This article was originally published in The Option Strategist Newsletter Volume 12, No. 8 on April 24, 2003.
The concept of “delta neutral” is an intriguing one – especially to traders who have had a hard time predicting the market or to those who don’t believe the market can be predicted (random walkers). The concept is even sometimes “sold” to novice investors as a sort of “can’t-lose” trading method, even though that isn’t true at all. While the idea of having a position that can make money without predicting the direction of the underlying stock seems attractive, in practice the strategy is difficult, if not impossible, to apply – at least in terms of keeping a position delta neutral.
This week, $SPX did break down a little bit, violating the 2175 level, which had been the bottom of the tight 2175-2195 trading range that had contained prices for most of this month. But the piercing of minor support at 2175 was not significant. However, a breach of the 2160 support area would be more damaging, in my opinion.
The equity-only put-call ratios have been flirting with sell signals for most of the month of August. Now, the weighted ratio has turned bearish after the modest selloff by $SPX this week, but the standard ratio remains on a buy signal for now.
Sellers got the upper hand yesterday, on fears of what Fed Chair Yellen might say in her speech on Friday morning. Or at least the excuse that is being given. $SPX closed below its 20-day moving average for the first time since June 29th – a period of 39 days. These long periods of “levitation” above the 20-day moving average are not exactly common, but they occur with enough frequency that we can analyze them. In general, the market moves higher after the period of “levitation” ends – especially when it has lasted this long. We have published data on this phenomenon before, and will update it again now that the current streak has ended.
The video of Larry McMillan's recent The Current State of Option-Oriented Indicators webinar with Investor Inspiration from August 8th is now available on their YouTube channel. In the video, Larry takes an in-depth look into our various technical indicators and discusses what they are saying about the market. Scroll down to watch the video or click here.
This article was originally published in The Option Strategist Newsletter Volume 11, No. 05 on March 14, 2002.
No, this isn’t an expose, despite the article’s title. Rather, it is an attempt to set the record straight about how volatility levels can be used as a predictive market tool. So much has been written and said about volatility in the last few weeks – in main-stream publications and on national television outlets. Much of it is erroneous. These errors are not really attempts to mislead the public, but are rather outgrowths of conventional misconceptions. The misconceptions may have arisen out of an over-reliance on near-term trends, while ignoring or being ignorant of what a longer-term volatility picture actually means.
Stocks continue to trade in a tight, sideways range. This is a situation which will eventually lead to a breakout. Most analysts are bearish because of the low volatility and because of the fact that $SPX is near or at all-time highs. But the important part of that sentence is "Most analysts are bearish." Forget the reasons. If they are mostly bearish, the market is unlikely to accommodate them.
This article was originally published in The Option Strategist Newsletter Volume 19, No. 18 on October 1, 2010.
Most of the time, we look at index options in order to make general observations about volatility. These observations, which evolve into opinions, often involve $VIX, $VIX futures, or $VIX options, all of which are based on the $SPX options. This is a reasonable approach, of course, since $SPX options are heavily traded, as are the $VIX derivatives, and therefore they reflect the greed, fear, and anticipations of literally millions of traders.
New all-time intraday and closing highs were registered yesterday for $SPX, the NASDAQ Composite, and the Dow- Jones Industrials. Thus the $SPX chart remains bullish as it is clearly in an uptrend, and the moving averages are all rising as well.
Equity-only put-call ratios have rolled over to sell signals. One might think that because these are 21-day moving averages, these would be the last indicators to react. It turns out in our studies of previous tops, that these are usually among the first indicators to turn negative.
This article was originally published in The Option Strategist Newsletter Volume 14, No. 12 on June 22, 2005.
Before you declare me insane for even mentioning the words “volatility” and “increase” in the same sentence, let me point out that I am not saying that volatility will increase immediately. However, it will certainly increase sometime and that could happen as soon as the second half of this year. Remember, July 1st is the traditional low point for $VIX for the year. So, after that, $VIX generally increases – albeit in fits and starts – until October.
This article was originally published in The Option Strategist Newsletter Volume 18, No. 18 on September 24, 2009.
This is a question that has always intrigued me. We all see situations, for example, where stocks make a large gap move on earnings. Is it justified? Does the stock continue on in the same direction a week, month, or quarter later? Or does the knee-jerk reaction to news just provide a place for a reversal? These are all good questions, and so we have been working on a study to answer them.