The world of investing is at the mercy of Washington DC over the last few days of 2012 in a clash between two titans: Obama vs Congress. The battle to be determined is the “Fiscal Cliff”.

We hear about it on the news, we see it via headlines on the internet or print, and at SJ Options, we are always talking about it.

Why?

Because it is an event that will have a lasting and immediate impact on the markets. It is these types of moments, expected market events that will cause rapid and forceful movements, that can make or break a trader’s year. You always have the privy of staying on the sidelines throughout the whole ordeal, but then you would not be taking full advantage of options trading.

If you have not done your fiscal cliff research, we will explain to you what exactly will happen in every possible scenario.

Here is the summary of potential changes in the image below:

If Obama and Congress can’t come to a solution:

Then 2013 is going to be a tough year for the economy as the nation will be on the verge of another recession.
Taxes will increase to $2,400 on average for families with incomes between 50k and 75k.
With less spending money for consumers, businesses and jobs will take a hit.
Government programs will decrease as well. This will cause companies to lose government support.
The nation will stand to lose over 3 million jobs (Source: Congressional Budget Office).
There will have to be federal budget cuts of 8 to 9 percent. That means, less government programs ranging from law enforcement, military, and agriculture to name a few sectors.

The side effects of a no solution Fiscal Cliff:

Milk prices could double with expiring dairy price support policies.
Unemployment Insurance will not be available for some 2 million jobless Americans.
Social Security recipients will see less growth in their checks.

So now the pressure is on for the President and Congress to come to a solution. If December 31st dawns and there is no accepted offer on the table from both parties, we believe investors and traders will be making drastic moves in the market to prepare themselves for a likely recession.

If there is an accepted offer on the table, then investors will rejoice and undoubtedly we will see a rise in the markets on the good news.

How to trade the Fiscal Cliff

There’s is only one certainty in an investment event, like the fiscal cliff, that can go either way.

That certainty is: above average volatility.

Obviously, you can place your bet whether or not an economic solution will be passed prior to the date. However, at San Jose Options, we like to teach low-risk trading strategies that have a high chance to make you money.

If you would like to learn more about these low-risk options trading strategies, visit us at www.sjoptions.com.