Options Course: On Saturday, November 10, the CBOE, Option Pit and OptionsProfits are hosting a full-day class, Using Volatility to Improve Directional Trading CLICK HERE FOR INVITE AND TO REGISTER.
On Wednesday, the Chinese Flash Purchasing Managers' Index will be released, and people are watching this data point closely for confirmation of whether the recent turn in sentiment is justified. For an example of the latter, here is the chairman of Goldman Sachs Asset Management, Jim O'Neill:
"So, let's reflect a little. Chinese GDP growth for 2012 will probably come in now at 7.7% to 7.8%, just above Premier Wen's 7.5%. After 9.2% growth in 2011, the first two years of the decade are averaging 8.5%. We have assumed 7.1% growth for the decade. This currently seems very doable. Moreover, China has slowed to this pace from its previous three-decade average of 10.25%. With a trade surplus a quarter below its peak, stabilized housing prices, consumption rising as a share of GDP, and inflation below target, the situation looks good."
His letter was widely read over the weekend and it cites all of the major economic releases showing an improvement in China. O'Neill is not alone, either: analysts at several major banks and buy-side firms are out with reports arguing that government stimulus efforts are starting to show up in the broader economy.
If that's true, then we should see an improvement in the PMI report on Wednesday. There's no doubt that the hard landing scenario that had been weighing on Chinese equities has been lifted: iShares FTSE/Xinhua China 25 Index (FXI) is up almost 20% from its low earlier this summer, and Chinese stocks have been rallying hard in recent weeks even while the U.S. market stalls out.
FXI implied volatility has also not fallen as far or as fast since early June as has option prices for the S&P 500 (fig. 2). That presents a good opportunity for short volatility exposure should the economic data come in stronger.
At the same time, our momentum-based VIX signal has us avoiding new short vol and long stock positions for the moment, so we will wait until the signal clears to execute on this idea.
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits.
Jared can be followed on Twitter at twitter.com/CondorOptions.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV