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Option Volatility: How Good A Predictor? (09:16)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 9, No. 16 on August 24, 2000.

It is somewhat common knowledge amongst option traders that the CBOE’s Volatility Index ($VIX) can be used as a predictor of forthcoming market movements. In particular, when volatility is trending to extremely low levels – as it is doing now – it generally means that the market is about to explode. In this article, we’ll put some “hard numbers” to that theory and we’ll also look at alternate measures of volatility (QQQ and the $OEX stocks themselves) to see what they have to say.

Volatility: U.S. vs. “The World” (21:10)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 21, No. 10 on June 1, 2012.

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. Historically, that sort of construct has been associated with bullish markets, although it has persisted throughout the current market decline as well. How do these other markets line up in comparison to the $VIX futures construct?

Just How “Neutral” Is Delta Neutral? (12:08)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 12, No. 8 on April 24, 2003.

The concept of “delta neutral” is an intriguing one – especially to traders who have had a hard time predicting the market or to those who don’t believe the market can be predicted (random walkers). The concept is even sometimes “sold” to novice investors as a sort of “can’t-lose” trading method, even though that isn’t true at all. While the idea of having a position that can make money without predicting the direction of the underlying stock seems attractive, in practice the strategy is difficult, if not impossible, to apply – at least in terms of keeping a position delta neutral.

McMillan's Investor Inspiration Webinar Video Now Available

The video of Larry McMillan's recent The Current State of Option-Oriented Indicators webinar with Investor Inspiration from August 8th is now available on their YouTube channel. In the video, Larry takes an in-depth look into our various technical indicators and discusses what they are saying about the market. Scroll down to watch the video or click here.

The Truth About Volatility (11:05)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 11, No. 05 on March 14, 2002.

No, this isn’t an expose, despite the article’s title. Rather, it is an attempt to set the record straight about how volatility levels can be used as a predictive market tool. So much has been written and said about volatility in the last few weeks – in main-stream publications and on national television outlets. Much of it is erroneous. These errors are not really attempts to mislead the public, but are rather outgrowths of conventional misconceptions. The misconceptions may have arisen out of an over-reliance on near-term trends, while ignoring or being ignorant of what a longer-term volatility picture actually means.

Equity Option Volatility (19:18)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 19, No. 18 on October 1, 2010.

Most of the time, we look at index options in order to make general observations about volatility. These observations, which evolve into opinions, often involve $VIX, $VIX futures, or $VIX options, all of which are based on the $SPX options. This is a reasonable approach, of course, since $SPX options are heavily traded, as are the $VIX derivatives, and therefore they reflect the greed, fear, and anticipations of literally millions of traders.

Preparing For A Volatility Increase (14:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 14, No. 12 on June 22, 2005.

Before you declare me insane for even mentioning the words “volatility” and “increase” in the same sentence, let me point out that I am not saying that volatility will increase immediately. However, it will certainly increase sometime and that could happen as soon as the second half of this year. Remember, July 1st is the traditional low point for $VIX for the year. So, after that, $VIX generally increases – albeit in fits and starts – until October.

Should Gap Moves Be Followed or Faded? (18:18)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 18, No. 18 on September 24, 2009.

This is a question that has always intrigued me. We all see situations, for example, where stocks make a large gap move on earnings. Is it justified? Does the stock continue on in the same direction a week, month, or quarter later? Or does the knee-jerk reaction to news just provide a place for a reversal? These are all good questions, and so we have been working on a study to answer them.

Option Basics: Why Should I Care If There's An Early Exercise of OEX Options? (6:2)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 6, No. 2 on January 22, 1997.

During expiration week, we often talk about the importance of monitoring option activity in OEX because it can have an influence on the overall market. This is especially important for stock traders and stock index futures traders. Whether you're short-term oriented or merely wanting to know what's going on, you should understand the ramifications of an early exercise of OEX options.

Option Basics: LEAPS As A Stock Substitute (4:22)

By Lawrence G. McMillan

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

With the market being so high, many individual investors and institutional money managers as well are wondering what to do with these profits. Completely exiting the market is not a viable alternative for many, and is prohibited by charter for some institutions. However, there is a way in which one can reduce his downside exposure while still retaining upside profit potential — he can sell his stock and replace it with LEAPS call options.

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