Concerned About The Economy? Use Options To Find Peace Of Mind

| April 8, 2013 | 0 Comments

economyLast week was a tougher week for stocks than what we’ve been used to the last few months.  And, volatility appears to be headed higher – at least in the short-term.

So what’s causing the recent downtrend?

Basically, the strong run of positive economic data seems to have come to an end.  In particular, the employment picture has once again become hazy.  After a nice stretch of strong employment data, the last couple jobs data points have been less than ideal.

Jobless claims, a good forward-looking indicator, spiked by 28,000, pushing the total claims to the highest it’s been in four months.  Perhaps more importantly, the 12-month trend is inching towards dangerous territory (jobless claims actually growing).  

And that’s not all…

The March jobs numbers was substantially lower than expected.

March payrolls increased by just 88,000.  That’s significantly under the Bloomberg median forecast of 190,000.  Anytime you miss expectations by over 100,000 jobs, it’s definitely not a good thing.

What’s more, the ISM composite manufacturing index slowed last month as well.  It’s not in negative territory yet, but it’s still another warning sign that our economy may not be out of the woods just yet.

Okay… so should be worried about the economy or is this just noise?

Fortunately, options make this question much easier to answer.  You see, whether you think the economy is about to take a turn for the worse, or you just want to add a little protection to your portfolio, options are the answer.

Options can be just as easily used for speculation as they can for hedging.  Do you think the market is about to tank because of bad economic news?  Buy some S&P 500 puts.

Are you worried your portfolio is going to take a hit?  Buy index or individual equity puts.  Concerned about volatility?  Buy VIX calls.

It really is that easy.

Now, I happen to not be overly concerned about the economy just yet.  The Fed obviously expects slow growth, otherwise they wouldn’t be engaging in unprecedented monetary stimulus.

That means we’re likely to see good months and not so good months along the way.  March could just be one of those down months.  Of course, it pays to keep a close eye on the numbers.

In the meantime, if you’re concerned about your portfolio – or you want to speculate on a market pullback – grab some index puts or VIX calls.  During potentially tumultuous periods, options can really help you sleep at night.

Yours in Profit,

Gordon Lewis

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Category: Breaking News

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.