« January 2018 »

IVolatility Trading Digest™

Volume 18 Issue 4
DX Bus All Aboard [Charts]

DX Bus All Aboard [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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DX in the title above refers to the featured item in Digest Issue 2 "US Dollar Index [Charts]" and one of the important developments that occurred last week as it continued even lower adding support for commodities. An updated long- term DX chart and a trade idea for iShares Silver Trust (SLV) follows a brief market update including volatility charts. Then on to WTI crude oil with a Commitment of Traders report update.

Review NotesS&P 500 Index (SPX) 2872.87 added another 62.57 points or 2.23% last week making more intraday and closing highs. With January ending and several market leaders reporting this week it may be just enough to trigger a pull back. If so, there is some support at 2800 and considerable support at the convergence of 50-day moving average and the upward sloping trendline, USTL now at 2690.

VIXCBOE Volatility Index® (VIX) 11.08 declined .19 points or -1.69% last week while our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, now 9.15 diverged adding .68 points or +8.03%.


Here is the Historical Volatility also called the Realized Volatility comparing the 30 day annualized rate with the High/Low or range Historical Volatility.


30D HV now 7.15, 30D High/Low now 5.93, on October 13 both were briefly under 4% as the Implied Volatility Index, IVXM has risen from about 6.25 to 9.15.

VIX Futures Premium

The chart below shows as our calculation of Larry McMillan’s day-weighted average between the first and second month futures contracts.

With 12 trading days until February expiration, the day-weighted premium between February and March allocated 60% February and 40% to March for a 13.99% premium, back into green zone between 10% to 30% versus 6.65% last week.

The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month future converges with the VIX at expiration. At the extremes, declines below 10 and advances above 30 are both unstable.


US Dollar Index (DX) & DXY

During the Fall of 2016 Euro weakness propelled the US Dollar Index higher reaching an intraday high of 103.42 on January 4, 2017. Since then the decline has been dramatic. The 4-year weekly chart below with the downward sloping trendline, DSTL suggests it may return to the 80 level where it was in early 2014.


Interestingly gold now 1350.01 has already exceeded the June 30, 2014 price of 1319.28. However, Silver now 17.39 was 21.13 on June 30, 2014 and WTI crude oil cash now 66.16 was 104.06.

Here is an idea on presumption it continues lower.

iShares Silver Trust (SLV) 16.41 up .36 or +2.24% for the week with cash silver at 17.39 it could catch up with gold if the US Dollar Index continues declining.

Friday’s option volume was 50,472 contracts with the 5-day average of 70,120 contracts with reasonable bid/ask spreads.

With good liquidity and an IV/PHV ratio of 1.57 consider this long call spread.


Using the ask price for the buy and mid for the sell the call spread debit would be .71 about 36% of the distance between the strike prices with 27% of the long call risk hedged by the short call. Use a close back below the gap 16 as the SU (stop/unwind).

This spread suggestion above is based on the ask price for the buy and middle price for the sell presuming some price improvement is possible. Monday’s option prices will be somewhat different due to the time decay over the weekend and any price change.

Crude Oil

WTI Crude Oil (CL) 66.14 +.63 points or +.96% basis March. For the week +2.83 points or +4.47% after making a key reversal Thursday and a lower low Friday before closing higher on the day.


Recently some analysts have commentated that Long Speculators, the combination of "Managed Money" and "Others" in the Commitment of Traders report have accumulated a record number of long contacts implying that crude price will decline as they liquidate their long positions. Often this is based up the Futures Only report that does not include option positions that could offset or hedge longs. For a more complete view refer to the Options and Futures Combined version. In addition, just looking at the number of contracts long does not consider the open interest that may be increasing as well. Comparing the positions as a percentage of the open interest should give a better reading. A summary of the most recent report follows.

From the Disaggregated Commitments of Traders - Options and Futures Combined report as of January 23, "Managed Money,” the group that best correlates with crude oil price changes and arguably the most important, increased their long position 15,094 contracts while increasing their shorts -1,282 contracts for a net position increase of 13,813 contracts representing 14.65 % of the open interest up from 13.84% for the week ending January 16 and up from 5.00% for the week ending August 29, 2017at the last pivot.


"Managed Money" now has 496,111 long contracts vs.147,303 contracts at the last pivot for the week ending August 29,2017. While increasing it has yet to exceed the high of 413,637 contracts representing 15.16% of the open interest on February 21, 2017.

Since the position of Large Speculators, the combination "Managed Money" and "Others" are often cited, here is the current picture.


Large Speculators now have 771,330 long contracts representing 22.78% of the open interest compared to 586,229 contracts or 21.49% of the open interest on February 2, 2017. This concurs with the recent record long view.

Based upon this alone and since February begins this week it may suggest a seasonal peak could be close.

However, when including fundamentals such as the declining inventory and 8.27% backwardation March 18 to March 19 along with the DX chart above the longs may not be in a hurry to liquidate just yet. Look at the 411.6m barrels inventory as of 1-19-18 relative to the 5 year range.


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The chart of the declining US Dollar Index suggests it could continue lower adding additional support for equities and commodities especially crude oil, also supported by improving fundamentals. Silver has lagged gold in response to the declining dollar and may offer a catch up opportunity.

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

"The best volatility charts in the business."

Next week we plan to offer more trading ideas from our ranker and scanner tools along with our January Barometer update.

Finding Previous Issues and Our Reader Response Request

PreviousIssuesAll 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 always, 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




IVolatility Trading DigestTM Disclaimer
IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter constitutes a recommendation to buy or sell any security. Before entering a position check to see how prices compare to those used in the digest, as the prices are likely to change on the next trading day. Our personnel or independent contractors may own positions and/or trade in the securities mentioned. We are not compensated in any way for publishing information about companies in the digest. Make sure to due your fundamental and technical analysis homework along with a realistic evaluation of position size before considering a commitment.

Our purpose is to offer some ideas that will help you make money using IVolatility. We will also use some other tools that are easily available with an Internet connection. Not a lot of complicated math formulas but good trade management. In addition to Volatility we use fundamental and technical analysis tools to increase the probability of success and reduce risk. We prepare a written trade plan defining why the trade is being made, what we call the "DR" (determining rationale) and the Stop/unwind, called the "SU".