Volatility
Trading
This list will be included almost every day. It will
list a number of cheap options, and perhaps some especially
expensive ones as well. The data included in this table (see
example table above) are a) the percentile of current
implied volatility: anything less than the 10th percentile
is cheap, while anything above the 90th percentile is
expensive, b) the probability of the underlying trading at
one of the breakeven points at any time prior to expiration
(this probability is determined by our proprietary
Probability Calculator 2000 which we sell for $90), and c) a
historic look at whether the underlying has been able to
make moves of the required size in the past; there are two
"historic" numbers: the first is the percent of
the time that the underlying actually moved the required
number of points, and the second is the percent of the time
that the underlying made a percentage move of the size
required.
Put-Call
Ratio Signals
If there are significant new signals issued by the
put-call ratio signals in indices, stocks, or futures, they
will be summarized. The put-call ratios are contrary
indicators. Essentially, when there is "too much"
put buying indicating that the public is bearish the
contrary trader should consider buying that market.
Conversely, if there is "too much" call buying, we
would look for a place to sell the stock short or buy puts.
Our put-call signals are not generated by the ratio being at
any particular level, but rather they are generated when the
ratio rolls over and changes direction especially when that
rollover occurs at an extreme on the chart. A rollover of
the ratio from rising to falling is a buy signal (there has
been "too much" put buying and it has exhausted
itself). A rollover from a falling ratio to a rising one is
a sell signal ("too much" call buying has been
taking place).
Momentum
Trading
We use a trend-following system for these speculative
positions. In general, the system has two criteria for a
"setup": 1) the ADX1 must be 30 or greater
indicating that the underlying market is trending, and 2) it
must have pulled back and touched its 10% exponential moving
average line. One these two items have occurred, then the
underlying can be bought if it trades at a price higher than
the high of the bar than touched the moving average (2nd
criterion). One bought, a mental closing stop is set at the
low of that same bar the one that touched the moving
average. All such stops are spelled out in the newsletter.
Others
From time to time, we may also recommend intermarket
spreads, pairs trading or other strategic applications
utilizing listed options. Again, these would be specific
recommendations, with details including investment, risk,
buy limits, and stops.
