Richard Croft is president of RN Croft Financial Group. His focus is on options and ETFs.
Buy: Apple February 500 puts at $23.60
Sell: Apple February 520 puts at $32.85
SPDR S&P 500 ETF
Buy SPY February 143 calls at $3.50
Buy SPY February 143 puts at $3.45
Past picks: Aug. 15, 2012
Bank of Montreal preferred share alternative
Total return: +3.85 per cent
BMO covered call Utilities ETF
Total return: +0.88 per cent
Goldcorp covered call write
Total return: +1.34 per cent
Total return average: +2.02 per cent
Who wants to be negative at this time of the year? Yet in the season of brotherly love vindictive politics are taking centre stage south of the border. Moving ever so closely to the so-called “fiscal cliff,” traders are hanging on every syllable from political leaders on both sides of the aisle – even though the “fiscal cliff” is more like a mild slope that might lead to a short-term soft patch in the U.S. economy. It could be worse, except for the U.S. Federal Reserve’s role in greasing the economic engine at any sign of a slowdown.
The markets enjoyed a Santa Claus rally supported by the Fed’s put option and optimism that a deal would get done. But traders may have been overly optimistic.
My sense is that a deal will get done even if it is not by year-end. The real challenge is trying to gauge the market’s reaction. A sharp sell-off may greet us if we go over the cliff. Should a deal get done, however, we may see more upside. Most likely, the initial reaction will be short-lived and the focus will shift eventually to real economic issues such as global de-leveraging, housing market stabilization and private-sector investment.
Perhaps the best approach is to wait on the sidelines and simply enjoy the holidays. There will be plenty of opportunity to trade new story lines in the coming year.
Happy holidays to all … see you in the new year!