By Lawrence G. McMillan
This article will describe some of the methodology that we use to select recommendations for this newsletter. Several subscribers have asked questions regarding how we go about this, so we’ll attempt to answer them by describing the processes that we use to recommend naked puts. In future issues, well address volatility skew positions, and even put-call ratio based trades.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — Three week ago, we wrote that strong buy signals were in place . For the most part, those buy signals remain in place today. Therefore we continue to look for higher prices ahead.
By Lawrence G. McMillan
With so many volatility derivatives and products available for trading now, a debate has arisen as to what is influencing their pricing. Is it actual volatility expectations, or is it supply and demand – or possibly something else altogether? It is important to understand these relationships for several reasons, the most obvious of whish is that it can help one to construct theoretically profitable trades.
By Lawrence G. McMillan
These days, there are more and more volatility indices and futures than ever. One can observe the same sorts of things about them that we do with $VIX futures – in particular, the futures premium and the term structure. We thought it would be an interesting exercise to see how these other markets’ futures constructs compare to that of $VIX. The $VIX construct, for a long time (see chart, page 12) has been that of large futures premiums and a steep upward slope to the term structure.
By Lawrence G. McMillan
Bond ETF’s (IEF and TLT) are both making all-time highs (in price). Stock volume patterns are very strong. This is the point that all the stock market bulls (especially on CNBC) seem to miss: yes, government bonds are yielding small interest rates, but if you own them, they are rising in price as the yield falls. In the last year, IEF (the Barclays 7 year - 10 year bond ETF) is up 15% in price, and TLT (the 20-year bond ETF) is up 35%!!! So what if they only yield 1.6% and 2.7%, respectively?
By Lawrence G. McMillan
Is this current market decline the harbinger of a new bearish market phase, or just a pause in the general bull market that was launched in March, 2009, with a couple of healthy bumps along the way? One answer to that question can be observed in the behavior of the $VIX futures. The stock market’s decline in the past two weeks has caused the $VIX derivatives to lose some of the bullishness that they have been displaying since last November. Not only have the futures lost premium, but the term structure has begun to flatten as well.
By Lawrence G. McMillan
The total put-call ratio includes all the volume that takes place on listed index and equity option markets (not futures). Most of the time it’s not of great interest, although we did publish a system utilizing it in extremely bearish markets. That system was designed to capture large moves, and its signals usually result in at least a 100-point gain in $SPX. The last signal of that sort was a successful one, with a buy issued last September 12th. The 100-point target was achieved on November 3rd.
By Lawrence G. McMillan
One should be aware of a potential problem in these ETN’s. I am not referring to the “net asset value” problem that engulfed the “Double VIX” (TVIX) a couple of weeks ago. Rather, I am referring to the fact that an ETN is a credit obligation of the issuer (Barclays, in the case of VXX, VQT, and many others). An ETF, on the other hand, is collateralized by placing underlying securities on deposit.
By Lawrence G. McMillan
We have been writing commentary for months now, detailing the steepness of the $VIX futures term structure. But recently, it has risen to levels never seen before in the listed VIX futures markets (volatility derivatives began trading in 2004). In this article, we’ll look at the current situation, compare it to past extremes, discuss appropriate strategies, and see if there is any predictive value to these extremes.
By Lawrence G. McMillan
In our daily letters and in last week’s hotline, we have written extensively about the “levitating act” that the stock market was performing. Essentially, it had gone from late December through this past Tuesday, while hovering above a number of standard indicators.
