« October 2017 »

IVolatility Trading Digest™

Volume 17 Issue 42
Volatility Kings Update [Charts]

Volatility Kings Update [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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Review NotesFor several of our Volatility Kings that will report 3Q earnings this week we updated the list first presented in Digest Issue 39 "Volatility Kings 3Q 2017 [Charts]" then we have one more look at the volatility charts for Volatility King Netflix (NFLX). First a brief review and some comments about the bull run.

Review NotesS&P 500 Index (SPX) 2575.21 continued marching upward advancing 22.04 points or +.86% for the week making a new closing highs everyday and new intraday highs every day except last Thursday. As for being overbought and overdue for a normal cyclical pull back, like a broken clock that's right twice a day a pullback will eventually come although most indicators remain bullish except for two mentioned below. The first support rests at 2508 and then at the 50-day moving average now 2497.

VIXCBOE Volatility Index® (VIX) 9.97 ticked up .36 points or +3.75% for the week while our similar IVolatility Implied Volatility Index Mean, IVXM that uses four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option advanced .29 points or +4.68% to 6.49 where it has been in a narrow range for the last six weeks.

Volatility Kings™ 3Q 2017 Update

Review NotesWe updated our Volatility Kings list for seven companies reporting this week. Most of their implied volatilities have risen back near their highs before the previous quarter and those that report later in the week may still go somewhat higher. In addition, the important IV/HV ratios are included.


IVXM represents the Implied Volatility Index Mean, PHV is the Historical Volatility using the range method and IV/HV is the ratio. Generally when the ratio exceeds 2 the probability of a large price move on the report date increases. IV 10-27 is the Implied Volatility Mean for options expiring on Friday after the reports and IV 11-17 is Implied Volatility Mean for the options expiring on the regular November expiration and equal to the IVXM. It's the difference between the IV 10-27and IV 11-7 that a long calendar spread attempts to capture as it sells near term options and buys deferred options attempting to gain for the loss of time value and declining implied volatility.

Check those reporting Thursday 10-26 again before the close on Wednesday to see if the implied volatility may have changed.

Using the IV/HV ratio guideline of 2 it looks like those reporting next week are all reasonable calendar candidates unless their implied volatilities advance significantly more just before reporting.

Volatility King Netflix Update

Nexflix, Inc. (NFLX) closed Friday at 194.16, down 5.33 points or -2.67% for the week after declining 3.20 points after reporting last Monday. As a follow-up to last week's Digest Issue 41 "Netflix Volatility King [Charts]" here is the volatility chart at the close last Monday just before reporting.


IVXM = 45.09 +2.04 at .68 of its 52 week range vs. week ago 44.38, with the HV at 29.59 and the range HV of 23.80.

For comparison, at Friday's close.


While most of the implied volatility decline has already occurred it will likely continue down to about 25 in the next couple of weeks before rising again before the next report. Then consider using s a calendar spread that's long the front month and short a deferred month and close it before the next report date as the implied volatility reaches its next quarterly peak.

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StrategyAs the S&P 500 Index made multiple new highs last week Market Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that factors out the number of issues traded, and reported by McClellan Financial Publications, made a top declining 35.64 points to 892.43.

In addition, the CBOE S&P 500 Skew Index (SKEW) 148.81 was up 10.53 points or +7.61%. SKEW measures purchases of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. In past, closes above 140 were associated with specific events and SKEW quickly return back below 140.

An update of the S&P 500 Index options volume and open interest below also reflects incrased put activity although some of the increase could be due to regular monthly October options expiration activity on Friday.


As the S&P 500 Index made multiple news highs last week two of our indictors reflected increased hedging activity and should be carefully watched this week. Last week's comment was about right. "Expectations are high with the market in overbourght territory. Is this is good as it gets? Calm before the storm? Remember regression to the mean."


While two of our market indicators turned more cautious last week as the S&P 500 Index continued advancing into 3Q earnings and with six of our Volatility Kings reporting this week, it raises the question could the advance into overbought territory be a "buy the rumor sell the news event?"

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Next week the we will review our market indicators in greater detail looking for more signs of an overdue pullback.

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.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".