If you think recent market plummets and bounces seem like an investor roller-coaster, just imagine how traders – like me – feel.

To be frank, I’ve been on vacation and not trading through this incredible turmoil, a lucky thing indeed because I probably would have had my head handed to me.

But what’s one supposed to think when the market regularly moves not just 3% in a day, but 3% in an hour, when a 1% move would often be considered substantial?

It’s a fool’s errand to give trading or investing advice at a time like this. The only thing I can think of is that anyone who can refinance a home (at least a home with positive equity) should be doing so right now.

Other than that, my personal play is looking to sell index calls on rallies, as I think we’re stuck in a trading range until it becomes clear that Barack Obama is a one-term president.

Europe is, financially speaking, in an extremely perilous position right now. They have debt and risks that probably make American banks’ 2008 troubles look relatively minor. And they have a European Central Bank which is pulled in multiple directions by the almost silly amalgamation of nations which comprise the Eurozone. Why Greece and Germany, Spain and Holland share a currency is more a matter of politics than economics, although there are clearly major savings in not having to pay banks every time one European has a transaction with a European from another nearby nation.  But I digress…

The statements we hear lately from figure in our government about limited US exposure to European banks are likely hot air at best. Exposure doesn’t have to be direct to be substantial in this interconnected financial world we inhabit.

And if a major bank fails in a major country (Italy, France, Spain) the ripples will certainly be felt all the way across the ocean.

Today’s rumor was French bank Societe Generale. SocGen, as it’s known, denied having any liquidity issues, denials which one commentator noted were similar to those made by Bear, Stearns right up to the day before it failed.

I’ve seen markets like this before, like during the Asian currency crisis and the failure of Long Term Capital Management. Turmoil can be intense for weeks, and you just have to prepare for market moves much larger than we usually see, and trade accordingly. It’s no time to be a hero, just time to survive and make a few bucks if you can.

As I said, I’m looking to sell calls on rallies, might sell a couple of puts on panic sell-offs, but that’s a very scary game to play and I certainly won’t do that in any size. These days one never knows what news might cause the market to open down huge, and “naked” put selling leaves one at serious risk. The problem is that hedging the puts can easily cost you more in losses on the hedge than you were looking to make on the puts, so my usual style is to sell ‘em and hold on for the ride. I usually don’t sell stuff with more than a week or 10 days until expiration, so I’m not wearing a short gamma or short volatility position for weeks or months, especially in markets as crazy as these.

Cisco Systems had decent earnings after the close on Wednesday and seemed to be helping stock index futures…until about 5 AM (Mountain Time) this morning, when S&P futures starting falling, losing almost 30 points, or more than 2.5%, in just over an hour without any major news, at least that I saw. Instead, the sell-off is being attributed to more fear about European debt. As I mentioned, it’s a very valid fear, and at some point it will be “priced in", but I’m not going to try to catch the falling knife. UPDATE: In the next hour or so, leading up to the market open, stock index futures regained all of their losses and sport modest gains. Futures thus gained more than 20 points, or more than 2%, in under an hour, in part due to a decent report on first time jobless claims, which came in slightly below the psychologically important 400,000 level. Also, there was news that the French and German presidents are meeting which for some reason the market took as a positive.

Wednesday’s close was so panicky that it’s possible we’re near a bottom, but usually in this kind of market, a bottom is more likely to be found on a day with a substantial down open followed by a strong, positive close.  Opening higher is rarely the end of a bear phase, so for the time being I’m not convinced by rallies, and certainly not convinced by any day in which we open higher than the prior day’s close. As I said before, I don’t think the market has much chance for a sustainable move to new highs until Barack Obama seems certain to lose re-election.