« February 2018 »

IVolatility Trading Digest™

Volume 18 Issue 5
All About Interest Rates [Charts]

All About Interest Rates [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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This week the plan was to update the January Barometer data table, but paraphrasing Mike Tyson, everybody's got a plan 'till they get punched in the mouth. The punch came from the rapidly rising 10-Year Treasury Note yield along with a corresponding equity market decline. A long-term interest rate chart follows a brief market update including volatility charts.

Review NotesS&P 500 Index (SPX) 2762.13 tumbled 110.74 points or -3.85% with 59.85 points of the decline happening Friday after the January employment report showing a slight increase in wages triggering Treasury issue sales pushing yields higher. Now the first support is the 50-day moving average at 2715 then more support at the upward sloping trendline, USTL at 2700 augmented by the mid December trading range.

VIXCBOE Volatility Index® (VIX) 17.31 jumped up 6.23 points or +56.23% last 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, advanced +4.52 points or +49.40% to 13.67.


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 7 trading days until February expiration, the day-weighted premium between February and March allocated 35% February and 65% to March for a -12.15% premium, below the bottom of the green zone between 10% to 30% versus 13.99% last week.

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.


Friday the entire VIX futures curve was under the VIX. Suggesting expectations are that the VIX will not stay at the current higher level very long. We've seen one week sharp drops before on 6-24-16 and again11-4-16, will it rebound quickly again this time? Follow our end-of- day volume weighted premium version on our website home page.

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10-Year Treasury Note Yield

Last week's quick 18 bps advance with 6 bps on Friday to 2.84% after the January employment report was enough to turn equities lower after reaching new highs the previous Friday on January 26.

In January 2017 Bill Gross wrote the downtrend in yield will be broken when it crosses above 2.6%, the level many market participants have been closely watching. A semi- log scale chart offers a slightly different perspective, especially for the longer term.


2.84% +.18 for the week. The downward sloping trendline DSTL 2 from the June 11, 2007 high at 5.26% has been clearly broken for some time and now appears that 3.00% at the red horizontal resistance line will soon be tested. However, the long-term trendline, DSTL 1 suggests it will take a close above 3.5% to turn the long- term trend higher. Regardless, since so many are focused on 3.00% any further advance will likely create a strong headwind for equities. However, should it turn lower after testing 3.00% the downward pressure on equities will be relieved.

VIXOther than the 10-Year Yield and SPX here are some indicators to watch.

CBOE Volatility Index® (VIX) and VIX Futures Premium.

VIX -VXST Spread (VIX minus the short-term 9 day VIX) now negative. Gives a buy signal when it turns positive.

VelocityShares Daily Inverse VIX Short Term ETN (XIV) 115.55. A reversal gives a buy signal.

iShares iBoxx $ High Yield Corporate Bond ETF (HYG) 86.22. A reversal gives a buy signal.


Rapidly rising 10-Year Treasury Note yield after the employment report Friday was enough to turn overbought equities considerably lower. Since most indicators are negative downward momentum will likely continue until interest rates stabilize or begin turning lower. Look for SPX support around 2700.

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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."

Next week we plan to update the January Barometer along with the 10-Year Interest Rate Yield.

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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