Condor Options

A lot of [tag]traders[/tag] out there still spend their time making directional calls. A lot of trading [tag]blogs[/tag] write posts of the general format: “Here’s what the market did today; here’s why; here’s what I think will happen in the future.” You may have noticed that we don’t do either – we almost never make directional calls, and our market commentary is almost never daily play-by-play.

We don’t make directional calls because we’re perpetually market-neutral. The simple truth is that the properties of [tag]options[/tag] that allow us to profit from time decay also allow us to remain totally agnostic about market direction. And the reason we don’t post daily chatter about every [tag]Dow[/tag] tick is that, for the most part, people who do are just making things up anyway. Have you ever noticed the headlines on, for example, Yahoo Finance? The same event can be and will be used repeatedly to justify mutually exclusive market outcomes, i.e.:

“Investors nervous about hurricane Bruce; markets fall.”
“Hurricane threat rallies oil stocks; markets follow.”
“Housing slump triggers market selloff.”
“Markets rise on hope that housing data will spur rate cut.”
“Banking merger fails; investors worried.”
“Merger fails, markets rise: nobody liked that merger in the first place.”

And so on. The truth is: the financial markets are far too complex for the activity in one trading day to be accurately captured in a headline. It’s the job of financial journalists to report on the issues that are moving the markets, but consider this: have you ever once seen the headline “Markets rally; we have no idea why”? Of course not. The financial media have a hard enough time of it, without admitting that half the time they’re just guessing along with the rest of us.

Let’s finish up with a little challenge to all the trading bloggers and financial journalists and investing gurus out there who so love to “explain” the markets. Interpret this:

That’s the [tag]DJIA[/tag], and those last two bars are the past two days. And while it’s not nearly as sexy and is a lot more humbling, we’re content to take the headline position: “Market retraces its previous day’s losses. Hmm. Whatever.”