Markets Ended the Quarter Extremely Mixed: Here’s the Rundown; Metals Up, Oil Down, Stocks Flat. What Next?

A quarterly review of the markets reveals some interesting information. An almost 5% rally in the Euro helped Gold Prices rally 16% in the first quarter of 2016. Crude Oil Futures fell about 5%, but compared to earlier in the year, it seemed like a rally. Stocks, as measured by the S&P rose about 1%, but the Nasdaq 100 (QQQ) fell more than 2% and the iShares Russell 2000 (IWM) fell about 1.75%. These results had to put a smile on the faces of most people with retirement accounts and those who are long-term holders of stock. Given the enormous market sell-off in January and early February and prompt rally since, the pain of being long stocks has been substantially diminished.

Analyzing various sectors, it is interesting to evaluate the difference in returns for the quarter. While the three major stock indices discussed above were relatively flat for the quarter, the return of a sector fund like the Nasdaq Biotechnology Fund (IBB) fell 23%. The Chart below provides detailed information on a multitude of Stocks, ETFs and Futures Contracts. IBB’s Historical Volatility is quite substantial with a Historical Volatility for the last 20 Days of 33% compared to the E-minis Historical Volatility of about 9%. Obviously these levels are significantly lower than on February 11th when the S&P hit its lows. On February 11th IBB had a Historical Volatility of 37.50% versus 19.72% for the E-minis. When the market moves dramatically like that to the downside, the Implied Volatility is substantially higher than the Historical Volatility. When one is trading out-of-the money puts, the Implied Volatility of those strike prices is even higher.

Gold was the significant winner in the quarter with Gold Futures and the SPDR Gold Trust (GLD) both up about 16%. In the Oil Sector, there was some disparity. Crude Oil was down about 5% while the United States Oil Fund (USO) fell 11.73%. Whenever trading ETFs, traders should be sure that the liquidity of the product and the make-up of its components is appropriately configured to meet one’s trading objective. If one wants to trade a commodity, there are numerous ETFs that attempt to provide an environment to do so. Unfortunately, a close look at liquidity, expenses and the make-up of the ETF usually precludes the investor from approximating the returns of the commodity of interest. In the oil sector, the big winner was Exxon Mobil (XOM) which gained 7.26% for the quarter.

Now that we have entered the second quarter of the year, it is time to review the strategies that made one successful. For options sellers, who timed their selling properly, we have reached a new era of low Implied Volatility. This means that one has to sell more options to generate a certain level of income. In a low volatility environment, the risk/reward of this kind of strategy becomes inherently dangerous. At Options Strategy Network we provide Webinar Training in Trading and Risk Management to assist traders in fine tuning their Options Trading technique. Markets change dramatically and it is essential to use the appropriate Options Trading Strategies in changing market conditions. Contact us to enhance your understanding of these issues. Our Private Webinar Training Sessions, for a fee of $75/hour, depending upon availability, will enhance your options trading. 
 
OPTIONS TRADING INVOLVES SIGNIFICANT RISK AND IS NOT SUITABLE FOR EVERY INVESTOR. THE INFORMATION IS OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT IS IN NO WAY GUARANTEED. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS.

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