« June 2017 »

IVolatility Trading Digest™

Volume 17 Issue 26
Trade Appraisal [Charts]

Trade Appraisal [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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For Digest Issue 25 "Supermarket Swoon," our focus shifted from closely reporting various market indicators to looking at specific volatility ideas since the indicators remain bullish and actually improved last week as mentioned in the Strategy section below. After a brief S&P 500 Index update we look at the results of last week's Oracle Corp. (ORCL) idea after reporting earnings last Wednesday and oversold The Kroger Co. (KR) followed by another WTI crude oil update from the Commitments of Traders perspective along with SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Review NotesS&P 500 Index (SPX) 2438.30 continued higher adding another 5.15 points or .22% for the week after making another new intraday and closing high last Monday at 2453.46. The upward sloping trendline, USTL from the November 4 low at 2,083.79 and the 50-day moving average now converge at 2402 providing solid support.

StrategyBoth technology and semiconductor ETFs found support at their 50-day moving averages as anticipated. In addition, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) 88.20 also found support at it's 50-day moving average and turned higher with help from crude oil's slight advance Thursay and Friday. It had been delcining on oil & gas sector loan default concerns.

Volatility Trade Review

Oracle Corp. (ORCL) 50.95 up by 5.86 or +13% for the week after reporting better than expected earnings and guidance rewarding those who rightly expected another gap up after reporting. See Digest Issue 25 "Supermarket Swoon."

The volatility and options volume charts show implied volatility declined (orange lines) and the historical volatility (blue lines) spiked as expected when the stock gapped up Thursday creating a similar pattern to the previous quarters easily identified by the blue options volume spikes in the second chart.


StrategyAs implied volatility closed Friday at 15.54 down 6.28 for the week, the long call spread with a short put credit spread idea in Digest Issue 25 "Supermarket Swoon" marked-to-market for a credit of .66 or -.66 in addition, to the original credit of -.13 for a total credit of .79 or -.79. Although there was a margin requirement for the short put the one week return on investment was high. While more could have been made using a wider call spread the original objective was to start with a credit and define the risk with the call spread debit and the short put strike.

The Kroger Co. (KR) 22.60 advanced .31 points or +1.39% for the week after showing some oversold enthusiasm last Money, but then pulling back. Once again the plan was to structure a credit spread and accept the short put downside risk. The initial call spread debit was .32 with the put credit of -.55 for a net credit -.23. Marked-to-market Friday the call spread was .15 resulting in a .17 loss while the put was .20 for a .35 gain. The final result was a net -.18 credit.


While the implied volatility declined as expected (orange line above) and may continue declining back toward 20% the lack of buying interest suggests the price could continue drifting lower.

Since the rationale for both suggestions was expected declining implied volatility and since both declined the positions should be closed after realizing the objectives.

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Crude Oil Update

Crude OilWTI Light Sweet Crude Oil (CL) 43.01 basis August futures declined 1.96 or -4.36% even after turning modestly higher Thursday and Friday. While still oversold the downward momentum has slowed and the Commitments of Traders report indicates some emerging buying support. The next bounce will likely be limited to resistance at the downward sloping trendline, DSTL just under 52 shown below.


From the Disaggregated Commitments of Traders - Options and Futures Combined report as of June 20 "Managed Money," the group that best correlates with crude oil price changes and arguably the most important, reduced their long position -18,102 contracts and increased their shorts -42,454 for a net position decrease of -60,566 contracts representing 4.91% of the of the open interest down from 6.78% last week.

Based on the "Managed Money" net long position as a percentage of open interest chart below they could continue liquidating, but they are now up against "PMP" (Commercials) buying +14,514 net contracts, "Others" +33,655 contracts and "Non-Reportables" +15,852 contracts who all presumably think prices are oversold enough and due for a bounce and indeed that's what occurred both Thursday and Friday.


Although "Managed Money" may continue trying to press the short side the appearance of buying interest suggests a near term bottom maybe forming.

On the expected bounce, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) September long 33/35 call spread and short 29 put combination idea in Digest Issue 24 "Rotation Hammer [Charts]," still looks good. XOP closed Friday at 31.02 up 3.58% Thursday and Friday while WTI advanced 1.12% confirming it will likely lead the futures on any counter-trend rally that may have already begun.


The slight increase in crude oil prices Thursday and Friday was just enough to turn the important iShares iBoxx $ High Yield Corporate Bond ETF higher. Further tech and semiconductors found support at their 50- day moving averages and resumed trending higher. July is seasonally one of the better months and our indicators continue suggesting there are few reasons to consider hedging portfolio risk.

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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.

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Since next Monday will be July 3rd and the markets will be closed July 4th the Digest crew is going to take the week off, returning July 10 for 2Q Volatility Kings.

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 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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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".