« December 2017 »

IVolatility Trading Digest™

Volume 17 Issue 50
Up Up and Away [Charts]

Up Up and Away [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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"For we can fly, we can fly…" Last week's pullback attempt on Thursday was trounced Friday by news of the proposed tax cut plan as the S&P 500 Index made yet another intraday and closing high. CNBC said it was the 69th closing high this year. In this last Digest issue for the year the combination Seasons Greetings including New Year 2018 conveys jubilance for all those who remained on the long side for most of this extraordinary year.

Now for a brief Marekt Review including a look at year end hedging actvity along with an update for last week's SPDR S&P 500 ETF (SPY) suggestion.

Review NotesS&P 500 Index (SPX) 2675.81 added another 24.31 points or +.92% for the week making three new intraday and closing highs. The latest pullback attempt lasted only one day. Friday made another new intraday high at 2679.63 then closed slightly lower. The first support is 2620 at the upward sloping trendline, USTL and then the 50-day moving average at 2594.20.

VIXCBOE Volatility Index® (VIX) 9.42 slipped .16 points or -1.57% for the 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 6.53 eased .44 points or -6.31%.

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 2 trading days until December expiration, the day-weighted premium between December and January allocated 8% to December and 92% to January for a 20.47% premium in the middle of green zone compared to 24.47% last week.


Using a different calculation method to measure the distance from the futures to the VIX, the volume weighted VIX premium calculated end of day and regularly found in the Options Data Analysis section on our homepage ended the week at 12.73%. As the front month nears expiration the more accurate day-weighted premium tends to diverge when more weight gets allocated to the higher second month.

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.

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Hedge Indicator

From Advance Historical Data this chart for the last month shows put open interest continuing to advance moderately. Total open interest ending last week was 17,531,726 up 781,462 contracts for the week.


If put open interest reflects hedging using SPX options then VIX call option open interest should reflect VIX hedging strategies. Here is the chart for the last month showing call open interest advancing moderately with total open interest of 13,647,842 contracts.


For some perspective here is another VIX option chart back to May 2016 showing the increasing role for VIX options with last week's average open interest at 13,324,430 contracts.


IDEASPDR S&P 500 ETF (SPY) 266.51 up 2.20 points or +.83% for the week.

Last week in Digest Issue 49 "Rapid Rotation [Charts]," the January 19 call spread idea, long the 267 call and short the 270 call, booked for 1.22 at the close last Monday. Friday's marked-to-market was 1.50 for .28 point or a 23% gain in four days all with limited and defined risk and with plenty of time to expiration.

StrategyIn a bull market the winning strategy is long calls or call spreads perhaps with short puts along with short volatility as reflected by the volatility ETFs. However, since this latest advance was boosted by tax reduction news there is increasing risk of profit taking when it's finally signed. If there is one non conforming Foremost Indicator , it's breadth that stalled based on the McClellan Summation Index. For now, last week's comment was about right so it's worth repeating "put on a hedge and go away for the holidays."


Increased hedging activity seems quite logical since option prices are low and can be quickly unwound when no longer needed. While portfolio managers want to show winners in their yearend reports they also want some hedge against unexpected macro or political events that could damage their outstanding returns achieved so far this year.

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The next Digest is scheduled for January 8, and unless something dramatic occurs it will be Volatility Kings 4Q 2017.

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



hello, is there any options contract on bitcoins futures recently launched?

Posted by christian morio on December 18, 2017 at 02:54 PM EST


Thanks for the Bitcoin question. So far only futures.


Posted by Jack ( on December 19, 2017 at 01:15 PM EST

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