Weekend Update

The stock market indexes had the biggest two day move from low to high in six years. The underlying fundamentals in the market really haven't changed with the huge intervention last week. However, the first key step to halting the bleeding was taken by the government and major financial institutions.

The ban on short-selling has been a key issue for market makers, who often use shorting to hedge risk on their option inventory. That's why we saw such exploded spreads on options on Friday. Market makers were hedging risk by dramatically widening spreads instead of being able to short stocks. The SEC will probably have to exempt market makers, to some degree, from the short selling rule in order for the options market to continue in an orderly manner, or to continue at all for that matter.

I still haven't seen any news on a short selling exemption for the options market makers, so there's no point in getting too cute about what to expect tomorrow. It may be that tomorrow is simply a day that we won't want to trade options. I'm approaching it that way.....

My market posture is Intermediate Term Neutral and Short Term Bullish. However, we are still in a violent, cataclysmic type of market. So keep directional trades to very short swings for the next few days, just like the end of last week. And watch out for the wide spreads. I will probably be just sitting on my hands and watching how things shake out tomorrow before I look for my next trading idea.