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Today


IVolatility Trading Digest™


Volume 21 Issue 18
Not Enough Surprises [Charts]

Not Enough Surprises [Charts]

If it's in the news it's in the price, so last week's earnings reports by the widely followed big cap technology favorites surprised very few although they beat widely publicized estimates. Although the S&P 500 Index reached new highs last Thursday, tech sector momentum waned leading to thoughts of a possible market top. More follows in the Market Review along an after action report on six of our Volatility Kings™.

Review NotesS&P 500 Index (SPX) 4181.17 eked out a one point or +.02% gain last week after making a new closing high at 4211.47 and a new intraday high at 4218.64 on Thursday. On any unexpected pullback, the area around 50-day Moving Average at 4002.74 should provide the first zone of support followed by the previous March 17 high at 3983.87. Bloomberg reported, so far 87% beat estimates for the best ratio since they began tracking the data in 1993. The chart remains bullish despite Friday's slight decline.

Invesco QQQ Trust (QQQ) 337.99 slipped 1.43 points or -.42% last week after reaching a new intraday high of 342.80 on Thursday. Last week it was all about earnings reports of the big cap momentum favorites while the yield on the 10-Year Treasury Note that began the week at 1.58% and ended Friday at 1.65% played a secondary role if any at all. It seems better than expected recovery earnings were already in the stock prices and few reports were much better than expected. Should momentum fad then the focus will again turn to rising interest rates. On any pullback, expect support around the 50-day Moving Average at 324.49.

Review NotesCBOE Volatility Index® (VIX) 18.61 advanced 1.28 points or +7.39% 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 .95 points or +6.95% to end the week at 14.61. The six-month chart below shows it advancing back toward 15% after reaching a low of 12.64% on April 16. While still bullish, the recent downtrend from the March 5 high may be ending.

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VIX Futures Premium

VIX futures premium with May the front month, ended the week at 13.58% still in the bullish green zone, vs. 21.50% on April 23.

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Since most of the volume and open interest are in the two closest futures contracts measuring the volume-weighted premium relative to the standard 30-day VIX provides a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds. The chart reflects the distance from the VIX to the futures curve computed from the two front month contracts.

Review NotesMarket Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that considers the number of issues traded, and reported by McClellan Financial Publications, advanced every day last week except Friday. 
For the week, it gained 52.12 points or +7.59% ending at 738.19, advancing above the 50-day Moving Average at 650.07.

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IVolLive February 23 Webinar

For those who may have missed our introductory IVolLive New Feature Webinar on February 23, now have a chance to see the rerun. Take a look and then send any questions to support@IVolatility.com


Volatility Kings™

After action report for the six Volatility Kings™ that reported earnings last week. For the entire list, see Digest Issue 16 "Volatility Kings First Quarter 2021."

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Results for the week ending Friday compares the maximum implied volatility reached before reporting in column 7 (IV Before) to Friday's implied volatility in column 8 (IV Now). For long calendar spreads opened before the report date the three with check marks v in column 9 (Result) performed as anticipated, two with X marks likely resulted in a loss while FB marked ? could be OK if implied volatility continues declining. As a reminder the higher the implied volatility the greater the probability for a large move in the stock price when it reports causing an immediate loss for long calendar spreads.

Strategy

In bull markets, a good strategy is to stay long equities and/or ETFs and then tactically hedge pullbacks as they begin developing, since ordinary pullbacks can become corrections when something unexpected happens. Then corrections can become downturns when something else unexpected happens, and downturns can become bear markets when many unexpected things change medium and long-term fundamentals.

Could the major indices stalling after last week's closely watched earnings reports be an intermediate top warning?

While the futures and option indicators remain bullish, here are some thoughts from our archives to consider.

"Sell your stocks when the market has ceased to advance on good news." – Fred C. Kelly, How Shrews Speculators Win, Fraser Publishing 1979.

Whenever the market does not act right or in the way it should – that is reason enough for you to change your opinion and change it immediately. Remember: there is always a reason for a stock acting the way it does. But also remember; the chances are that you will not become acquainted with that reason until some time in the future, when it is too late to act on it profitably. – Jesse Livermore, How to Trade in Stocks, p.71, Investors Press 1966 

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” – John Templeton

"You gotta know when to hold 'em. Know when to fold 'em." – Kenny Rogers

Oh, one more. Don't forget this Wall Street adage: "Sell in May and Go Away."

Summary

Last week's important "better than expected" earnings reports by the widely followed big cap momentum favorites failed to generate much enthusiasm, although both the S&P 500 Index and the Invesco QQQ Trust reached intraday highs on Thursday. Until futures and option indicators turn negative, the bulls remain in charge. However, based upon the length of time since the last pullback, perhaps some thought should be given to selling or at least hedging some of the more vulnerable positions.

By Jack Walker

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 will feature another 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

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
Please read IVolatility Trading Digest™ Disclaimer at the very bottom of this page

To add comments or to ask questions please click here (or use the blog "COMMENTS" link at the very bottom of the blog page).

 

Comments:

An vertical Put option I wrote:
Buy DNN 100 3/19/2021 1.5 Put @ 0.33 ($33)
Sell DNN 100 4/16/21 2.5 Put @1.20 ($120.00)

When Put is exercised the Put is switched to:
I buy the 2.5 Put for $120.00 and sell the $33.00.
What am I doing wrong?
TD Ameritrade is my Broker, and I can't get an answer from them that answers this question. Can you help?

Posted by vaniece shorey on May 03, 2021 at 03:57 PM EDT

Thanks!!!

Posted by Karen Mazingo on May 04, 2021 at 08:56 PM EDT

Vaniece,

Thanks for the question about your DNN put spread.
Lately question/response volume here has been light so we haven't been checking it daily. Next time for a faster reply send questions to support-AT-IVolatility-DOT-com

Denison Mines Corp. (DNN) 1.165 +.0150 today
3/19 it closed at 1.11
4/16 closed at 1.06

The 3/19 1.5 put closed around .04 since on 3/19 since the stock closed at 1.11. Did you mean 3/19 for the long put?

On 4/16 the short in- the-money 2.5 put would be been exercised since the stock was 1.06. You now likely have the stock in your account with a basis of 1.30 (2.50 -1.20).

Did I understand your position correctly?

Now you might ask, what to do with the long stock? With the current Implied Volatility Index Mean at 94 at .07 of the 52 range there is no call premium to sell against your long stock.

With the stock ~1.17 and trending higher decide where you will sell the long stock. It was as high as 1.35 on April 6.

Posted by Jack on May 07, 2021 at 03:01 PM 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".