We have written many articles in the past about how to hedge a portfolio with $VIX options, but in this article we are going to expand the discussion somewhat. Not only are there more products than mere $VIX options, but the concepts of hedging with volatility options extends beyond mere portfolio protection into quasi-arbitrage strategies and then into more creative speculative (but still hedged) strategies.
The market finally suffered some selling yesterday. This didn’t cause any more of our indicators to turn negative, but breadth indicators are getting close. Even so, we have enough sell signals in place to call for at least a short-term correction. One of the more bullish things, though, is that the parade of “analysts” on CNBC is uniformly bearish. This includes a number who are perma-bulls for the most part; but now they are calling for a correction.
We all know that trading options is exciting, highly competitive, and can be very profitable. The key to long term and consistent profits in option trading is options education. The McMillan Mentoring Program, which is run by former Market Maker, white badge AMEX Floor Official, professional trader, and longtime MENSA member Stan Freifeld, can take your trading to the next level.
$SPX is once again making new all-time highs. $SPX now has support at or near the 1950 area, which was the low of the most recent "correction." Below that there is support at 1925, where $SPX bottomed last week. The major support is at 1900, where a lot of work was done between March and May.
The feature article details a shortterm seasonal systems that lasts for just one week. It actually pertains to the week that is just ending, and we outlined the system in last week’s Hotline, using it to hold onto SPY puts. The full explanation of the system is in this issue, and we will employ this system again in the future.
Join Stan Freifeld, Director of Corporate Services and head option mentor at McMillan Analysis Corporation for this complimentary webinar recording. Assuming full regulatory approval by the SEC, Binary Return Derivatives (affectionately known as ByRDs), will begin trading in September of 2014. This new and innovative product has characteristics that are similar to Puts and Calls but there are also some significant differences.
There is support for $SPX at or just below 1950. In addition, there is support at 1925 (the lows from a couple of weeks ago), and then there is major support at 1900.
The one deteriorating area among our main indicators is the equity-only put-call ratios. Both have started to rise over the past three days, and the weighted ratio is now officially on a sell signal.
This seasonal trade first came to my attention last year, but when I heard about it, the system had already been entered. So, I wrote it on my calendar for this year, and the time has arrived. As it turns out, it is one of the few confirmed bearish signals out there right now (no, I don’t count the myriad of overbought conditions as “confirmed bearish signals;” they would have to generate actual sell signals to be confirmed).
Larry McMillan was recently interviewed on the Benzinga PreMarket Prep show where he discussed common option trading pitfalls, the benefits of option writing, the trend of $VIX, dynamic hedging, weekly options and much more. Watch the interview below.
Once again we see that nothing really can stop this bullish market. This week, there were three separate pieces of news/data that theoretically could have done so, but they had little effect.
So $SPX is now trading at new all-time highs. The "old" support level at 1900 is still in place, and now there is support at 1925 (last week's lows).
Equity-only put-call ratios remain solidly bullish, although they are very low on their charts (Figures 2 and 3) and are thus reaching overbought status.