LORD COPPER: Christmas is coming, and the market’s getting flat...

…please put a bonus in the trader’s hat. If they haven’t got a bonus, some volatility would do… otherwise it’s boring, and God Bless You. Lord Copper counts the flat days ahead, and asks what can be done to fill the time.

…please put a bonus in the trader’s hat. If they haven’t got a bonus, some volatility would do… otherwise it’s boring, and God Bless You. Lord Copper counts the flat days ahead, and asks what can be done to fill the time.

Right now, the markets feel somewhat aimless; while it’s possible to find analysts advancing both bullish and bearish cases, most of them are actually taking the view that prices are stuck in fairly clearly defined ranges, and that in order for prices to break out of those ranges there needs to be some new impetus. We’ve seen such periods before, of course, and the jolt that starts things moving again rarely comes from the expected direction.

While such periods of calm may suit the genuine hedgers in the market, for traders – with managements expecting to see profits being generated – it’s a tough time: boring, and also frustrating as flat day follows flat day.

So what to do about it? Well, given the time of year, one option would clearly be to accept that it is nearly Christmas and in many ways the year is probably done and dusted by now; if it’s not, you’re going to struggle to do much else over the next few days so you may as well start your round of Christmas lunches, leaving a square position in the office so you won’t have any unpleasant surprises.

That’s the traditional approach, and it worked well for many years. However, in the more aggressive world of the 21st century, many traders will find it difficult to follow that route without becoming too obvious.

I suppose taking a holiday is a possibility, but skiing and winter sun both seem so much more attractive after the New Year, rather than before; so that’s probably not the preferred option.

(Incidentally, starting a new job at the beginning of December is not to be recommended; I once did exactly that, and the markets that year were just drifting. I decided to follow a modified policy of getting out as often as possible combined with starting my trading activity for the new employer. It was a bad choice. Not only was I regarded as frivolous but chasing trades in a dull market didn’t turn out as I would have hoped either. In the end, that employer and I were not a match made in Heaven.)

Bonus daydreams
In the boom years, when bonuses were worthy of the name, the default December activity – if the markets were ending the year with a whimper not a bang – was endlessly to check out estate agent/car dealership/yacht broker websites, with a view to that early new year upgrade. These days, though, things are more constrained, so that sort of activity is probably only interesting for a very small number of people. And, anyway, top-end stamp duty has just gone up: who said there was no austerity?

Maybe – instead of sending a clerk out to do it for you – a bit of Christmas shopping would lighten the dull days. That’s OK, but, let’s be honest, phoning the shop, giving the clerk a handful of cash and sending him off to do the job is far more attractive than standing in a queue to pay somewhere. After all, half the press (at least) likes to characterise all City dealers as greedy, thoughtless and selfish so why not confirm the stereotype for them?

For the more intellectual LME players, there used to be the Rudolf Wolff quiz – now gone, just like the company. I may be wrong, but I don’t see a replacement coming in the current serious market climate.

Could we sell volatility?
Altogether, let’s face it - displacement activity isn’t what it used to be. So what do we do to entertain ourselves when the market is dull and Christmas is coming? We eagerly count up the number of “dead” market days that typify the end of one year and the beginning of the next, we work out how many of them there will be when we earn time value without the possibility of the price moving, and – just like last year, and many before – we realise with a strange conviction that what we really want to do is to sell volatility.

I once read a bizarre article telling me that for free divers, there is some sort of addictiveness in the way they have to hold their breath for minutes at a time (I know, don’t ask me the details, far beyond me to understand) and I could compare that sensation to year-end volatility selling – it’s almost compulsive.

Sell the material and hold your breath until the January declaration. If you’ve been lucky, your year will start off with a bang. If not, well, there’s another eleven months to go until you have to start thinking about what to do all over again.

Merry Christmas to all my readers.

Lord Copper
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