Wednesday was a volatile day, with prices swinging back and forth several times during the day. However, by the time that the dust settled, $SPX was virtually unchanged. This is typical of the way that the market has been behaving recently. In fact, if one takes a “neutral” look at the $SPX chart, it is possible to see a trading range, between roughly 1950 and 1980, over the past month.
We are going to have a slight schedule alteration for August. Since there are five Thursdays in July, and since our office is going to be closed at the end of August for three days, we are going to publish this newsletter on the first and third Thursdays in August. This allows us to keep the two-week spacing between issues without skipping an issue. Regular publication dates will resume in September. The weekly Hotline updates will continue to be issued as usual.
We follow four main indicators, and they usually guide us in the correct direction of the markets. As noted elsewhere in this issue, price is the most important indicator of all (in this case, the price of the Standard & Poors 500 Index [$SPX]). However, the others – equity-only put-call ratios, market breadth, and volatility indices – are important, too. Usually, we want confirmation from price before acting on opposing signals from the other areas.
$SPX has now traded at a new all-time intraday high for the last three days, and it closed at a new all-time high the last two. Those new highs have been confirmed by some of the other indicators, but some are still on sell signals. $SPX has support at 1950, and that has proven to be very strong.
Equity-only put-call ratios remain on sell signals. They have been steadily rising for nearly two weeks.
Larry McMillan was recently interviewed on the Benzinga PreMarket Prep show where he discussed why insurance using options is important, the recent $VIX spike peak buy signal, the state of our indicators, common option trading mistakes and much more. Watch the interview below.
Well, the market finally found something it couldn't shake off -- at least not right away -- on the geopolitical front. Normally, this wouldn't be a big deal, but an overbought, somewhat nervous market can react to this type of news dramatically, and it did. So what is the real overall effect?
This week’s feature article is a bit longer than usual, but with volatility at such low levels, and so many traders and media talking about it, I wanted to describe how volatility hedged positions should be viewed.
For the first time in a while, some sell signals are beginning to creep into our indicators, and the broad stock market is selling off. So far, the damage has been controlled, but Thursday's sharply down opening shows that there is the potential for some heavy selling if there is perceived danger. $SPX has support at 1950 and 1925, and even at 1900 below that.
Equity-only put-call ratios are in agreement, and they are both on sell signals.
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.