« April 2018 »

IVolatility Trading Digest™

Volume 18 Issue 17
10-Year Treasury Note Yield [Charts]

10-Year Treasury Note Yield [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 advancing 7 more basis points to 3.03% last Wednesday the yield on the 10-Year Treasury Note declined 7 basis points Thursday and Friday to close the week unchanged. More details follow including a chart for iShares 20+ Year Treasury Bond ETF (TLT) along with our market review, strategy comments and an update for last week's ProShares UltraShort 20+ Year Treasury (TBT) hedge idea along with some useful advice for selling options from OptionSellers.com.

Review NotesS&P 500 Index (SPX) 2669.91 declined just .23 points or -.01% last week after a big decline Tuesday on interest rate concerns that faded away by Friday. While just below the current operative trendline from the May 18, 2017 low at 2352.72, a close above the April 18 high of 2,717.49 would renew the medium term uptrend.

VIXCBOE Volatility Index® (VIX) 15.41 declined 1.47 points or -8.71% 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, declined .78 points or -5.80% to 12.67.



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 12 trading days until May expiration, the day-weighted premium between May and June allocated 60% to May and 40% to June for 7.14 % premium.


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. Although the shape of the futures curve appears normal, reaching the bullish green zone between 10 and 20 remains a struggle for the premium.

For the bulls, declining open interest suggests less enthusiasm for hedging using options on VIX futures. The chart below shows Friday's open interest at 6.7m contracts vs. 8.1m for the week ending April 20, 2018 and down from 14.4m on February 9.


The 10-Year Treasury Note Yield.

With most Treasury market commentary focused on the yield for the 10-Year Note yield, longer maturities with greater duration reflect the role that bond trading played last week as this chart for iShares 20+ Year Treasury Bond ETF (TLT) shows.


Wednesday the 20-Year yield was 3.12 and closed Friday at 3.03, while the 30-Year yield closed Friday at 3.13 down from 3.21 Wednesday. As bond prices declined to approach their February 21 lows bond traders turned them around although the volume by this ETF was unconvincing.

While it may be premature to conclude the advance was more about Treasury bond trading and retesting prior lows than changing perceptions about fundamentals , last week's action seems to suggest that was the case.

Updating last week's "just in case" suggestion for ProShares UltraShort 20+ Year Treasury (TBT) 38.06 declined .18 points or -.47% for the week.

Using last Monday's closing prices the debit for the long June 15 call spread, long the 39 and short the 41 was .53. The quick reversal and a gap open lower Friday was enough to close this "just in case" hedge at .38 for a .15 loss. As a hedge against interest rates continuing higher it seems like reasonable price to pay.

Big Data? In options we are Big Data!

Shanghai Options Data Now Available

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


PreviousIssues The US Dollar Index (DX) & DXY, $USD, now 91.34 up 1.27 points or +1.41% for the week rapidly advanced along with interest rates. Declining interest rate pressure should slow the advance. If not equities will have trouble returning to the uptrend.

As declining volatility reduces the risk of large moves that hurt short option strategies and with the Implied Volatility Index Mean (IVXM) near the bottom of a likely new range, shown in the chart above, calendar spreads appear more attractive. For example, long SPY calendars spreads did well last week as volatility declined.

PreviousIssues For those considering selling strategies here is a simple but effective method to manage option selling risk from James Cordier, at OptionSellers.com.

Selling options can be a startlingly effective way to generate cash flow and even eye popping returns if done the right way. This is especially true in commodities markets where built in leverage affords high premiums, low margin requirements and deep, deep out of the money strikes. Investors who learn how to take advantage of the vast majority of options that expire worthless each and every month can provide themselves with an income stream starkly uncorrelated to equities, real estate, the economy or virtually anything else – even commodities indexes themselves.

The big knock, as always with option selling, is that one losing trade can take back a whole series of winning trades.

But is this the case for experienced option sellers who know how to manage risk?

If you’re an option seller seeking consistent gains in the market, having a risk management plan is paramount.

And the best risk management is one that is simple and effective.

For that, time has taught us that none is more simple or efficient than the “200% rule.”

What is the 200% rule? The 200% rule states that when you sell an option for a certain, premium, you exit that option if and when that premium doubles in value. It is, well, that simple.

For instance, if you sell a soybean call for $800, and that premium value rises to $1,600, you buy back the option, thereby exiting the trade for an $800 loss.

Losses can and do happen in option selling, just like any other method of trading. But following the 200% rule is a solid way to stay out of trouble, keep your losses manageable, and set yourself up for consistent gains over the course of a year.

For more information on selling options for consistent income in ANY type of market condition, we offer our complimentary training manual for beginning option sellers available for a limited time from OptionSellers.com.


Last week the 10 -Year Treasury Note yield tested and held 3% resistance closing the week unchanged at 2.96% after reaching 3.03% Wednesday. The reaction by longer dated Treasury bond prices suggests it was more about Treasury bond trading and retesting prior lows than changing perceptions about fundamentals. This week the focus should return to earnings reports, trade and tariff issues.

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 focus will be on trading ideas to consider from our ranker and scanner tools.

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




Comments are closed for this entry.

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".