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Year Ahead in Investing: Key Considerations for 2023


As we bid farewell to 2023 and look ahead to the coming year, it’s imperative for investors to closely examine the potential scenarios they may face. Here are some important factors to keep in mind:

A Re-Elected President Trump and Market Outlook

Should Donald Trump secure another term as president, it is highly likely that the stock market will experience a significant rally. In such a scenario, investors can strategically employ put options and call options to maximize their profits. However, beyond this initial surge, the future becomes uncertain. Trump has the potential to disrupt the international order that has prevailed since World War II, and the implications of such a move on geopolitics and financial markets are difficult to determine.

A Re-Elected President Biden and Market Expectations

If President Joe Biden is re-elected, the stock market is expected to oscillate initially until there is greater clarity on tax policies and expensive public initiatives. During this period of uncertainty, investors can leverage the selling of puts and calls to capitalize on various market conditions and adjust their positions accordingly.

The Impact of the Federal Reserve

The influence of the Federal Reserve on the trajectory of stocks and options volatility cannot be overstated. Failure by the Fed to implement anticipated interest rate cuts, a scenario that is currently widely expected, could potentially weaken the stock market. While this may not be a commonly discussed risk, experts predict that rate risks will become a significant market narrative in the new year, particularly during the initial quarter.

Shift towards Portfolio Hedging and Speculation

As investors increasingly focus on macro-market movements and potential hot sectors, we anticipate a surge in interest surrounding portfolio hedging. This interest will likely lead to speculation within the technology and financial sectors as investors seek to capitalize on these broader market trends.

Rise of Non-Equity Risk Investments

With a growing number of individuals nearing retirement or already in retirement, there is a heightened interest in non-equity risk investments. This is driven by the fear of not having sufficient time to recover from stock market downturns which can disrupt retirement plans. To address this concern, investors are likely to explore alternative strategies such as options contracts to safeguard their portfolios.

It should be noted that while zero-dated options, which are options contracts expiring within a day, have gained attention, investors should not overlook the significant benefits that options provide in navigating the stock market effectively.

In conclusion, as we step into the new year, it is crucial for investors to proactively assess these key considerations. By doing so, they can position themselves to make informed decisions and maximize their potential returns in an evolving market landscape.

The Risk of Zero-Dated Options in the Stock Market

The use of zero-dated options in the stock market has gained increasing popularity. While these options are often used to echo or anticipate stock market moves, they also pose a risk to the stability of the market. The trading patterns associated with these gambling chits have been defended by the industry as harmless. However, investors should remain cautious, as history has shown that problems with supposedly safe options funds can have severe consequences. In February 2018, for instance, such problems caused the Cboe Volatility Index (VIX) to double and the S&P 500 index to fall 4%.

The Potential of Options in Investor Portfolio Allocations

If exchanges refrain from introducing more products that cater to the worst instincts of investors, options can play a more significant role in investor portfolio allocations. One example of this potential is the JPMorgan Equity Premium Income exchange-traded fund, which manages $30 billion. The fund sells calls on a portfolio of blue-chip stocks, offering investors an opportunity to constructively manage their money. This goes to show that the possibilities for assisting investors extend beyond mere speculation.

The Complexity of Options

Despite decades of educational efforts by the industry, many investors still struggle to understand how to effectively use options to enhance their portfolios. This persistent lack of knowledge raises concerns about whether options are too complex for inclusion in serious institutional portfolio allocations. Instead of focusing on zero-dated options, industry leaders should address this issue more substantively.

Encouraging a Strategic View

Exchanges should prioritize tackling issues that hinder major investors from utilizing options to address portfolio concerns. Rather than solely catering to speculators, who drive up trading volumes and transaction fees, exchanges could benefit from a larger and more sustained trading volume. Investors who hold exchange stocks should encourage executives to take a strategic view that extends beyond short-term earnings reports.

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