« January 2017

IVolatility Trading Digest™ Blog

Volume 17 Issue 3
S&P 500 Index Trendline View [Charts]

S&P 500 Index Trendline View [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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The symmetrical triangle reversal pattern observed in Digest Issue 1 "Corrections Underway [Charts]" met its downside measuring objective on an intraday basis December 30 and then promptly turned higher once again well above 2214 support. More details follow along with updates for the VIX futures premium, and VIX options as well as some cautionary comments and thoughts about a SPDR S&P 500 ETF (SPY) put spread or VIX call.

Review NotesS&P 500 Index (SPX) 2274.64 slipped 2.30 points or -.10% for week, testing the previous December 13 intraday high at 2277.53, several times but unable to close higher. Meaning from a trendline perspective, the steep short-term upward sloping trendline, USTL1 from the November 4 low remains operative and becomes point two on the longer term USTL2 from the February 11, 2106 low at 1810.10. Since there have been three recent intraday highs above 2277.53, chance are good it will soon close higher thereby reducing the slope of a new more sustainable USTL1. On the downside, there is good support in the area around 2185 where it traded for a month between August 5 and September 8.


Chart Courtesy StockCharts.com

VIXVIXCBOE Volatility Index® (VIX) 11.23, drifted .09 or -.08% lower for the week making a bell ringing 52 week low. The comparable IVolatility implied volatility index mean, IVXM also made a 52 week low at 8.75, bullish for now but not so much from a regression to the mean perspective.

VIX Futures Premium

The premium measures the amount the futures currently trade above or below the cash VIX, (contango or backwardation) until front month future converges with the VIX at expiration. Depending on the time to expiration, premiums for normal term structures during uptrends are 10% to 20% and decline when the VIX advances faster than the nearest future as the market declines and/or the futures decline as the front month expiration approaches. Premiums less than 10% suggest caution and negative premiums indicate oversold conditions when the VIX is higher than the futures and are usually associated with reversals.


The chart above shows as our calculation of Larry McMillan’s day-weighted average between the first and second months.

With just two trading days until the January expiration, the Day Weighted premium between January and February allocated 10% to January and 90% to February putting it at 24.89% in the upper level of the bullish zone, as the VIX made a 52-week low.

VIX Options

The current Historical Volatility of 80.86 and 81.06 using Parkinson's range method, the Implied Volatility Index Mean, IVXM was 82.30 up from 78.09 last week.


Charts source: IVolatility .com/Advanced Historical Data

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StrategyWhile trading near a 52-week high for the S&P 500 Index may be encouraging for the bulls, the same may not be true for the VIX since a return back toward the mean soon follows new 52-week lows and highs. From the small chart above it appears that would be somewhere near 20 and consistent with spikes in June, September and November. With the Presidential Inauguration on Friday, the S&P 500 Index may attempt another 52-week closing high this week. Alternatively, it could also encourage profit taking by those thinking the inauguration will mark a near term high. With low implied volatility, perhaps a defined risk SPDR S&P 500 ETF (SPY) put spread would be worthwhile, for example, March 17 220/215 put spread at .79 on Friday. A VIX February 14 call at 1.55 Friday, will also do well should the VIX advance.

New Option Monitor Screen for the RT Spread Scanner


As the S&P 500 Index makes new 52-week highs and the VIX makes new 52-week lows delighting the bulls, this week could encounter some profit taking by market timers and hedgers thinking the Presidential Inauguration will mark a near term market high.

Twitter Follow us on twitter for more ideas from our scanners and other developments.

Actionable 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.

"Options data with predictive qualities - Nobody does it better!"

Next week we will return with some specific trade suggestions from our rankers and scanner tools.

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.

CommentAs 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 Support@IVolatility.com or use the blog response at the bottom of the IVolatility Trading Digest™ page on the IVolatility.com website. To receive the Digest by e-mail let us know at Support@IVolatility.com



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