To The Moon

Non-farm data and earnings seem to be less important than the Crimean bridge bombing. Compared to measurable risk, black swans always rank first.

The bridge wasn't destroyed before I wrote the headline, but now I have a new idea about the headline, did the person who bought the option know the bridge was going to blow up? $VIX 20230322 150.0 CALL$50,000 VIX call options were bought for $950,000 before the close on Thursday with a strike price of 150 and a maturity date of March 22, 2023. $VIX 20230322 150.0 CALL$

It is well known that the VIX was as high as 89 in October 2008 and March 2020.

The chart of the two years is as follows, with the lowest drop of 26% in March 2020 and the largest drop of 27.9% in October 2008:

So with the VIX at 150, I can't imagine what the market will go down to...

An interesting question is, if there is a possibility that the VIX could go to 150, then why not buy other extreme large-cap or individual put? Let's say Tesla's put with a strike price of 50.

Those who have bought options know that extremely out-of-the-money options do not fluctuate with the price because the delta is very small, which is also the basis for us to do sell put before.

But you can see that the VIX rose only 2.75% to 31.36 on Friday, and the price of this option rose 28%, benefiting from the fact that high iv amplifies volatility.

This is the ultimate leverage option.

Let's move on to jobs and earnings

Nonfarm payrolls increased 263,000 in September after a 315,000 gain in August. The unemployment rate unexpectedly fell to 3.5%, matching a 50-year low.

The bottom line is that the labor market is still strong, with more jobs than expected but fewer jobs each month and the lowest unemployment rate. No unemployment means that people and companies have money, and that money will continue to spend, and then inflation will continue.

Hawkish comments from Fed presidents after the data further fueled the market's decline. New York Fed President John Williams said interest rates need to rise to about 4.5% over time, but the pace and eventual peak of tightening action will depend on economic performance.

The data pointed to a higher final rate of 4.65% in March, while expectations for the November 2023 meeting, which fell to 4.22% on Monday, jumped to 4.49% on Friday.

On the earnings front, there's been no good news since Sept. 16:

Fedex, which reported early, fell 21 percent

On September 20th Ford's share price fell 12% after it announced that inflation would push up costs.

Nike's stock fell 12.8% after it reported a big increase in inventory on the 30th.

The same day Micron reported Q4 sales that missed estimates by nearly $2 billion.

On Oct. 7, AMD reported Q3 preliminary results, with revenue cut by $1 billion from estimates and year-over-year growth nearly halved.

Analysts expect third-quarter earnings per share to rise 3.2% from a year earlier, down from more than 10% in June, according to Bloomberg data. Corporate earnings are now expected to grow around 6.4% in 2023, down from around 10% at the start of the year.

Earnings growth estimates for companies in the S&P 500 have been steadily lowered.

If you subtract soaring inflation from the earnings yield on the S&P 500, real stock returns are negative and not far from the low.

Trade direction

With the bridge incident in mind, the direction of trading in October is pretty much set: Go short.

There are many short selling methods. I recommend the PUT spread strategy for short selling options, which can avoid the loss of time when holding shares.

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