ETF Covered Calls 1-22-2010

The commentary on CNBC and other news outlets is always amusing.  Long before the chatter started, I predicted that the market would tank this week and that was soley based on the fact that for the last 12 years, the stock market seems to almost always tank the third week of January.   I think it is largely due to portfolio turnover and repositioning but it could be caused by anything.    The ETF-Cashinator did affirm my prediction a while ago (back in December reports) as well and what worries me is that the ETF-Cashinator is showing some high degree of “xolatility™” for March 2010 options in both calls and puts.   I’m inclined to think that something BIG is going to happen between now and March expiry and that will likely be negative on the market but some huge rally could materialize if I’m reading the thing wrong; My bias is to the negative.

Here’s the google link.

“Xolitility™” is defined as a huge variance from normal options trading pre-financial disaster.   Generally, this means that premiums on ETF’s on calls or puts is in an extremely abnormal state.  A normal premium on a call 30 days out of expiry near or at the money is generally 1% and anything above 3% is considered abnormal.  A high degree of “xolitility” means that MANY or ALL ETFs are in an abnormal state of premiums options trading.

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