Early this year, we noted that some longer-term indicators had given bullish signals. One was when $SPX advanced by more than 1% for three consecutive days. That occurred in early March. Another bullish sign was when $SPX remained above its 20-day moving average for at least 30 days. That occurred during March as well. In both of those cases, the short-term gains were “meh,” but the longer-term ramifications (one year out, say) were quite positive.
Stocks continue to plow ahead to new all-time highs on the Standard & Poors 500 Index ($SPX). This has created some overbought conditions, but as of this time, there are no sell signals in place.
$SPX has support at the old breakout level of 2120-2135, so any correction should hold at that level. On the upside, we have targets of 2198 and 2226.
Equity-only put-call ratios continue to remain on buy signals. They are trending lower and beginning to reach the lower regions of their respective charts.
Breadth remains relative strong, and both breadth oscillators remain on buy signals as well, albeit in an overbought state.
This article was originally published in The Option Strategist Newsletter Volume 5, No. 19 on October 11, 1996.
We often refer to implied volatility and its uses. However, it's been some time since we actually discussed the use of implied volatility as a predictor of market movement. Consequently, we have received number of subscriber requests for this information and have decided to satisfy those requests with this article. The gist of this article is to use implied volatility as an impetus for directional trading — i.e., to use it to predict where the underlying market is going to go, and then to make an outright buy or sell in that market. This is as opposed to trading volatility itself, which is a neutral strategy (that theoretically doesn't try to predict the direction of the underlying market at all). This latter concept results in the type of strategy offered under "Trading Volatility".
This article was originally published in The Option Strategist Newsletter Volume 4, No. 2 on January 26, 1995.
One of the most important features of options is that they can remove some or all of the risk of stock ownership (or futures, where futures options are concerned). This is particularly attractive to stock owners who want some form of "insurance" against a steep or prolonged market decline.
There are several ways in which options can be used as an insurance policy for one's portfolio of stock. One might sell calls, or he might buy puts, or he might do both. In any case, these option transactions would profit if stocks fell and that profit would offset some or all of the losses incurred by stocks owned during the market decline. These concepts are not complicated and are used by many stock owners, particularly professional money managers.
Despite the euphoria about the market breaking out to new highs, accompanied by buy signals from many of our systems, and from our indicators, there is a dark cloud on the horizon. We have often mentioned that “stocks only” breadth has not kept pace – and it’s still not keeping pace. “Stocks only” cumulative breadth (i.e., the daily running sum of advances minus declines amongst all optionable stocks), made a new high in July 2014. It has basically gone nowhere since. $SPX was at 1974 at that time. Oh, yes, it eked out a slightly higher high in April 2015, but that was only by a few issues. Meanwhile, $SPX had risen to 2112 by that time.
All indicators were in synch this week, as $SPX finally broke out to new all-time highs. The breakout started with a "90% up day" last Friday, which put the Index on the brink of new all- time highs, and it carried through with $SPX higher each day so far this week. We have targets extending as high as 2205 at this time.
Equity-only put-call ratios finally got with the bullish program, and both have not only rolled over to buy signals, but both have made new relative lows for this year.
Market breadth has been quite strong. As a result, both breadth oscillators are on buy signals.
The recording of Larry McMillan and Ken Calhoun's recent "Option Indicators & Breakouts" webinar is now available. In the video, Mr. McMillan discusses the current state of option-oriented indicators and delves into the trading systems behind the recent successful buy signals. Check out the video below.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 11 on June 8, 1995.
One of the facets of an option's description is when that option may be exercised. This is usually called the style of the option. For example, American style options may be exercised at any time during the life of the option (in reality, they may be exercised at the end of any trading day). The term, style, is applicable to all options although many investors are not too concerned with it. This is because all listed stock options and all listed futures options are American style, and thus the average investor who trades those types of options is quite accustomed to being able to exercise whenever he wants (or, if he has written the option, he knows that he can be assigned at any time).
This article was originally published in The Option Strategist Newsletter Volume 12, No. 17 on September 11, 2003.
The CBOE has announced a new computation of $VIX. It is enough of a change that a totally new index is being created, and will be released on September 22nd. The “old” $VIX – the one that we know now and have always known – will still be maintained, but the symbol will change to $VXO. Similar changes will be made to $VXN, and it will computed differently in the future as well. In this article, we’ll describe the changes and make some comparisons between the new $VIX and old $VIX (now to be known as $VXO). In this article, when we use the term “$VIX”, it refers to the new index, whereas “$VXO” will refer to the “old” $VIX.
We got the breakout to new intraday and new closing highs that we were looking for. Now, the object for the bulls is to hold onto the gains. In that regard, we want to see a consecutive close above the old highs (2135) again today. This morning, $SPX looks to open about 10 points higher, so that is constructive. It’s been a long time since we’ve been at new all-time highs, but one thing about being here is that there is no natural overhead resistance. In the past, we’ve used the “modified Bollinger Bands” – the upper Bands, specifically – to estimate resistance. They also serve as targets for the mBB buy signal that is in effect.