We have two great educational webinars coming up next week -- one by McMillan Analysis Corp. founder and president Larry McMillan, and the other by Director of Corporate Services and head mentoring instructor Stan Freifeld.
With the stock market collapsing recently, option implied volatility spiked higher in a large number of markets. Of course, actual (historical) volatility has increased as well, but it is implied volatility that reflects more of the panic mood of the public, and thus is the one that can be used as a contrary indicator.
All futures contracts are limited in the amount by which their price can change in any one day. The exchange where the future is traded determines the size of that daily limit. The greatest fear that any futures trader has is that he will get caught on the wrong side of a prolonged limit move and therefore not be able to get out of his position. If this happens, huge losses could occur.
The feature article discusses the fact that stocks, bonds, and the U.S. Dollar have all been declining together. A hedged position is recommended in Bonds vs. the Dollar.
The $VIX spike peak buy signal was stopped out, but another may be setting up (page 4).
Neutrality, as it applies to option positions, means that one is non-committal with respect to at least one of the factors that influence an option's price. This isn't quite the same neutrality that governments display -- theirs being a much more diplomatic undertaking -- but it is a viable approach to trading options. Simply put, this means that one can design an option position in which he may be able to profit, no matter which way the underlying security moves.
By Lawrence G. McMillan
The term "volatility skew" refers to the situation where individual options on a particular entity have different implied volatilities that form a pattern. The pattern usually takes one of two forms: either the higher strikes have the higher implied volatilities (a forward or positive skew) or the lower strikes have the higher implied volatilities (a reverse or negative skew).
By Lawrence G. McMillan
Most professional traders tell novice investors not to chase earnings. I have felt that way throughout my trading career. However, I never actually did any statistical work, nor did I come across any papers of statistical work by others, that actually document this fact. That statistical work – or at least some of it – has now been done by us, and the results are presented in this article.
By Lawrence G. McMillan
The “game” of stock market predicting holds appeal for many because one who can do it seems powerful and intelligent. Everyone has his favorite indicators, analysis techniques, or “black box” trading systems. But can the market really be predicted? And if it can’t, what does that say about the time spent trying to predict it? The answers to these questions are not clear, and even if one were to prove that the market can’t be predicted, most traders would refuse to believe it anyway.
As we all know, Apple (AAPL) is down roughly 25% since its high in September. As one may expect, volatility has subsequently increased, resulting in various option trading opportunities. AAPL recently gave a confirmed put-call ratio buy signal. However one may be hesitant to "catch the falling knife" by purchasing the stock, or even going long calls outright.
By Lawrence G. McMillan
One of most important things an option trader watches is volatility. The daily Volatility History report in The Strategy Zone offers you the data you need to be a well-prepared option trader: three historical volatility levels, plus implied volatility, and the percentile of implied volatility.
