« March 2019 »

IVolatility Trading Digest™

Volume 19 Issue 10
PnL Calculator [Charts]

PnL Calculator [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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While carefully watching to see if the S&P 500 Index could go the distance or be foiled by resistance, it seems 2800 was a bridge too far, at least for now. Along with our regular indicators, the market review includes a look at recent VIX call hedging activity followed by a brief look at our easy to use New and Improved Live PnL Calculator  for a new Micron Technology, Inc. (MU) idea.

Review NotesS&P 500 Index (SPX) 2743.07 dropped 60.62 points or -2.16% last week, after reaching 2816.88 early last Monday and then abruptly reversing lower. Now below the operative upward sloping trendline from the December 26 intraday low, it may have found some support Friday near the zone around the 200-day Moving Average, now 2750.86 since support as well as resistance are zones rather than exact numeric levels.

VIXCBOE Volatility Index® (VIX) 16.05 jumped up 2.48 points or +18.28% 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, advanced 2.98 points or +28.30% to 13.51 shown below along with the SPX line chart.


The IVXM downtrend from the Decmember 24 high at 31.25 appears to have ended at least for now.

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 March expiration ,the day-weighted premium between March and April allocated 28% to March and 72% to April for a 5.48% premium vs.12.61% for the week ending March 1, back below green zone between 10% to 20% associated with previous S&P 500 Index uptrends.


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. Previously, declines below 10 % and advances above 30% were unsustainable, but for the last year premiums above 10% have been scarce. If there was only one indicator available, this one would be a top contender.

For daily updates, follow our end-of- day volume weighted premium version located about half-way down the home page in the Options Data Analysis section on our website.

Since VIX calls are often used for hedging purposes here is an update for the last six months focused just on the call volume and open interest from our Advanced Historical Data service.


With total open interest of 9.4 million contracts, calls represent 80% of the open interest and currently above the last six futures expirations including last December when the VIX spiked higher. From a contrarian perspective it suggests last week's pullback could soon end.

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New and Improved LIVE PnL Calculator

New and Improved LIVE PnL Calculator

Using the PnL Calculator for a new Micron Technology, Inc. (MU) idea going into the March 20 earnings report.

Micron Technology Inc. (MU) 38.65 ended up .82 Friday making a wide outside range reversal, although down 2.93 or -7.05% for the week. The Implied Volatility Index Mean increased to 56.93 from 51.67 last week and will likely continue higher until March 20. The implied volatility/historical volatility ratio using the range method is 1.57 compared to 1.35 last week, so option prices are more expensive relative to the recent movement of the stock.

Although last week's long call spread didn't work out, Friday' reversal looks encouraging enough to try once again. This time the plan includes selling an out-of-the- money put with a long call spread. Friday's prices:


Using the ask price for the buy and mid for the sell and the bid for the put the combination results in a .73 credit [(1.02-.47) -1.28].

After opening the New and Improved Live PnL Calculator and entering the strike prices along with the symbol at tablethen advancing the expiration to March 22,

tablealong with reducing the volatility by 15.66% based upon the volatility chart showing implied volatility declined to about 45% after reporting in previous quarters,

it displays the following with price set at 43, the call short strike,



and then the PnL profile with price set at 43.


The tabledisplays all available expiration dates along with strike prices for calls and puts that can be entered by clicking on either the bid or ask price. Then at the data table the strikes can be altered: more strikes added or subtracted or quantities changed to produce multiple "what if" scenarios.

While the profile above shows the expected result at the target price and at expiration, it can also be set to one week or any other number of days. Or maybe add another out-of-the money short put.

This limited space introduction only briefly mentions the vast capability of the New and Improved LIVE PnL Calculator.

For more details here is the User's Guide and how to order including a two week free trial. Give it a try by setting up "what if" trade ideas.

The assumption for the long call with a short put, sometimes called a call spread risk reversal, assumes the stock price reversal that began Friday continues higher and reaches the recent previous high around 43 after reporting earnings on March 20 when the implied volatility abruptly declines.

Use a close back below 38 as the SU (stop/unwind) just in case Friday's reversal fades.

The spread suggestion above is based on the ask price for the buy and middle price for the call sell presuming some price improvement is possible. Then the ask for the put sell. Monday’s option prices will be somewhat different due to the time decay over the weekend and any price change.


Weakness in the S&P 500 Index was mostly likely a combination of profit taking at well defined resistance around 2800 along with the lack of additional positive news about an upcoming trade deal with China. However, there were some signs that a few leading sectors attempted upside reversals Friday suggesting the current pullback may be ending.

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 plan includes an update for the WTI Crude Oil Commitment of Traders report along with our regular market review.

Finding Previous Issues and Our Reader Response Request

PreviousIssues All 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 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".