And so it begins. Sell signals have been registered, and it is possible that more will follow. $SPX closed off nearly 10 points yesterday, as attempts to rally all afternoon eventually failed, and the index closed near its lows. S&P futures have traded another 5 points lower overnight. This activated the “modified Bollinger Band” sell signal.
Often at expiration, an option trader will have in-the-money options that need to be either exited or rolled. Market makers know this and purposely widen the spreads in the market so that the bid for the option is below parity. On expiration day, the option has a value of at least parity so the astute trader must always make sure he exits the position at parity or higher. For a put, parity is the strike price minus the underlying price.
This week's action makes the $SPX chart bullish (how could it be anything else when trading at new all-time highs?).
There is no technical resistance for a chart at new all-time highs. There is support at 1850 (which had been resistance), then at 1825- 1835 below that. It is our opinion that a close below 1825 would be quite negative.
Equity-only put-call charts continue to be bullish.
This is the time of year when many organizations have their annual conferences, many of which are open to the general public. The quality of the presentations at these conferences is far higher than at general trade shows, for the audience is primarily professionals, and so the speakers are of the highest quality.
In this MoneyShow.com interview, Lawrence G. McMillan talks about "how he measures the market's overbought and oversold status." Larry discusses breadth oscillators and modified Bollinger Bands, and details calculations and provides signal pramaters. Watch the video at Moneyshow by clicking the image below.
We all know that trading options is exciting, highly competitive, and can be very profitable. The key to long term and consistent profits in option trading is options education.
There will be a very slight alteration of our publishing schedule in March. The first issue in March will be published on the normal day, the 2nd Thursday, which is March 13th. But the second issue in March will be published one day early, on Wednesday, March 26th. This is because of the AAPTA Conference in Austin (see page 5), to which I will be traveling on Thursday, March 27th (the usual publishing day).
The broad market, as measured by the Standard & Poors 500 Index ($SPX) has finally managed to close at a new all-time high. A second day closing above 1850 would solidify the breakout and give it more credence.
Equity-only put-call ratios (Figure 2 and 3) have finally rolled over to buy signals.
Market breadth has been strong all month. As a result, the breadth indicators remain on buy signals, but they are in deeply overbought territory.
In our last issue, we discussed the newest volatility product – the futures that have recently begun trading on the Short-Term Volatility Index ($VXST). One of the things that arose from that discussion was that $VXST “overshoots” $VIX on both the upside and the downside. That is, in periods of high volatility (spike peaks, for example) $VXST rises to higher prices than $VIX does. Conversely, in periods of low volatility, $VXST falls farther than $VIX does.