« August 2020 »

IVolatility Trading Digest™

Volume 20 Issue 32
Behold Gold [Charts]

Behold Gold [Charts]- IVolatility Trading Digest™

Last week, both the S&P 500 Index and the Invesco QQQ Trust inched up enough to close back above their respective upward sloping trendlines while gold reached new all time highs before pulling back on Thursday and Friday. The Market Review includes details along with another mark-to-market report for last week's second long call spread idea for VanEck Vectors Gold Miners ETF (GDX).

Review NotesS&P 500 Index (SPX)3351.28 added another 80.16 points or +2.45% last week closing higher every day. Now challenging resistance at the February 21 -24 gap, between 3,328.45 and 3,259.81 that may soon be resolved. Just in case, the close newly revived upward sloping trendline should provide the first support followed by 50-day Moving Average at 3170.88.  

Invesco QQQ Trust (QQQ), 271.47, called "the decider," gained 5.68 points or 2.14% last week, slightly less than SPX after declining 3.17 points on Friday. Should the upward sloping trendline fail to hold any further decline look for support at the 50-day Moving average now 252.21. Presuming the big cap secular growth tech companies have assumed a "Risk Off" or slow economic growth role, last week's sector rotation gave conflicting signals and could indicate distribution or at least confusion in several sectors.

Review NotesCBOE Volatility Index® (VIX) 22.21 declined 2.25 points or -9.20% 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, slid 2.22 points or -11.43 ending at 17.21%.

Review NotesAs the chart below shows, the IVXM spiked up to 77.15% on Monday March 16, the day SPX declined 324.89 points, and likely marks the top for the last market decline. Based upon regression to the mean theory its continuation below 20% supports the bullish view shown in the charts below, first the IVXM and then the SPX.


VIX Futures Premium

This next chart shows as our calculation of Larry McMillan’s day-weighted average between the first and second month futures contracts as of last Friday.

With 7 trading days until August expiration, the day-weighted premium between August and September allocated 35% to August and 65% to September for a premium of 20.24% well into green bull zone, up from 14.52% for the week ending July 31.

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 the next monthly futures expiration on Wednesday August 19.


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.

The relationship of the futures curve to the VIX, as measured by the premium, makes a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds.

Gold Miners Update

VanEck Vectors Gold Miners ETF (GDX) 42.74 declined -.20 points or -.47%, last week including a 1.49-point or -3.37% decline on Friday.

December gold futures declined 41.40 points or -2.00% ending at 2028.00. Cash closed at 2033.75 after declining 29.27 points or -1.42%. While they both made key reversals (trading at new highs, but closing lower), December with the most volume and open interest appears most significant.

Other gold indices and ETF's made similar declines, some started on Thursday, confirm a correction began and will likely continue as gold cash and futures pull back to test support around 2000.

The first trade suggestion in Digest Issue 30 "Invesco QQQ Trust Breakdown [Charts]"the long October 16 47/52 call spread (long the 47 call & short the 52 call) was supplemented with a second last week in Digest Issue 31 "U.S. Dollar Index & Gold [Charts]." For the first the unrealized book loss was .51, for the latest last week, it was .18, for a total mark-to-market decline on both of .69. The original trade plan set the SU (stop/unwind) on a close below 39 where it remains. Compared to alternatives such as long ETFs, futures contracts, or single call options, the mark-to-market declines with plenty of time to expiration, provided an opportunity to test the upside with defined and limited risk.

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


Since the recent seasonal record the S&P 500 Index favored for the bears in August, along with conflicting signs of sector rotation and general economic uncertainty it seems prudent to consider adding hedges in overextended sectors like the big cap IT favorites.

However, for gold the seasonal record favors the bulls in August and September. In addition, many favorable fundamental variables such as ETF holdings, real interest rate negative yields, and a declining U.S. dollar index remain intact. This Reuters article includes charts and commentary along with "Bank of America says prices could hit $3,000 within 18 months."


While the S&P 500 Index and the Nasdaq 100 Index® represented by the Invesco QQQ Trust improved last week and futures and options indicators are favorable, the August seasonal record favors the bears. Gold began correcting last Thursday and then on Friday the futures made key reversals suggesting at least one lower low as they pull back to test support around 2000. For the gold miners ETF ( GDX), watch support at 39.

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 Market Review will again look at updates for SPX, QQQ and Gold.

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 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

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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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".