It is becoming commonplace to hear commentators on the business channels say something like “You need to buy protection now, for it is extremely cheap.” That is a very misleading statement. Yes, $VIX is low, but you can’t buy $VIX.
If instead you decide to buy $VIX futures, you must pay a large premium for them, and they waste away daily if nothing happens to spur $VIX to the upside. Buying $VIX calls isn’t any better, because their underlying is the futures, so the underlying is wasting away every day that nothing happens – and the call premium is also wasting away.
The market tried to break down this week, as $SPX finally pushed through the lower end of the very tight 2160-2175 trading range that had held it in check since mid-July. However, that feint downward was short-lived, and $SPX crawled right back up into the trading range once again. As a result, the $SPX chart remains bullish.
The major support area is 2120-2135, the top of the trading range that had held $SPX back from making new highs for over a year.
Equity-only put-call ratios wavered early this week, as they rose for a couple of days. But now they are making new relative lows. Thus, they both remain on buy signals.
...As strong as breadth has been, “stocks only” cumulative breadth has not yet made a new all-time high. Its all-time high was made in April 2015, and really even that wasn’t much of a new high. The last time that “stocks only” cumulative breadth moved strongly to a new high was in July 2014. I say the April 2015 high “wasn’t much of a new high” because it only exceeded the July 2014 high by about 1,900 issues – one strong up day in the market. This failure of the “stocks only” cumulative breadth to make new highs remains a major negative divergence for the stock market.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 12 on June 21, 1995.
With the market being so high, many individual investors and institutional money managers as well are wondering what to do with these profits. Completely exiting the market is not a viable alternative for many, and is prohibited by charter for some institutions. However, there is a way in which one can reduce his downside exposure while still retaining upside profit potential — he can sell his stock and replace it with LEAPS call options.
McMillan Analysis Corp. president Lawrence G. McMillan will be participating in Investor Inspiration's Investor Masterminds seminar on August 4th, 2016. Larry's presentation will be on The Current State of Option-Oriented Indicators and begins at 1:45 pm Eastern Time.
Register for the all-day event including Larry's presentation by clicking here.
This article was originally published in The Option Strategist Newsletter Volume 14, No. 5 on March 10, 2005.
One of the recurring themes in option-oriented media articles is that the $VIX Index is “too low.” Since many observers – media and traders alike – view $VIX as solely a contrarian indicator, this is a danger sign for the market. These observers figure that such a low $VIX implies that traders are, in general, too complacent, and thus the market is ripe for a beating. There are a lot of errors in these observations and opinions, and so we’d like to set the record straight. We have written articles about similar topics in the past, but with $VIX hovering near nineyear lows for such a long time (at least three months now), it is perhaps more timely now than ever.
Without a doubt, the hardest thing to do in the stock market is to spot a major market top before it happens. Bottoms are much easier to discern. One reason for this is that bottoms tend to be “V” or “W” affairs, with sharp downward spikes and sharp recoveries, but tops are “rolling” things that can take what seems like forever to complete.
The broad stock market, as measured by $SPX, is locked in a very tight range -- and has been since new all-time highs were reached on July 14th. Overall, though, $SPX remains in a strong uptrend, with support at 2160.
Equity-only put-call ratios remain on buy signals, as they continue to move lower on their charts. They are now reaching the lows of 2015.
Market breadth has been in a confusing, back-and-forth pattern. Every day from July 12th through July 27th, breadth alternated between plus and minus. The breadth oscillators remain on buy signals, and they remain in overbought territory.
McMillan Option Mentoring head mentor, Stan Freifeld, recently joined the Options Industry Council panel for a webinar discussing Directional Trading with Spreads. To watch a video of the seminar, click here and you will be taken to the ON24 registration page. Enter your information and the presentation will begin.
This article was originally published in The Option Strategist Newsletter Volume 18, No. 06 on March 26, 2009.
We have written about this topic many times in the past, but the $VIX futures’ ability to predict broad market movements has been called into question recently. For example, at the recent CBOE Risk Management Conference in Laguna Niguel, California, there was some discussion that the $VIX derivative products had lost their ability to “predict” movements in $SPX. That is not entirely true. What has spurred this sort of thinking is the fact that $VIX did not spike up to a peak and snap back down again when $SPX most recently declined sharply into what is so far a “V” bottom at 670. Also, discrepancies in the term structure, which at one time resulted in immediate movements in $SPX, have taken much longer to materialize in recent months than they used to.