The market rallied early this week, peaking out at about 5700 on $SPX. A modest pullback has taken place since then. There is resistance from there on up to 5800. A close above 5800 would be bullish. Otherwise, the SPX chart remains bearish.
There are multiple support areas on down to the early April lows at 4850-4950. They are marked with horizontal red lines on the $SPX chart in Figure 1. There is one gap left on the chart (circled in Figure 1).
There has been a good deal of talk in option and other trading circles lately about how high realized volatility is, even though implied volatility has begun to taper off. Which one is “right?”
In a market environment where volatility is the norm, traders need flexible strategies that adapt to changing conditions. One such strategy is the butterfly spread, a time-tested approach that can be tailored to suit neutral, bullish, or bearish market biases.
A new setup has occurred in Tesla (TSLA) using the weekly McMillan Volatility Bands (MVB). TSLA closed back above its +3σ (three sigma) band, indicating a potential shift in momentum. A buy signal will officially be triggered if TSLA trades at $308.20 or higher.
This week’s earnings calendar is even heavier than last week’s, setting up plenty of potential opportunities for pre-earnings straddle buys. Many stocks are showing the classic saw-toothed implied volatility patterns (like AMZN above), which often precede strong earnings-related moves. Below is a table of the candidates:
This article was originally published in The Option Strategist Newsletter on 7/30/2021.
One of the tougher choices an option trader faces is what to do with a profitable position. That’s a good choice to have, but it might not be any easy one. Our philosophy is always to let profits run. Therefore we use trailing stops, not targets. Targets only take you out of your best positions way before they have run their course. But even within the framework of using trailing stops, there are some choices to be made besides just raising the trailing stop as a long call position gains profits. Specifically, when should a profitable long call be rolled up or a profitable long put be rolled down – if at all?
Last week, the market experienced both a 90% down day and a 90% up day—an uncommon and potentially concerning combination. These “90% days,” defined by extreme imbalances in advancing vs. declining stocks or volume, often appear during periods of market stress or transition.
Volatility has returned to the market in full force. With major indices swinging sharply and investor sentiment shifting rapidly, it's more important than ever to rely on objective data and time-tested indicators.
That’s why I recently hosted a special webinar to share my current analysis and help investors make sense of these turbulent conditions. If you weren’t able to attend live, I encourage you to watch the full replay here.
What had been a mediocre, oversold rally failed right where such rallies normally do -- at the declining 20-day moving average. It just so happened that the 200-day moving average of $SPX was in the same area. That was just over a week ago. Then, $SPX quickly declined to the lower edge of the trading range (near 5500) and found support once again.
