The Annual Intermarket Spread (19:19)

By Lawrence G. McMillan

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.

Options On $VIX (14:06)

By Lawrence G. McMillan

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.

The Week After September Expiration (Preview)

By Lawrence G. McMillan

In the last few years, we have been trading the seasonal systems following June and September expiration.  By "expiration," we mean the third Friday of the month (the "old" definition of "expiration").  The market usually declines in the week after June and September expiration.  This doesn't hold true for March and December, for reasons that are not immediately clear, but that is somewhat irrelevant.  This year, this seasonal trade could fit in well with the recent bearish tone of this market. 

Capitalizing On Pessimism (05:08)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 5, No. 8 on April 25, 1996.

When traders get overly pessimistic, they sometimes create trading opportunities for those who have the patience to wait for the pessimism to reach a peak. In fact, extreme pessimism often leads to panic. Panic doesn't occur too often in the marketplace, but when it does, if you can view things in a level-headed manner, you can find some great trades.

Weekly Stock Market Commentary 9/16/2016

By Lawrence G. McMillan

Last Friday, the market broke down through support – and did so in a big way.  This current breakdown has changed the status of the $SPX chart from “bullish” to “neutral” at best.  One could make a case for $SPX now being volatile within a trading range of 2120 to 2160.  But if that 2120 support area is taken out, the chart will definitely be in a “bearish” status.

September Tops October Bottoms (08:16)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 8, No. 16 on August 26, 1999.

In this article, we’re going to look at a market tendency that has a long, reliable track record: a tradeable top usually appears in September – often near Labor Day – culminating in a good trading bottom sometime in October. This is a subject that we have addressed before, but not for the past three years. Fairly often, these turning points have been accompanied by market buy or sell signals from our oscillator and/or the equity-only put-call ratio.

This year, a buy signal has just been registered by the oscillator (see page 5 for further details). But that just might fit right in with the broad seasonal tendency. The market could rally into Labor Day or slightly beyond, then register a sell signal, and therefore fit right into the “normal” pattern. This is not one of those patterns that I would recommend trading without confirmation. In other words, just don’t go out and short the market on Labor Day, figuring that you’ll be able to cover at a nice profit by early October. Rather, it is more useful as a guide: be alert for sell signals in September, and when one occurs, be ready to jump on it. Then, if it works and the market is getting hammered in October, be alert for buy signals at that time.

Is the Bearish Genie Out of the Bottle?

By Lawrence G. McMillan

A violent rebound occurred yesterday, signaling that either a) Friday’s move was an aberration, or b) volatility has returned with a vengeance.  Today, S&P futures are down 17 points in overnight trading, for no specific reason.  There has just been a continual erosion all night long.  That would argue for b) above.  We are now getting mixed signals from some reliable indicators.  These will sort themselves out, but for now there is some conflict.

Earnings-Driven Straddle Buys (15:10)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 15, No. 10 on May 25, 2006.

In our last issue, we discussed the viability of buying a stock after event-driven news has caused the stock to gap. The conclusion was that there was a small potential profit there, but we are continuing to gather data on that subject. In this issue, we want to take a different tack: does it make sense to buy straddles on stocks that are about to report earnings? In particular, what about the stocks where traders expect the most action – i.e., those with inflated implied volatility prior to the earnings report? This is not an entirely new subject for this newsletter (reference issues 7:04, 9:20, and 13:16, for example), but it is the first time we’ve addressed this issue in a while. Furthermore, we are still of the opinion that this past quarter saw a new, higher level of earnings speculation than ever before.

Weekly Stock Market Commentary 9/9/16

By Lawrence G. McMillan

$SPX had remained in a trading range for nearly two months, but now it has broken support at 2160 and that is significant.

The only negative indicators that we had as of yesterday were the equity-only put-call ratios, but the others will join in today. As you can see from Figures 2 and 3, the put-call ratios have been edging higher since making their lows in mid-August. That puts them on sell signals.

The breadth oscillators remain on buy signals, in modestly overbought territory. However, it would only take one or two days of negative breadth to throw them back onto sell signals. That is happening today, so they will roll over to sell signals.

Expected Returns On Naked Put Writing (15:20)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 15, No. 20 on October 26, 2006.

We have written a couple of articles recently on naked put writing and put credit spreads as alternative strategies to covered call writing. We are not going to re-hash all of that previous information (although we will summarize it). Rather, this short article is mainly to address the topic of what sorts of returns can one expect from naked put writing – and what do they mean?

Many covered writers prefer to conduct the strategy on a cash basis – buying shares for cash and selling the option premium against those shares. The premium can then be withdrawn and used for whatever the writer wants – as long as he is willing to have the stock called away.

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
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