fbpx Preview | Option Strategist
Home » Blog Tags » Category » Preview

Full article preview

2022 Post-Thanksgiving Seasonal System

By Lawrence G. McMillan

There are actually three different positive (bullish) seasonal systems that occur between Thanksgiving and the start of the new year. In short, they are 1) the post-Thanksgiving rally, 2) the “January effect,” and 3) the “Santa Claus rally.” These encompass the entire period between the close of trading on the day before Thanksgiving through the second trading day of the new year. Moreover, small caps stocks (as measured by the Russell 2000 Index [$RUT, IWM]) normally outperform large-cap stocks over that time frame. We will describe the system below, but if you want more background, you might refer to the November 14, 2014, issue of TOS (Volume 23, No. 21), although there are other articles scattered over the years that discuss this system.

Using T-Bills To Collateralize Option Transactions (Preview)

By Lawrence G. McMillan

This is a topic that has been so long-forgotten that it seemed like it might make a good article now, or at least provide a “refresher” for those who might remember it. Now that interest rates are actually high enough to “matter,” traders who need to put up collateral margin can benefit from the old technique of buying T-Bills with the cash in their account. If the T-Bills mature within 6 months, the trader can use up to 99% of the value of the T-Bills for collateral margin purposes, while earning the T-Bill rate on their cash. The 90-day T-Bill rate right now is about 3.75% (annual), which is more than any brokerage firm is paying you on your cash balances. The best rate at a brokerage firm is probably Interactive Brokers (IB) which is paying 2.58% on the cash balance in excess of $10,000 in your account.

The “Ultimate” Tail Trade? (Preview)

By Lawrence G. McMillan

Yesterday (October 6th), on the CBOE, someone bought 50,000 $VIX Mar (22nd of 2023) 150 calls for 0.19. So, that’s 50,000 contracts. Strike is 150 for $VIX (or technically, for the March (2023) $VIX futures. And the expiration date is roughly six months from now.

Remembrances Of The 1973-1974 Bear Market (Preview)

By Lawrence G. McMillan

At the beginning of 1973, the Dow (no one paid much attention to $SPX back then) made a new all-time high, trading up to 1067.  The Barron’s Roundtable, a survey of top money managers and brokerage firm analysts, was published at the beginning of 1973 under the (now infamous) headline, “Not A Bear Among Them.”  They were all bullish.  President Nixon declared that the Vietnam War was over (although it didn’t wind down completely until 1975).  However, stocks had a mind of their own (then, and now), and the Dow began to immediately decline. 

Hard To Borrow Stocks (Preview)

By Lawrence G. McMillan

In the past, we have occasionally talked about hard to borrow stocks, and how that affects option prices.  When market makers and others cannot borrow stock, then the “normal” option arbitrage relation falls apart.  Normally, the following equation holds true (modulo dividends and carrying charges):

Stock price = Strike Price + Call Price – Put Price (where put and call have the same terms)

2021 October Seasonal (Preview)

By Lawrence G. McMillan

We did not trade the October Seasonal this year, but I wanted to bring you up to date on the statistics for the trade now that the seasonal period has ended (it began with the close of trading on October 27th and ended with the close of November 2nd). This year, that was an $SPX gain of 108.88 points – the second largest point gain the 43-year history of the system. Percentage-wise, it was 2.4%, and that has been bested many times. Still, it was not a good trade to miss...

Expensive Option Strategies (Preview)

By Lawrence G. McMillan

Normally, we have “Naked Put Writes” in this section of the newsletter. But with the explosion in implied volatility and stock price in several “short squeeze” stocks (or “meme stocks,” if you prefer: a meme stock is any publicly traded company that is benefitting from the fact that investors are using social media to drive interest in the company's shares).

The following table shows the current status of the most expensive of these in terms of implied volatility:

$SPX Distance Above The 200-Day Moving Average (Preview)

By Lawrence G. McMillan

Whenever the market has an extended bull run, such as it's having now, it begins to put a lot of distance between the current value of $SPX and its 200-day Moving Average. Inevitably, some "analyst" posts the fact that "$SPX is x% above its 200-day Moving Average" and then alleges that disaster is at hand. Usually, a deluge of similar analyses follows. Those types of statements are usually wrong, or at least misleading. Two things that are rarely explored in these articles are: 1) when is disaster going to be at hand, and 2) is percent really the measure we want to use, rather than standard deviations?

The Seasonality Of $VIX - 2021 Update (Preview)

By Lawrence G. McMillan

We occasionally publish the composite chart of $VIX dating back to near its inception. For these purposes, we use the original $VIX – $VXO – since it has the longest price history. That history is shown in the chart on the below. It has generally been the case that $VIX rises early in the year, peaks in the spring, declines into the late summer, and then begins a rapid acceleration in October, before finally tailing off towards the end of the year.

Could It Really Be 2020 All Over Again? (Preview)

By Lawrence G. McMillan

No two markets are ever exactly alike, but there are quite a few similarities between our indicators at the current time and where they stood a year ago – comparing the third Fridays of February in each case. As noted in the Market Comment section, that was the last day (February 21st, 2020) before stock crashed into a violent, short-term bear market. There are a lot of similarities. Of course, this article doesn’t compare other periods in history where there were also similarities, yet the market didn’t crash. Perhaps almost every top has some of these similarities.

Pages