Buy signals have abounded in the past week. In Figure 1, I have included Tuesday's night's action (vertical red line), as the market first plunged when it became a distinct possibility that Donald Trump would win the election. This was a very "Brexit-like" response to a surprise vote.
I used to think "weatherman" was the main occupation where you could be wrong constantly and still keep your job. Now I'm going to add "pollster" to that list.
Trump has won, but the world is not coming to an end. Futures plunged overnight – at one point touching limit down = 107 points! But prices have completely recovered, and futures were trading on the plus side just moments ago. Prices are still swinging around rather rapidly, but in general volatility is deceasing, and more buy signals are coming to fruition.
This article was originally published in The Option Strategist Newsletter Volume 5, No. 18 on September 19, 1996.
The volatility that has been introduced into the overall market since February has made most options expensive, or seemingly expensive. This comes after one of the most prolonged periods of depressed volatility that we have seen since options started trading: from 1991 through 1995 options were consistently on the cheap side, except for a few brief periods. Consequently, the current crop of option prices seems very expensive — especially considering what traders had become accustomed to over the past few years. In reality, it is more likely that they are just priced at higher absolute levels than one is accustomed to seeing. In this article, we want to address some strategies and tactics for handling "expensive" options.
The stock market finally succumbed, with $SPX breaking down below the long-term support level at 2120 this week. This completes the certification of "bearish" status for the $SPX chart. Oversold conditions are beginning to appear in great quantity already, even though this decline has been modest so far in terms of $SPX points. It's sort of a slow-motion decline, where the daily losses are steady but not huge. $SPX has declined for eight days in a row, but the total damage is less than 70 $SPX points.
This article was originally published in The Option Strategist Newsletter Volume 17, No. 22 on November 26, 2008.
Option traders generally welcome volatile markets, for more strategies can be employed over the entire spectrum of optionable stocks. However, this market is arguably more volatile than any in history and, as such, presents a few problems and opportunities that traders might not ordinarily have considered. In this article, we’ll take a look at some of those.
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The $VIX “spike peak” buy signal that is in place took four trading days to confirm. That is, $VIX spiked up to an intraday high of 17.95 on October 13th, but it did not complete the signal (by closing below 14.95) until October 19th – four trading days later. We are used to seeing $VIX spike up and right back down again, giving these buy signals on the same day that the intraday high was reached, or perhaps the next day.
Does this make a difference? It seems like a “slow” signal might be less profitable than a “quick” signal, but the only way to tell is to analyze the data.
Both the Crash of ‘29 and the Crash of ‘87 – two of the worst days in market history – occurred exactly 55 calendar days after the market had made an new all-time high. In other words, 55 days after the top, people are getting anxious. For those who believe in this theory, rather than coincidences, it supposedly has something to do with Fibonacci and/or biorhythms – who knows?
I can’t believe that I forgot about to mention this in advance. That date has passed in this cycle. So far, the all-time high was made on August 15th, at 2193.80 on $SPX. Fifty-five calendar days later was October 9th, which passed without incident.
The chart of $SPX (Standard & Poors 500) continues to have a slightly negative bias to it. There is a clear series of lower highs on the chart. Moreover, the trend line from the January lows has been broken.
Equity-only put-call ratios are both technically on sell signals at this time, according to the computer programs that we use to analyze these charts. However, to the naked eye, they are more or less moving sideways.
Market breadth has deteriorated badly this week. This negative breadth has pushed the breadth oscillators into officially oversold territory. They are on sell signals now.
This article was originally published in The Option Strategist Newsletter Volume 9, No. 05 on March 9, 2000.
Two issues ago, we wrote about the effects of changes in implied volatility on a call bull spread. Several readers asked about similar effects on other “common” positions – especially on put spreads – so we’ll expand on that theme this week