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« May 2015

IVolatility Trading Digest™ Blog

Volume 15 Issue 21
S&P 500 & US Dollar Indexes [Charts]

S&P 500 & US Dollar Indexes [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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Last week the S&P 500 Index finally broke out above the previous high making multiple all time closes thereby confirming the uptrend once again as it has many times since the March 2009 bottom although not without some meaningful pullbacks that just became additional points on upward sloping trendlines. Now with valuations at upper end of the range previously considered being reasonable, along increasing sensitivity to the US dollar exchange rates further advances may be more difficult to achieve.

The market review below includes updated charts for both the S&P 500 Index and the US Dollar Index along with our options and other featured market indicators.


Review NotesS&P 500 Index (SPX) 2126.06 closed up 3.33 or .16% for the week, with multiple closes above the previous April 27 high of 2125.92 thereby breaking out above an ascending right triangle continuation pattern. This was the least likely of the alternatives proposed last week since with earnings and revenues considered by some to be less than expected, transitioning into a trading range between 2040 and 2120 seemed the more likely alternative. With the new high, current operative upward sloping trendline from the October 15 low is redrawn as shown below.




With a new slope of 1.21 per day, it currently crosses at 2088.55 marked with the small arrow. The slope is slightly lower than the previous trendline from the February low of 1980.90, and the new trendline should provide good support in the event of any pull back since it is below the widely followed 50-day moving average at 2096.18 representing the first zone of support.

CBOE Volatility Index® (VIX) 12.13 down .25 for the week, after making a 2015 intraday low of 11.82 on Friday.

The table below shows the VIX cash compared to the next two futures contracts as well as our calculation of Larry McMillan’s day-weighted average between the first and second months.




The day weighting applied 85% to June and 15% to July as of Friday for a 20.57 % premium shown above. Our alternative volume-weighted average between June and July, regularly found in the Options Data Analysis section on our homepage, is slightly higher at 22.72%.

Premiums for normal term structures are 10% to 20%. Premiums above 20% are unsustainable suggesting a lack of enthusiasm for VIX hedging often occurring around market highs suggesting overbought conditions associated with pullbacks. Alternatively, premiums less than 10% suggest caution and negative premiums indicate oversold conditions. Last week the volume-weighted premium was as low as 9.29% on Tuesday closing at the Friday high of 22.72% consistent with the recent market highs suggesting an inexpensive hedge may be a worthwhile addition to stock portfolios.

VIX Options

With a current 30-day Historical Volatility of 104.54 and 86.68 using Parkinson’s range method, the table below shows the Implied Volatility (IV) of the at-the-money VIX calls and puts using the futures prices based upon Friday’s closing option mid prices along with their respective month’s futures prices, since the options are priced from the tradable futures.




When comparing the Friday VIX implied volatility index of 62.69 to the current range historical volatility of 86.68 both the June and July at-the-money options appear inexpensive making both calls attractive for hedging strategies.


All of the Implied Volatilities along with the Historical Volatilities and Greeks for the VIX options based upon the futures prices are on our Advanced Options page, found by clicking on the “market close” link shown near the top of the page.


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US Dollar Index (DX) 96.01 up 2.87 for the week, and up .76 Friday after Fed Chair Janet Yellen said the central bank was ready to raise interest rates this year, since the first quarter economic slowdown was due to "transitory factors" noting some of the weakness might have been due to "statistical noise.” DX (DXY) appears to have found support in the 94 -95 range however, it did close below 94 briefly before abruptly rebounding. As previously mentioned it traded in the 94 -95 range for more than a month between January 22 and February 26 before finally pushing higher so it could remain in this area awhile longer, but appears headed higher.




From an Elliott Wave perspective, the 93.14 close on May 15 marked 3 above could represent the end of a third wave down, if so a fourth counter wave up near 98, marked 4 above seems possible. Then if it should turn lower once again, look for a fifth was bottom back below the 94-95 support area in a few months. Any further advance of this most important variable, like the possible fourth wave described above is likely to take a toll on both equities and crude oil, as was the case Friday.

iShares Transportation Average (IYT) 152.20 down 3.45 or 2.22% for the week this ETF tracks the important Dow Jones Transportation Average Index measuring the performance of transportation sector US equities. According to the widely followed Dow Theory, the transports and the Dow Jones Industrial Average should move in the same direction while divergences could signal a possible trend change from a Dow Theory perspective.

The transports have been struggling with the lower boundary of the of 155 - 165 range since March 26 and now seems to be decisively moving lower including Friday’s loss of 1.22, while Crude Oil (CL) basis June futures declined 1.00 closing at 59.72 in reaction to the stronger dollar. Crude oils current sensitivity to DXY is astounding. Usually the transports react favorably to lower crude oil prices so this divergence belongs near the top of the bulls worry list, along with the dollar and long-term interest rates, since this could be an indication of weak economic conditions both domestic and globally.


strategyThe divergence with the transports along with the possibility the dollar may continue higher and thus put downward pressure on equities adds another reason why adding an inexpensive hedge may be a worthwhile portfolio addition while the S&P 500 Index is near it’s high and very dollar sensitive. After all, they say best time to buy fire insurance is during a rainstorm.


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All time highs seen in S&P 500 Index last week conflict with current the economic data. In response, the Federal Reserve says "transitory factors" and perhaps "statistical noise” is responsible while sending a clear signal that a rate hike "may well be warranted later this year,” so be prepared for an interest rate increase this year just some influential analysts claim the scope for further S&P 500 Index advances are limited by valuation. Along with interest rates, the other important variables to watch are the US Dollar, and the DJ Transportation Indexes. Therefore, in the current low option implied volatility environment portfolio hedging strategies appear attractive.


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ActionActionable Options™

We now offer daily trading ideas from our RT Options Scanner before the close in the News section of our home page based upon active calls and puts with increasing implied volatility and volume.


Next week’s issue will include an early review of the Volatility Kings™, in preparation for 2Q earnings reports that will begin in early July looking for increasing implied early in the reporting cycle.


Finding Previous Issues and Our Reader Response Request

All previous issues of the Digest can be found by using the small calendar at the top right of the first page of any Digest Issue. Click on any underlined date to see the selected issue. Another source is the Table of Contents link found in the lower right side of the IVolatility Trading Digest section on the home page of our website.

As usual, we encourage you to let us know what you think about how we are doing and what you would like to see in future issues. Send us your questions or comments, or if you would like us to look at a specific stock, ETF or futures contract, let us know at or use the blog response at the bottom of the IVolatility Trading Digest™ page on the website. To receive the Digest by e-mail let us know at


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