« May 2021 »

IVolatility Trading Digest™

Volume 21 Issue 21
Bitcoin & the S&P 500 Index [Charts]

Bitcoin & the S&P 500 Index [Charts]

Those claiming Bitcoin was the story last week may be on to something since the S&P 500 Index decline that began on May 10, appears to match the last Bitcoin June futures leg down from a high of 60,000 to last Wednesday's low of 30,270. The Bitcoin futures recovered to close Wednesday at 39,500. The S&P 500 Index traded below the 50-day Moving Average Wednesday but also recovered to close in the upper part of its range. Coincidence perhaps – perhaps not. The Market Review updates our indicators including a mark-to-market for the Financial Select Sector SPDR Fund and a new trade suggestion for Plug Power, Inc.

Review Notes
S&P 500 Index
(SPX) 4155.86 closed the week lower by 17.99 points or -.43% closing lower four out of five days after testing support at the 50-day Moving Average Wednesday before reversing to close the day higher making it the fifth test of this closely watched indicator since the October 30 low.

Review Notes
CBOE Volatility Index®
(VIX) 20.15 advanced 1.34 points or +7.12% last week. 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, ended .66 points or +4.50% higher at 15.33%.


VIX Futures Premium

VIX futures premium ended Friday at 11.00%, back into the green bull zone after May futures expired last Wednesday.


Since most of the volume and open interest are in the two closest futures contracts measuring the volume-weighted premium relative to the standard 30-day VIX provides a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds. The chart reflects the distance from the VIX to the futures curve computed from the two front month contracts.

Review Notes
Market Breadth
as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that considers the number of issues traded, and reported by McClellan Financial Publications, continue lower last week declining 61.17 points or -10.25% ending at 535.89 and below the 50-day Moving Average at 641.08. Breadth needs to improve for equities to continue higher.


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Our Founder, Gena Ioffe, will be speaking about the evolution of Risk Management systems from 2000 to 2020 and the future of Risk Management technology (Spoiler: it’s NoCode!) at 11:25AM EST on Wednesday, May 26th 2021.

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Financial Select Sector SPDR Fund (XLF) 37.36 slipped .30 points or -.79% last week. After reaching a high of 38.26 on May 10, it's stalled along with the SPX, but the uptrend for the sector looks encouraging.

Marked -to- market the June 18 long call spread suggestion in Digest Issue 11"Rotation Evaluation [Charts]" consisting of  long one 36 call and short one 39 call for a debit of .77, ended Friday at 1.61 for a book gain of .84. Since the current consolidation pattern could last a few more weeks, it should be rolled up an out on Monday to a long July 16 39 call at .60 with a short 41 call at .19 for an indicted debit on Friday of .41

Plug Power, Inc. (PLUG) 27.89 up 3.31 points or +13.47% for the week.

Digest Issue 16 "Volatility Kings First Quarter 2021" shows Plug Power (PLUG) on the list reporting earnings on May 27, but an update shows the new report date as June 3.

From the January 26 hyped high of 75.49 it round tripped from last November around 20 when all the alternative energy enthusiasm began pushing the stock higher. The recent close above the downward sloping trendline increases the odds that the turnaround low of 18.47 made on May 11 defined a bottom, even though it may attempt to retest the low in the next few weeks.

Friday’s option volume was 133,522 contracts with the 5-day average of 131,900 contracts with reasonable bid/ask spreads.

Consider this long call spread risk reversal idea.


Using the ask price for the buy and mid for the sell the call spread debit would have been 1.45 less the credit from the Jun 18 put of .59 for a net debit of .86 based upon Friday's closing prices. With the distance between the strikes of the long call spread at 29%, the short put creates assignment risk in the event it closes below 22 before June 18.

Presuming the retest of the low stays above 22 additional put sales in July and August could further reduce the cost of the long call spread. Use a close back below 22 as the SU (stop/unwind).

While it's usually best to avoid opening directional trades before earning reports for volatile stocks, this one appears to have defined a bottom and declining implied volatility before reporting earnings seems to confirm the current advance. Consider it a contrarian washed out alternative energy trade.


In bull markets, a good strategy is to stay long equities and/or ETFs and then tactically hedge pullbacks as they begin developing, since ordinary pullbacks can become corrections when something unexpected happens. Then corrections can become downturns when something else unexpected happens, and downturns can become bear markets when many unexpected things change medium and long-term fundamentals.


For the second Wednesday in two weeks, the S&P 500 Index declined down to support at the 50-day Moving Average and then turned higher. This time Bitcoin may have played a role. If so, relying on Bitcoin seems hazardous. While implied volatility increased somewhat the VIX futures premium returned to the bullish green zone while market breadth deteriorated again perhaps due to seasonal weakness in May. The financial sector represented by the Financial Select Sector SPDR Fund remains constructive and Plug Power, Inc. looks like a potential contrarian turn around.

By Jack Walker

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's Digest will arrive on June 1, after Memorial Day when markets in the U.S are closed.

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.


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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".