Weekly Stock Market Commentary 11/18/16

By Lawrence G. McMillan

The bulls had an enjoyable week, although it was not a spectacular one. The post-election rally has held together for the most part, except for a few sectors which are not benefitting from the anticipated "infrastructure boom."

$SPX edged to within 8 points of a new all-time yesterday, and the NASDAQ Composite was equally close. The Dow Jones 30 Industrials, the Russell 2000 Index, the Midcap 400 Index, and the Value Line Composite Index have already made new all-time highs.

Buy signals from both equity-only put-call ratios are officially confirmed. The standard ratio's buy signal occurred prior to the weighted, but both are in sync now.

Strategies For Volatility: Calendar Spreads (04:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 12 on June 21, 1995.

When volatility increases, the option prices increase. This simple statement is the main philosophy behind owning options during periods of low volatility, especially if you think there is a fair chance of a price or volatility explosion occurring shortly after you buy your options. A strategist will generally prefer to own both puts and calls so that he can make money if the market moves up or down. Thus, owning a straddle (a put and call with the same striking price) or a combination (a put and a call with different striking prices) are the two simplest strategies that take advantage of increasing volatility. Another is the backspread, which we have been describing in a fair amount of detail all through the spring of this year. We currently have four backspread positions in place. We prefer the backspread to a straddle or a combination because it is easier to adjust the backspread as you go along, if you want to keep the position more or less neutral to market movement.

Reverse Calendar Spreads (09:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 9, No. 12 on June 22, 2000.

The reverse calendar spread strategy is not one that is employed too often, probably because the margin requirements for stock and index option traders are rather onerous. However, it does have a place in an option trader’s arsenal, and can be an especially useful strategy with regard to futures options. The strategy has been discussed before in The Option Strategist, and it is apropos again because it can be applied to the expensive options in the oil and natural gas sectors currently.

2017 Heating Oil – Gasoline Spread (Preview)

By Lawrence G. McMillan

This has been a successful seasonal trade in many years, and last year was the second best year in our history. We have used this in 22 of the past 23 years – skipping only 1995, for reasons which I no longer recall.

In this trade, we buy RBOB Gasoline futures and sell Heating Oil futures. This is the simplest way to establish the spread, eschewing futures options and ETF options – the options are just too illiquid in the February contracts, which is what we use for this spread.

Weekly Stock Market Commentary 11/11/16

By Lawrence G. McMillan

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.

The Morning After the Election

By Lawrence G. McMillan

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.

Expensive Options (05:18)

By Lawrence G. McMillan

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.

Weekly Stock Market Commentary 11/4/16

By Lawrence G. McMillan

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.

The Effects of High Volatility (17:22)

By Lawrence G. McMillan

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.

McMillan Partners with OptionVue

By Stan Freifeld

McMillan Analysis Corp is pleased to announce that we have formed a relationship with the award winning OptionVue Systems Software. OptionVue has been a leader in developing and providing options trading and analysis software since 1983 and we have always been impressed with the analytics and features in their software.  

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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