Jobs, Bernanke, and Buffett’s move: more volatility as summer ends? It’s still an options trading territory!

This week offered a several day long recovery of the $DJIA, $SPY and other major averages, as investors awaited Bernanke’s speech. Hopeful of some words of hope from the Fed chairman, investors recovered slightly from earlier weeks’ dip, some were expecting quantitative easing, others more skeptical. In the end, Bernanke did not offer much of a solution for immediate recovery, but did leave the door open for further examining of the US economy next month.

Giving investors hope for some sort of action in the mid-long term; allows for rumors of potential aid from the Fed next time, food for the bulls. This is essentially the opposite of any subpar news, similar to what we’ve had in early august. This in fact did lead to a short rally after Bernanke’s speech, with the S&P 500 up 17.53 points and DJIA up 134.72 points. I have no doubt this will be re-digested by media to push for more bullish moves in the coming weeks. However, given the global economic situation, including European bank debt problems, and with an exceptionally high VIX, above 30% since the first week of August, reaching 40% at least three times, we can’t say we’re out of a bear market.

The financial sectors partial recovery was also assisted by Buffett’s decision to invest $5 billion in $BAC preferred stock, a move in the style of most of Buffett’s investment decisions, that promises slow growth in his profits. This Buffett style investment is reminiscent of his $GS investments in 2008, which paid off over 128%. His new position entitles him to a juicy 6% dividend, as well as 700,000 $7.14 warrant options. This insurance of long term dividend driven profit, for a cheaply priced stock that will probably not be left to crash by the American government. Could this be Buffett’s tell that BAC bottomed? or is it a precautionary move to weather down the recession ahead.

From an option trader’s point of view this offers greater volatility to juice long strategies, long straddles will likely payoff greatly on $BAC and other financials as this summer approaches its end and investors get back from vacation. There is also the weekend news about RBC missing estimates by 4 cents, at $1.04 versus the concensus of $1.08. Buying 3 to 4 months calls on the dips, and puts on the dips in BAC is likely to pay off well, given all that is stated above.

Hidden by all this turmoil, Steve Jobs, took the classiest way out, resigning at the top. Jobs resignation was  a question of when, for a while now, and the timing was wisely chosen. After $AAPL became the most valuable company. So valuable it was able to withstand an apocalyptic crash following his decision.  With September traditionally promising to be a major month for sales (and the iPhone 5 coming out in october), $AAPL will be strong against any market downtrend. As well the philosophy of the company has finally been able to go beyond his youthful image, cool techy image.

These news together in the last couple of days warranted a market uprising. It cannot be neglected that the European situation is still grim. Any negative news, or hint of fear over the week to come could have devastating effects, such as another dip, and a plunge is not out of the picture.

I will be buying protective puts on most of my positions, including techs and financials in the next weeks on the high days, and calls on the low days.

 

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