Motor’s (NYSE:GM) chief, Rick Wagoner, from his perch, the team in charge of overseeing the nation’s auto-industry recovery has signaled the problems plaguing GM are caused by poor management, not by a failed business model, an overly powerful union or a nasty economic downturn.
Even more important to investors, the weekend’s news signals this economic mess is far from over, no matter how much we wish it away. Today’s horrific opening proves investors are still on edge, with their finger poised above the “sell” button. With just one piece of bad news, the selling begins.
But the downturn is not only caused by the reports from Detroit. In fact, that news appears more of a cover-up story to the really important economic news, like the words spilling from Tim Geithner yesterday. He now tells us to expect the government to hand over significantly more cash to troubled banks. Even worse, he hinted that he may have to ask for a larger chunk of change from Congress.
What’s another hundred billion dollars or so when we are already into the mess by the trillions?
Weighing the options
This is going to be an absolutely critical week. There is a good chance we could give back all of our recent gains. If the Dow gets below the 7,000 market once again, hold onto your hat. It is going to get rough.
While a sharp plunge is certainly bad news for many investors, for quick-moving traders it will create some great profit opportunities. Options traders will have a particularly profit-filled week. As volatility increases, option writers will rake in a premium for every contract they sell. And savvy buyers will pick up big gains as the markets make big swings.
One company to watch this week is Sirius XM Radio (NASDAQ:SIRI). Its fate hinges on the Big Three selling lots of cars equipped with its fee-based radios. Its shares started the day deep into the red.
Also keep an eye on Detroit suppliers like BorgWarner (NYSE:BWA) and Dana (NYSE:DAN). Both will be in peril if Washington’s bankruptcy threat proves real. BorgWarner’s options will be making significant swings over the next few days.
Finally, do not take your eye of the Wall Street banking sector this week. Just a few days ago, shares of Citigroup (NYSE:C) and Bank of America (NYSE:BAC) were soaring on the details of the Treasury’s toxic-asset plan. Today, those same banks are giving up much of their gains. If they give up much more, you will be handed a fantastic trading opportunity. May calls are starting to look downright cheap.
As always, there are two ways to look at today’s negative sentiment. You can either stand back and cry, or roll up your sleeves, jump into the mess and make some money.
You know what I am doing. The options market is designed for weeks like this.
Next Article: Has the fat lady sung for General Growth?
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