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Saturday, February 7, 2015

Should an Index options seller pay attention to fundamentals?

I received a couple of emails in the week asking what I thought about Greece and the new leadership, the debt talks, the European Union.....and whether I take that information into account in my trading. The answer to the first question is: My opinion, or anyone's opinion is irrelevant. The answer to the second question is: No I do not take, in general, any piece of news into account in my trading.

Playing the news game is very dangerous as you will start to be influenced by other people's biases and that will inevitably influence your trading, possibly leading you to violate your system rules. Trying to gauge the impact of fundamentals in the markets will rarely provide you with any edge at all. In this day and age information is disseminated instantly, you don't know better than the next person. Plus, sometimes the markets fall on good news and rally on apparently bad news.

Now, I don't 100% ignore what is going on in the world. I know the general subjects being dealt with, but rarely ever do they create a lasting meaningful impact in the markets. Things that can cause, short term violent moves are: wars, terrorist attacks, earthquakes and other sorts of natural disasters. These things will tend to move the markets but their effect is not as prolonged as crisis in the foundation of the capitalist system itself, like the 1929 depression, or the 2008 debacle. Moments where the existence of capitalism itself is put into question. And by the way, as an options seller, these are not the moments you should fear the most. Our worst enemy, by far, is the strong, sustained uptrend. I have talked about this a few times in the past.

Is the US GDP negative for the year? Have the employment numbers been bad, way below expectations for three months in a row? Those things are more important than whether Cyprus is entering a crisis or the president of Greece went to the bathroom. Even then, they won't affect my trading too much  because my trades last 4 to 8 weeks in general whereas true bear markets (not short term crashes) develop over months and years.

In my articles and analysis I never talk about events going on in the world, their impact in the markets or anything like that. In general, you can stay away from that useless overdose of information as an Indexes options seller. This brings me back to a piece I wrote back in 2011 which is the perfect complement to this discussion: The Media and Markets' noise

Learn to smell the noise by a mile!
Financial media and Market gurus suck!

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1 comment:

  1. If I look at your article as a normal visitor is looks good and have some reality but what to do if I am in the beginner stage of options trading! I desperately need options gurus’ help to increase my marketing knowledge and for this I am following the webinars, articles and forums of Market Taker Mentoring. Do you think this is a bad idea!