As the downtrend continues, I continue to be amazed by the amount of people that think the downtrend will not continue. Trends last longer than anyone thinks possible. The current downtrend looks like it has much much further to go. In the short term, I am working with the target mentioned the other day, S&P 622.

I have identified some cheap volatility in a couple of names. These positions will serve to enhance my portfolio of put positions that I will sell when the $VIX spikes higher than it did last year. Other than the REITS, my favorite shorts here are Google (GOOG), Research in Motion (RIMM) and Visa (V).

If you are not interested in the short side, there are plenty of bull markets. Three of note are the Dollar Index (DX H9), US Bonds (TLT) or (ZN H9), and finally Silver (SLV) and Gold (GLD).

The bullish bond trade is for the nimble. At some point this year, the US bond will be the biggest money makin’ vehicle on the street. Which way? Short. The Bond is going to be a massive short at some point this year. I’ll document it here. Stay tuned.

Peace

The trend is your friend

Today as the market slipped I noticed that option premiums were not expanding much.  However, I did notice that there were firmer bids for puts.  In a contract where the size is normally 30 contracts bid by 30 ask, I saw the bid ask size edging upward to maybe 60 x 60 or 100 x 100.  I did not see price appreciation.  I saw firmer bids.

This is a good sign and a step in the right direction.

The next step will be wider spreads.  I will start to see the ask on my puts move higher, but not the bid.  At some point, the price pressure downward in the underlying will cause volatility in the name to hit a Tipping Point.  If you have owned premium during times of extreme volatility, you know what happens after the tipping point.  Volatility expands out so quick that all you have is wishful thinking and hindsight and would-a, should-a could-a’s in your head.

Unless you are positioned correctly.

It is then that you can hit it big.

the tipping point