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Stock Market & Option Volatility Report 4-24-19:  Spread between VIX and realized vol is wide

Stock Market & Option Volatility Report 4-23-19:  VIX to 11?

Stock Market & Option Volatility Report 4-22-19:  VIX and the weekend

Stock Market & Option Volatility Report 4-18-19:  VIX down SPX down?

Stock Market & Option Volatility Report 4-17-19:  VIX settles then pops

Stock Market & Option Volatility Report 4-16-19:  VIX punched in face

Stock Market & Option Volatility Report 4-15-19:  Market quiet today?

Stock Market & Option Volatility Report 4-12-19:  DIS and JPM lead the market higher

Stock Market & Option Volatility Report 4-11-19:  S&P 500 flat, VIX getting punched

Stock Market & Option Volatility Report 4-10-19:  VIX popping Market dropping

Trading VIX, SPIKE Index and VIX Products

Stock Market & Option Volatility Report 4-9-19:  VVIX popping

The Siren's Call of Long Volatility

Learn how to use our Prop Trading Sheets at our Pro Traders Summit

The call of long volatility is often referred to as a Siren’s Song.  The unwary investor will dash themselves on the rocks of time decay and rotting deltas.  When I put it that way it sounds like a no-win situation to buy options at any point in time.  After all they decay every day since that is what Black Scholes Greeks says on the Theta risk line.  There is absolutely no reason to buy options since they decay and we all know decay happens every day.  When I co-host the Options Insider Radio Networks The Option Block we refer to it as the “dark side” of option trading.  One of the old guest hosts would famously say “options are meant to be sold, or not sold.”  And that is straight from the Don and he wants none of that Long Volatility.

Theta, Option Decay, is not constant

The thing with options is that everything is relative.  Option Pit created a whole course based on Relative Option Pricing, The Platinum Course, and it is very popular and one of our best sellers.  Traders need to understand that Black-Scholes assumes all inputs remain fixed to generate a Greek.  If the inputs to the model stay fixed, Black Scholes does a great job of estimating performance and the Greek Risk is accurate.  Option inputs are the like the weather in Maine, they change every day so there is that problem.  You want to be a good option trader, trade the inputs that create the Greeks.  If the inputs move, the Theta that was there goes on layaway, paid back at a date sometime in the future.  If you can just…hold….on.

CSCO IV getting low with earnings coming out

Livevol Charts

Lower Implied Volatility via Edge Hunter

EdgeHunter Trading Sheets are here

Low VIX is not low forever

VIX is just heading into Zone 1 (9-12%) and this has been a problem area  for SPX to stay in since September.  The once thing that low volatility delivers is the Greek Gamma.  Low Volatility at long time frames produce relatively high gamma that only happens a few times a year or all year in 2017.  We are going into the next earnings cycle with very low option prices relative to the potential move.  Options are delivering more gamma than normal.

Low VIX is not low name equity volatility

Index IV in the SPX can get real cheap ATM, down to 7% or less.  Equity IV in select issues is cheap too so separate individual name volatility from SPX.  I like long equity volatility In XLV type stocks as long volatility is cheap right now but won’t be forever. Stocks can move but the market can sit.

Disclosure: Long vol in multiple names

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Stock Market & Option Volatility Report 4-8-19:  VIX sleepy BA dump

Trade Idea of the Week 4-5-19:  WBA

Stock Market & Option Volatility Report 4-5-19:  VVIX sub 80, VIX may touch 12.70

Will SPX trade 2900?

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SPX to trade 2900 is recurring theme over the last year and really is a big theme again just recently.  We have several convergences happening so I am going to thrill you with my Ouija Board analysis skills.  There is no doubt in my mind we trade 2900 again.  Of course it is a matter of when but Good Friday is looming in the future and market has a day off there.  With more Chinese News Bites coming fast and furious some kind of trade deal will materialize.  VIX expiration is Holy Week too.   That is a symbol for Christians and a new beginning so maybe this starts the next leg of the bull market.  It is a stretch I admit it…

Inflection around 2900

Beside all of the Christian Mysticism I have going what I am really saying is 2900 is a make or break inflection point so the simple idea is construct a trade around that level.  VIX cash has been holding around 14 this week for no apparent reason except the post Trade War Deal move.  Once that happens the market is looking for a bit of a move one way or the other.  Is 2900 priced in an interesting way?

