Blogs

Weekly Stock Market Commentary 7/8/16

By Lawrence G. McMillan

The broad stock market has been able to consolidate its strong post-Brexit gains. There was a day and a half of selling this week, but a strong upward reversal by $SPX from 2074 on Wednesday leaves the bulls still in control.However, there is frustration for the bulls, too, because $SPX has not been able to assault the all-time highs. A promising Thursday rally failed at the 2110 level, reinforcing the 2110-2120 area as strong resistance.

Option Basics: Time Decay (06:06)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 6, No. 6 on March 27, 1997.

I was tempted not to label this article as a "basics" article, because the concept we're going to discuss is one that is probably not all that familiar to most option traders. It concerns the rate of decay of in- or at-the-money options versus that of out-of-the-money options. It's a concept that I realized I understood subconsciously, but not one that I had thought about specifically until I recently read Len Yates' article in The Option Vue Informer. Len is the owner and founder of Option Vue, creator of the software package of the same name and is one of the best option "thinkers" in the business (we are going to have a review of Option Vue when their new version is released).

Option Basics: Collaring Your Profits (4:22)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 22 on November 30, 1995.

Using options to protect your portfolio is, for most people, more of a theoretical exercise than a practical application. By that, I mean that most people think about using puts to protect their stocks — and they might even look at a few prices in the newspaper and figure out how much it would cost to hedge themselves — but when it comes right down to it, most people consider the put cost too expensive and therefore don't bother buying the protection.

What Volatility To Use? (07:06)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 7, No. 6 on March 26, 1998.

There are only two types of volatility – historical (also called actual or, sometimes, statistical) and implied. Historical tells us how fast the underlying security has been changing in price. Implied is the option market’s guess as to how fast the underlying will be changing in price during the life of the option. It’s easy to see that these might rightfully be completely different numbers. For example, take the case of a stock that is awaiting approval from the FDA for a new drug application. Often, such a stock will trade in a narrow range, so historic (actual) volatility is low, but the options will be quite inflated – indicating high implied volatility that reflects the expectation of a gap in the stock price when the FDA ruling is made.

Weekly Stock Market Commentary 7/1/16

By Lawrence G. McMillan

Stocks had a violent downside reaction to the Brexit vote in Britain. But while the damage was severe, it was short-lived. Over the past four days, a huge rally has emerged that has nearly wiped out the Brexit losses.

$SPX is now back inside the 2040-2120 trading range that had been containing the markets through April, May, and the first half of June. So, the $SPX chart is in a neutral state once again.

While many other indicators have turned more bullish, that is not the case for the equity-only put-call ratios. They gave sell signals right after the Brexit vote, and they have remained on those sell signals.

Option Basics: Just Why Is Volatility So Important? (04:04)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 4 on February 23, 1995.

If it seems that we preoccupied with volatility, it's because we are. It is the only variable factor in determining the fair value of an option; the others are known with certainty at any point in time — strike price, time remaining until expiration, stock price, dividends, and short-term interest rates. However, it has practical and real application as well. If you buy options when volatility is low, then you stand to gain doubly if volatility increases. Or, even if you're wrong on the direction of the underlying market, your loss will be reduced if volatility increases. Some examples may help to clarify these points.

The Indicators Are Changing

By Lawrence G. McMillan

Stocks staged an extremely strong rally yesterday, and S&P futures are up another 15 points in overnight trading.  This whipsaw action has left traders and investors alike unsure of what comes next.  But the rally improved things greatly from a short-term perspective, and may have had some effect on the intermediate-term as well.

Option Basics: Implied Volatility (05:09)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 5, No. 9 on May 9, 1996.

The concept of volatility, and especially implied volatility is extremely important for option traders. We often refer to implied volatility, for it is the foundation of many of our strategies. However, when meeting the public, I find that many people don't have a clear concept of what implied volatility is, so this article will be educational for some readers, and merely review for others.

Option Basics: Equivalent Positions (4:18)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 18 on September 28, 1995.

The concept of equivalent option positions is an important one, for it is often possible to substitute one strategy for another. In so doing, one might be able to accomplish additional goals while still preserving the same profit potential. These considerations might include decreased commissions, tighter markets, or better use of capital.

Weekly Stock Market Commentary 6/24/16

By Lawrence G. McMillan

The market remained jittery throughout the week in anticipation of the European "Brexit" vote, and the event didn't disappoint. On the heels of the decision for the United Kingdom to leave the European Union, the S&P 500 sold off tremendously Thursday night. Hence, the market is once again teetering on the important support level of $SPX 2040. Although today's price action is indeed a bit scary, from a longer term perspective the bulls remain in control so long as that support level holds.

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
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