« March 2019 »

IVolatility Trading Digest™

Volume 19 Issue 9
China Trade News [Charts]

China Trade News [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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To add comments or to ask questions please click here (or use the blog "COMMENTS" link at the very bottom of the blog page).

Waiting for news about a China trade agreement is like waiting for the bus without a schedule, you know it will come eventually, you just don't know when. In the meanwhile, the S&P 500 Index exceeded the December 3 high at 2800.18, so the answer to last week's question is –yes, just barely. This week's market review includes a look at VIX hedging activity along with our regular indicators followed by a long earnings report idea for Micron Technology Inc. (MU).

Review NotesS&P 500 Index (SPX) 2803.69 nudged up 11.02 points or +.39% last week, all on Friday's 19.20 point advance. However, last Tuesday it closed below the operative upward sloping trendline from the December 26 intraday low. Although still well above the 200-day Moving Average it needs to close above last Monday's high of 2813.49 to get back on track. On any pullback the 200-day Moving Average, now 2749.63 should provide support.

VIXCBOE Volatility Index® (VIX) 13.57 added .06 points or +.44% 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 .57 points or -5.14% ending at 10.53.


Now well below the bottom of the recent 14-15 range that began last October the implied volatility downtrend continues.

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 March expiration ,the day-weighted premium between March and April allocated 48% to March and 52% to April for a 12.61% premium vs. 13.92 for the week ending February 22. Now in the green zone between 10% to 20% associated with S&P 500 Index uptrends, supporting the bullish view.


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 and a picture paints a thousand words, the charts below show increased options volume at the start of last week that quickly faded away while open interest remains slightly higher than usual with 12 days before March futures expire.




For most underlying securities low ratios are bearish but turn bullish above the .7 line. However, higher VIX option call buying suggests increased hedging activity. From our Knowledge Base here is more about the Put-to-Call Ratio.

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Since it's unlikely there will to be any China trade news until after the National People's Congress that begins Tuesday, and the US equity markets are likely to remain in narrow trading ranges with a slight upward bias, we set up our Stock Sentiment Ranker on the S&P 500 Index. Here are the results.


At the top with the highest bullish rank, Micron Technology, Inc. (MU) is also one of our Volatility Kings included in Digest Issue 2 "Volatility Kings 4Q 2018."  

Micron Technology Inc. (MU) 41.58 up .70 Friday, but -.99 or -2.33% for the week after dropping below the upward sloping trendline from the December 26 low at 28.39 on Thursday before recovering Friday. Since the 2Q earnings report is scheduled for March 20, after the close, options implied volatility will likely continue rising until the report date.

With a current Historical Volatility of 49.10 and 38.19 using the Parkinson's range method, the Implied Volatility Index Mean is 51.67 at .58 of the 52-week range. Before the previous report it advanced up to 62, so chances are it will follow a similar pattern. The implied volatility/historical volatility ratio using the range method is 1.35 so option prices are moderate relative to the recent movement of the stock. Friday’s option volume was 149,156 contracts with the 30-day average of 126,430 contracts, so good volume with reasonable bid/ask spreads.

While there are several alternative strategies that could be used, consider this simple relative low cost long call spread with positive delta and vega


Using the ask price for the buy and mid for the sell the call spread debit would be .56 about 28% of the distance between the strike prices with 51% of the long call risk hedged by the short call with a Delta of .1306 (.3500 -.2194) and Vega of .0074 (.0369 -.0295). Where Delta represents the change in an option's price for a small change in the price of the underlying and Vega represents the amount a position will gain or lose if implied volatility changes 1%.

The plan is to close the spread on March 20 before release of the earnings report when the options implied volatility will likely peak based upon prior quarterly reports.

Just in case it fails before reporting use a close below last Thursday's low at 39.80 as the SU (stop/unwind).

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


Review NotesOdds remain in favor of the bulls since few are willing to risk being short before a China trade agreement. However, then be prepared for a "sell the news" correction that now seems expected based on commentary.

Market Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index reported by McClellan Financial Publications, gained 27.79 points for the week including a decline of 8.76 points Thursday followed by a slight increase Friday. Upward breadth momentum has clearly slowed.


The S&P 500 Index continued higher after briefly closing below the operative upward sloping trendline. Options and futures indictors should remain bullish since expectations are focused on an upcoming trade deal with China that is not likely until sometime after this week's National People's Congress when the risk of a "sell the news" correction increases. In the meanwhile, there are long opportunities in relative strength stocks as well as ETFs.

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 it to include a brief review of our PnL analytical tool along with the 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



Please send user manual or how to use the RT scanner.
Thank you

Posted by Aaron Eskenazi on March 04, 2019 at 12:25 PM EST


Thanks for requesting the RT Scanner Users Guide. See link here.


Sorry for the delay.


Posted by Jack ( on March 12, 2019 at 11:25 AM EDT

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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".