« September 2019 »

IVolatility Trading Digest™

Volume 19 Issue 36
Buffeted by Trade Winds [Charts]

Buffeted by Trade Winds [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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Thursday as the S&P 500 Index broke out above 2940 on China trade news; several indicators began flashing green go lights however, until it overcomes resistance from the important upward sloping trendline, some degree of skepticism remains. The Market Review explains along with charts, followed by a SPDR S&P 500 ETF (SPY) idea.

Review NotesS&P 500 Index (SPX) 2978.71 added 52.25 points or +1.79% last week after breaking out above the range that began on August 5 and resistance from the 50-day Moving Average. From the perspective of the upward sloping trendline, USTL in the chart below, it still needs to overcome this second resistance level before declaring it will soon retest the July 26 high at 3027.28. With the help of more positive news flow, the answer should come this week.


After the August 5 decline, it began forming what appeared as a symmetrical triangle continuation pattern, but then failed to break down below the lower boundary creating a range. Either way, the measuring objective is determined by adding the height of the pattern to the breakout [(reversal point 2 high 2943 - Aug 5 low 2822) + 2940)] =3061. First, it needs to clear the USTL convincingly.

VIXCBOE Volatility Index® (VIX) 15.00 dropped 3.98 points or -20.97% 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 4.15 points or -25.63%, ending at 12.04% vs. 16.19% for the week ending August 30 and below the 15-20 range since August 5. The one-year charts below suggest the light turned green for the SPX.


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 September expiration, the day-weighted premium between September and October allocated 35% to September and 65% to October for a premium of 14.76% well into the bullish green zone between 10%-20% compared to .02%, for the week ending August 30; another bullish indicator. Look at the chart.


The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month futures contract converges with the VIX at expiration on September 18.

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

Big Data? In options, we are Big Data!
For a comprehensive review and reminder, check this out
Options: Observations of a Proprietary Trader  


VIXAlthough options and futures indicators along with others, including market breadth and the dreaded 10-2 Treasury Note spread at +.02, have turned positive , the caution and hedge signs remain operative until the S&P 500 Index clears the operative upward sloping trendline. More China tariff and trade news along with speculation about an interest rate cut at the upcoming FOMC meeting on September 18, justify maintaining hedges awhile longer after being yanked back and forth since August 5. With lower implied volatility than earlier in the week, one conditional hedge idea follows.

SPDR S&P 500 ETF (SPY) 298.05.


Using the ask price for the buy and mid for the sell the put spread debit was 1.22 on Friday, about 24% of the distance between the strike prices with some implied volatility edge.

Should SPX open and appear to close above the upward sloping trendline in the chart, then hold off. Should it close below the trendline Monday, but then close above later in the week close it out– since the bulls have it right.

Monday’s option prices will be somewhat different due to the time decay over the weekend and any underlying price change.


Although the S&P 500 Index broke out above the recent range last Thursday on the latest China trade news and some indicators have turned positive including the spread between the 10-Year and 2-Year Treasury Notes, the S&P 500 Index has yet to close back above the important upward sloping trendline. Until then, keep hedging long positions.

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 more Market Review and indicator updates.

Finding Previous Issues and Our Reader Response Request


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 our website homepage.

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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