Very Cheap IV as identified by Option Pit Edge Hunter sheets

EdgeHunter Trading Sheets are here

Do we move to 2900 and stop or break through

SPX Apr22 2920 strike is priced at 8.87% volatility discounted for the 3 day weekend.  Add the weekend back and the trade bumps up but it is still pretty low volatility-wise.  Even a breath of good news is pushing SPX up 20 points or so and the intervening time should give us another headline or two.  Apr VIX futures is not letting go of 15 either which suggests to me that some substantial news should happen in the cycle. Let’s call it the Long Good Friday.

Time spreads at 2900

The SPX Apr22 2900 is cheap enough it makes a good long leg for a calendar.  Sell a contract in front of the strike for a really cheap spread.  It is possible to hedge multiple time spreads with junk puts.

The Long Good Friday is a great movie

Disclosure:  SPX and VIX positions

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Stock Market & Option Volatility Report 4-4-19:  VIX still squeamish about S&P 500?

Stock Market & Option Volatility Report 4-3-19:  VIX curve steepens

What to do when your stock, WBA, gets crushed

What to do when your stock, WBA, gets crushed?

What to do when you r stock gets crushed you ask?  I will tell you the best that I can.  A few weeks ago I wrote about AMZN crushing WBA in the retail wars of the 21st century.  To be honest WBA has really suffered since then.  I like WBA as a value play and have owned it for a long time.  I bought some more at $66 a couple months ago and now I have some issues.

WBA is at multiyear lows as drug prices get squeezed

Charts from LIVEVOL

Trading options around a stock position

I have some short term issues and some long term issues.  Short term I have no issues because I owned strangles like I wrote in the blog.  I booked the put side today and now have, ahem, plenty of upside powder should a miracle happen between now and Jul.  The strangles helped on the stock but did not mitigate all the losses so I am down about a bit per share on the ratio I had set up (more strangles than STOCK).   Step 1 was to take the money I made and reassess.

Use the stock and junk calls as upside, but make dough on the downside

It is unlikely WBA pops any time soon.  It could but I am not counting on it.  A trade I like here is a just OTM ratio put spread.  I would like a little income on what looks like a dead stock but I want to minimize my risk.  Again here I can ratio the trade and buy long term puts at the crushed vol and just use ratio put spreads against that put.  The ratio put spreads can be more aggressive if WBA moves down I want them to make money.  I put on less ratio spreads than long puts so I am contract long should WBA find a new low.  The junk calls and stock help out if the put ratio is too aggressive and WBA moves back up.  Then go get a Pina Colada and watch the ride.  Maybe the CBD will be big sellers!

Getting out of trouble when in trouble

If this repair idea sounds difficult, we will teach it in our Portfolio Management Master Class in a week or two.  When vol gets real low, long strangles can work ok as long as there is some time.

Positions in WBA

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Stock Market & Option Volatility Report 4-2-19:  WBA punched in the face, NDX strong

VIX cannot get to 12%

Check out our Saturday Class here and learn how to trade VIX There is a free 30 min webinar of a sample of our twice weekly Gold Class.

VIX cannot get to 12%.  The question we want to know is why.  The biggest problem is that the stock market keeps moving too much.  Since VIX is a measure of 30 day volatility, an inkling of future volatility is enough to jack up prices in the back weeks.  Apr18 2825’s were priced just under 11% into the weekend, and ticked to 12.27 today after the reset.  IV is just flat with SPX up quite a bit today.

Note the IV’s from Friday to Today – Charts from LIVEVOL

Long term expectations need to change

Some factors are in play today to make the bullish case; strong Chinese numbers, interest rates reflecting growth today and the eternal hope of earnings to come.  That makes a VIX trade difficult right now since moving down with VIX is much harder that moving up.  In our Saturday Class we will discuss how volatility moves in different ”Zones” .  Mark Longo kids me on The Options Insider Radio’s Option Block because the Zones are not catchy enough titles as in Zone 1, 2 ,3 and  4.  Right now VIX is at the bottom of Zone 2 and it has not been able to break through and stay in Zone 1 since September.

Zone 1 for VIX is a big deal

SPX tends to rally in Zone 1.  Stocks start moving higher and the IV drops away as willing sellers come in and start pounding away at the premium.  VIX becomes very interesting as an intrinsic value play since one can ride the melt lower for very little theta.  The VIX futures keep their premium and everything goes into slow motion.  Right now we are close to that spot with most of the back month VIX futures showing very little premium relative to historic averages.

If you want to learn the INTRINSIC VALUE trade for free see our Gold Class video-  Check out our Saturday Class here and learn how to trade VIX

The Trade

In the money VIX puts could work in the short term.  Use the cheap longer term VIX options to hedge.

Disclosure:  SPX, VIX positions

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Stock Market & Option Volatility Report 4-1-19:  April Fools on shorts