« June 2018 »

IVolatility Trading Digest™

Volume 18, issue 22
Turning Bullish Again [Charts]

Turning Bullish Again [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
Please read IVolatility Trading Digest™ Disclaimer at the very bottom of this page

To add comments or to ask questions please click here (or use the blog "COMMENTS" link at the very bottom of the blog page).

After starting last week in "Risk Off" mode sentiment quickly changed Wednesday as the S&P 500 Index recovered all it lost Tuesday and then some. Friday's favorable employment report boosted sentiment even more despite continuing unease about trade and tariff news. Since our market review suggests the bulls are beginning stir again we offer several long ideas to consider from our rankers and scanners including iQiyi Inc. (IQ).

Review NotesS&P 500 Index (SPX) 2734.62 added 13.29 points or +.49% last week, despite starting with a 31.47 loss on Tuesday that was quickly recovered the next day as support from the 50-day Moving Average and 2700 held. Although it continues trading below the medium term operative upward sloping trendline from February 11, 2016, near term indicators and sentiment are positive enough to quote "Don't tell me what to buy-tell me when to buy it."¬¬– John Magee, coauthor of Technical Analysis of Stock Trends.

VIXCBOE Volatility Index® (VIX) 13.46 advanced .24 points or +1.82% 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, gained .15 points or +1.52% ending right at10.00, near the bottom of the new recent range.


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 7 trading days until June expiration, the day-weighted premium between June and July allocated 28% to June and 72% to July for 11.10% premium, in the bullish green zone between 10% and 20%.


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.

Big Data? In options we are Big Data!

Intraday Historical Options Data Now Available

More information or just fill in this data form to request a quote.

Treasure Hunt

For those looking for trading ideas and may not be familiar with our website, we offer several ideas as a regular feature not requiring a premium subscription located in the “Rankers and Scanner” section of our home page. First, there is a link to the “Top 200 stocks by volume/open interest” and then the “Top 5 stocks by implied volatility change.” Clicking on the second link shows the Advanced Ranker Sample of the top and bottom five stocks in four categories. Here is Friday's results for the greatest IV change.


Now for some details about IQ at the top of the list.

iQiyi Inc. (IQ) 28.46 up 5.67 points or +24.88% for the week this newly listed Chinese company provides video-streaming and creates its own content. While some are calling it China's Netflix the founder and CEO says their model is Disney not Netflix. Regardless, enthusiastic investors and traders are pushing the price higher on increasing stock and options volume somewhat unusual for a recently listed company.

The current Historical Volatility is 78.78 and 73.49 using the Parkinson's range method, with an Implied Volatility Index Mean of 78.50 at .96 of its 52-week range.

The implied volatility/historical volatility ratio using the range method is 1.07 so option prices are inexpensive compared to the recent movement of the stock. Friday’s option volume was 53,497 contracts traded compared to the 5-day average volume of 31,430 contracts with reasonable bid/ask spreads.

Using a vertical call spread provides an opportunity to participate in any further upside while partially hedging against declining implied volatility and time decay. Here is one possibility using July call options.


Using the ask price for the buy and mid for the sell the call spread debit would be 1.32 about 26% of the distance between the strike prices with a slight implied volatility edge. Use a close back below 24 as the SU (stop/unwind).

The 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.

Stock Sentiment Ranker Results

Since the Technology Select Sector SPDR (XLK) is just .03 away from negating it's potential Head & Shoulder Top and likely to continue higher, take a look at Friday's Stock Sentiment Ranker results for the tech sector. Presuming the timing is right, here are more "what to buy" ideas.


And for ETFs,


Buy writes, call spreads and call spread risk reversals with short puts or short puts are four long strategies to consider.


As long as the markets remain impervious to both trade negotiations and North Korea news, futures and option indicators was well a improving market breadth indicate the bulls are resuming the advance although rising interest rates and the US Dollar Index (DX) remain concerns.


The employment report last Friday improved market sentiment enough to conclude that the previously stalled the S&P 500 Index may be about to resume trending higher once again since futures and options indicators and improving market breadth suggest the time has come to begin increasing long positions.

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 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 the plan includes more market analysis along with an update to the WTI Crude Oil Commitment of Traders report.

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".