The CBOE recently listed a Condor Index (symbol $CNDR). It is a benchmark index designed to track the performance of a hypothetical option trading strategy that sells a rolling condor spread. The index uses $SPX options, which settle for cash on a monthly basis (“a.m.” settlement). The hypothetical spread is rolled monthly.
Stock prices have dampened down into a very narrow trading range again. There is major support at 2120 and major resistance at the old highs (2195). A breakout from those levels would be significant.
Equity-only put-call ratios have been declining for the past couple of weeks. The standard ratio has been on a confirmed buy signal for at least that long, and you can see from the chart that it is declining rather steadily (Figure 2). The weighted ratio has finally chimed in with a buy signal as well, although it's not as clear on that chart (Figure 3).
This article was originally published in The Option Strategist Newsletter Volume 18, No. 04 on March 5, 2009.
We have been using the hedged strategy between volatility and the broad market for over a year now, and the results have been good. But there’s more to this strategy than meets the eye. So, perhaps it isn’t useful only when $VIX futures are sporting a big premium or discount. It might make sense in a broader array of situations.
Stock prices were lower all day yesterday, but closed near their highs – thereby once again indicating that there is likely no follow-through momentum yet. $SPX has been making a series of lower highs and higher lows over the past month. A triangle is visible on the chart. The triangle is narrowing down to a point, and that feels about the same way the market has been performing – no real progress and a dampening down of movements to a very small magnitude. According to classic chart theory, when $SPX breaks out of this triangle, it should be significant. The last time a similar condition existed on the $SPX chart was last May.
Stocks have tried to find a catalyst to spur them in one direction or the other, but they have been unable to do so. $SPX is locked into the 2120 - 2195 trading range. A clear breakout in either direction should be respected.
The equity-only put-call ratios continue to be mixed in their outlook, although the charts are not all that different. The standard ratio (Figure 2) has been on a buy signal for over a week, while the weighted ratio (Figure 3) remains on a sell signal -- at least according to the computer.
Market breadth has been swinging back and forth quite strongly. This has resulted in multiple signals. The latest is a sell signal.
This article was originally published in The Option Strategist Newsletter Volume 12, No. 12 on June 25, 2003.
In literally every issue of this publication, we discuss the levels of implied volatilities of various groups of options – stock options, index options, or futures options, for example. Of particular interest, in general, is how stock options are behaving, for they are the backbone of our volatility trading strategies. For example, if stock options are generally cheap, then we want to buy volatility. If they’re expensive, then we look for other strategies that take advantage of their expensiveness. Over all the years, we have not created a measurable index to treat the general level of stock option implied volatility, and that is an oversight that we intend to correct with this issue.
This article was originally published in The Option Strategist Newsletter Volume 21, No. 20 on October 26, 2012.
We occasionally publish charts showing the seasonal pattern of $VIX. Figure 2 below shows the composite price of $VIX for a 23-year history (1989 through 2011). This chart is constructed simply by following this method: gather the 23 $VIX prices for the first trading day of the year, sum them, divide by 23, and that is the first point to plot on the left of the graph. Continue that way throughout the year.
The Standard & Poors 500 Index ($SPX) had been mired in the 2120-2160 area since it broke down on September 9th. In the last two days, after the Fed predictably kept interest rates unchanged, $SPX rallied strongly and closed just under 2180. $SPX needs to close above resistance, at a new all-time high in order to confirm the budding bullishness that we are seeing. Other indicators have turned bullish, but we have seen occasions before where $SPX did not confirm, and $SPX was eventually the correct indicator (how can it not be?).
This article was originally published in The Option Strategist Newsletter Volume 19, No. 19 on October 14, 2010.
Each year about this time, we review and recommend a futures spread that has been quite profitable over the years: buying Feb Gasoline futures and selling Feb Heating Oil futures. We call this an intermarket spread since it involves a long position in one market and a short position in a different, but related, market.
This spread has generally been quite reliable in the past, but it can only be implemented in one form – with the actual futures contracts themselves (more about that1 later). We have traded this spread almost every year since 1994, although the entry and exit parameters have been altered a few times.
This article was originally published in The Option Strategist Newsletter Volume 14, No. 6 on March 25, 2005.
In a press release issued on March 18th, the CBOE has announced that option trading on $VIX will begin on Friday, April 22 (2005). We consider this to be a major new derivatives product. It is the first time that there will be the opportunity to trade options on volatility in a listed marketplace (they have traded over-the-counter, institutionally, for some time). In today’s article, we’ll not only look at the mechanics of these options, but at some of the theory as well.
This product will be useful for a wide range of applications for stock and option traders. Wherever $VIX futures were applicable, these options will be as well. Furthermore, option strategies on $VIX can now be constructed – with their own unique sets of risk and reward parameters. As we will discuss in this article, however, $VIX does not behave like a stock, so there will have to be some adjustments for that fact in the modeling of $VIX option prices.