“The Fed is Selling Call's to the Market”
AAAA…WHAT!?!?
Yesterday on CNBC’s power lunch, Rick Santelli, interviewed Cem Karsan who is a Volatility trader. He is often interviewed on CNBC and TD Ameritrade TV channel. He is considered an expert in Volatility and the effects of it on markets. What got me was his last couple sentences about volatility suppression, the VIX being pressed down word in return suppressing volatility, and driving markets higher. He said that the Fed is selling Calls to the market. I’ve watched this video, like, five or six times to get the understanding of what he meant by that, and what it means to you and I.
If you think about the process of Option buying you will interpret what Cem said as the following. If I sell you a call, then you pay me for the right to buy a stock or index at a predetermined value, the Strike Price. You pay me money for that right. You also believe that the stock or index will go up and beyond that Strike Price. In Mr. Karsen statement, the Fed would be taking money out of circulation by selling you that Call option which results in less liquidity.
My first question is, is this what driving the Zero Days to Expiration option volume? Second, is the Fed telling Prime Dealers to go sell Call Options to those who want to buy SPY and Tesla options? Sounds far fetched, doesn’t it? But the Fed does have that power.
Keep an eye on the VIX and the VIX trading range. This will give good insight to where the SPY is going and other stocks.
VXN
Inflation
On average since 2021, food inflation is up 26.20%. If that doesn’t eventually take a toll on markets…what will. Just saying.
Risk Manage
Markets are fragile here. Yet they still press higher or a least are now in a range. Take time to better understand what is driving markets. Its not the affordable food or better then expected earning reports as a hole. Take some time this weekend and learn more about what Cem Karsen is talking about in his interview yesterday on CNBC.
Knowledge is Power.
Live Loud!
Trent
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