« June 2018 »

IVolatility Trading Digest™

Volume 18, issue 24
Crude Oil More Downside [Charts]

Crude Oil More Downside [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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As expected, crude oil headed lower last week anticipating the upcoming OPEC+ meeting Friday. There is more following the market review including two put ideas for United States Oil Fund, LP (USO). Next, since one of our Volatility Kings ™ reports earnings Friday we have some thoughts for BlackBerry Ltd. (BB).

Review NotesS&P 500 Index (SPX) 2779.66 gained just .63 points or +.02% last week, the smallest weekly change in a long time. However, it turned lower as it approached resistance around 2800 from both the previous March 13 high at 2801.90 and the medium term operative upward sloping trendline from February 11, 2016. Support now located at 2740 and then the 50-day moving average at 2702.28.

VIXCBOE Volatility Index® (VIX) 11.98 drifted .20 points or -1.64% lower as 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 .25 points, or -2.84% to close at 8.54, as implied volatility returns to the low 2017 range while SPX advances.



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 June expiration, the day-weighted premium between June and July allocated 8% to June and 92% to July for 14.01% premium, remaining in the bullish green zone between 10% and 20% as VIX declines.


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. All of the remaining 5.18% June premium will be gone at Tuesday's close.

Crude OilWTI Crude Oil (CL) 65.74 basis July futures declined 2.14 or -3.26% for the week, closing below the 50-day Moving Average on May31 and then below the upward sloping trendline June 1. Although attention is focused on the June 22 OPEC and Russia meeting, now called OPEC+ by some, seasonality is also contributing to the weakness. In addition, Bloomberg reported the US Government asked Saudi Arabia and other OPEC producers to increase production by a million barrels a day.

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With the same price pattern as the futures here is the tradable WTI crude oil ETF.

United States Oil Fund, LP (USO) 13.05 ended the week down .22 or -1.66% after dropping .47 or -3.48% Friday. From a technical perspective this chart shows Friday's downside breakout from a declining flag pattern.


Flags mark a half-way counter trend resting place consisting of several narrow range up days before the trend resumes. The measuring objective is determined by taking the distance from the downside breakout to the bottom of the flag, (14.40 -13.05 = 1.35) subtracted from the top of the flag (13.56 -1.35= 12.21).

Options details:

The current Historical Volatility is 24.43 and 17.27 using the Parkinson's range method, with an Implied Volatility Index Mean of 26.16 at .61 of its 52-week range. The implied volatility/historical volatility ratio using the range method is 1.51 so option prices are somewhat expensive compared to the recent movement of the stock, but will likely become more expensive with increasing implied volatility as USO declines. Friday’s option volume was 243,079 contracts traded compared to the 5-day average volume of 122,680 contracts with tight bid/ask spreads.

Here are two alternative put ideas to consider.


While the July put has greater gamma or rate of change of delta, the August put has greater Vega, or the rate of change of option prices with respect to changing implied volatility, while allowing more time to reach the downside objective at 12.21. Since the implied volatility is currently .61 of its 52- week range and likely to increase as USO declines the August put with greater Vega has the implied volatility advantage.

Volatility Kings ™

BlackBerry Ltd. (BB) 12.33 up .21 or +1.74% last week advancing in a well defined uptrend after bottoming at 10.05 following 4Q earnings report on March 28. Scheduled to report 1Q earnings Friday before the markets open, it again appears to be advancing into the report date just as it did before the 4Q report.

As a regular in our quarterly list, Digest Issue 14 "Volatility Kings 1Q 2018" shows the implied volatility previously reached 57 before the last report. Now at 47 suggests it could continue higher by Thursday before reporting.

Friday it ranked number two in the High IV/HV category, a regular complimentary feature found in the Rankers and Scanners section of our home page at Top 5 stocks by implied volatility change. With an Implied Volatility Index Mean, IVXM of 46.76 and a historical volatility of 24.33 the ratio for number two on the list was 1.92. After adjusting to the range method for historical volatility of 22.07 the ratio becomes even higher at 2.12. In the past, ratios above have 2 implied the potential for stock moves large enough to cause losses for long calendar spreads, (short near term high implied volatility options while long deferred options with lower implied volatility). Since implied volatility is likely to continue increasing until Thursday the ratio will be even higher by reporting time. For short term traders, an alternative to a calendar spread is to be long into the report, buying Monday and selling Thursday before the close. For example here were Friday's prices.


Using the implied volatility of 74.04 to IV/HV ratio becomes 3.35. Following the pattern from last quarter the implied volatility should continue increasing until Thursday benefitting long options, but as they say in the biz, "past performance is no guarantee of future results."

For more volatility trading ideas watch for our next quarterly Volatility Kings ™ in early July.


With volatility declining perhaps the time has come again to consider selling time premium such as selective calendar spreads. Last week the greatest S&P 500 Index percent change occurred Wednesday at just -.40%. Then there is the short volatility trade. ProShares Short VIX Short-Term Futures ETF (SVXY) 13.92 advancing from a low of 10.90 on April 2 to an intraday high of 14.09 last Thursday, for a 29.27% gain.


Futures and option indicators along with market breadth remain encouraging for the bulls. Crude oil prices are headed lower and should continue helping technology, interest sensitive, consumer discretionary and domestic companies with little or no dollar exchange risk.

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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."

For next week the plan is for a more extensive market review including updates for the WTI Commitment of Traders report along with look at market breadth.

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




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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.

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