A Macro Perspective

03/11/2014 9:21 am EST

Focus: OPTIONS

Bob Lang

Founder and Chief Analyst, Explosive Options

Veteran options trader Bob Lang shares his thoughts on trading options from a macro perspective.

ROB:  I am here with veteran options trader, Bob Lang, and I’ve just got to ask you the question:  How do you set things up from a macro perspective at the beginning of the year?

BOB:  That’s a great question, Rob.  You know, at the beginning of the year, I really take a look at the macro environment.  The macro environment always, for me, starts with the question of where is the Fed?  If the Fed is an accommodating source for the markets, then we’re pretty much looking at a bullish scenario going forward with the markets and, you know, from that point on I take a look at the next layer or the next level, and it’s all about, well, are we looking for bullish plays in equities?  Are we looking at commodities and that sort of stuff?  And then, it comes down; I trickle down from there.

ROB:  So what do you think about this; has the Fed been transparent enough?  There has been this gradual reputation over the years as the Fed is going to become more transparent.  What would you say about that?

BOB:  Basically I would say this is probably the most transparent Fed that we’ve ever had.  They communicate very well.  They put everything out on the table and tell you exactly what to expect and where they want you to go.  Basically, the message has been since 2009, be in risk assets.  Be in risk assets.  We are going to be buying bonds.  Bond yields are going to be so low that you are not going to get a comparable return to equities.  We want you in risk assets. 

ROB:  So what does a trader do once they have done that top-down macro approach?  There is an accommodative Fed.  The markets are looking pretty good.  What’s the next step for someone that’s been looking at these markets for so many years?

BOB:  Well, the next step is to take a look at market volatility and market correlation, and they kind of go hand in hand and what I mean by that is when markets are not correlated with stocks, there is the concept of we have a stock market or we have a market of stocks.  As a stock picker myself, I play options.  I am a stock picker.  I want to be in a market that is called a market of stocks, so I want to be able to find an opportunity – a trade opportunity – that is not necessarily going to be blasted – so to speak – because the market is getting killed, okay?  I want to be able to pick stuff that is going to move on its own merit; not necessarily with the market. 

ROB:  Great advice from a veteran options trader.  I really appreciate it.  Thanks, Bob.

BOB:  Thank you, Rob.

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