Bond Buy Ends October
At the rate the Fed is winding down the Quantitative Easing bond buying program, it will end by October unless something changes and the Fed extends the bond buying or reduces the amount of tapering it is engaged in.
Part of the decline in the Dow today was the Fed meeting combined with the GDP numbers showing a very strong quarter. The GDP numbers on their own are advising investors that the economy is expanding. That means interest rates cannot stay at zero to a quarter of a percent for much longer without risking higher inflation.
All of this will continue to weigh on stocks going forward and at one point today the VIX Index spiked to $14.07 with the Dow pulling back.
Preparing For Higher Volatility
Rising Interest rates mean higher volatility is ahead for stocks. Higher volatility means better option premiums but also increases the risk to capital invested. This should be considered when trading in options, particularly selling options in August and into the fall. Stocks could have a rougher time than originally intended. This though also means that I can place smaller trade sizes but earn larger premiums which means I can use less capital to enjoy the same income levels as when volatility was lower. Just something to prepare for as we enter the fall trading period.