Make Your List and Check it Twice – Prepping for the Fed

• Posted by Greg Harmon
• on December 15th, 2015

It is 10 days til Christmas and many of you have been running around like crazy people. Shopping for gifts for everyone from the landscaper to the team of 5 teachers (5? I had one teacher) for your kids, to the specialist at the nail salon. Have you forgotten anything?

Well there is one minor little thing going on in the markets this week. After telling us for over a year that they will eventually raise interest rates it seems tomorrow is the day. Though it is never a certainty, and if you listen to the gurus from the global macro and bond world it should not even be contemplated. I think they may have a bias though. It is not easy to re-position a $20 or $100 billion fund.

But your portfolio can be re-positioned or protected easily (attn: Mark Zuckerberg, if you are reading it may be too late for you) through the options market. For the cost of a Salted Caramel Mocha adding Puts to your portfolio can protect for any downside. For a bit more of a sophisticated hedge, maybe a put spread to lower the cost. And for the expert on your list, make that a 1×2 Put Spread.

If the market takes a header following the statement then you cash in the options. If it does not, no biggie, sell them anyway for a bit of a loss and skip the Mocha for a week. Implied volatility is you one foe if the market does not respond to the downside. It will suck out of the options quickly and since the price of options is directly proportional to implied volatility they will fall. So ironically, you may need to sell them quicker on a move up in the market than on a move down.

Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades.

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