« June 2021 »

IVolatility Trading Digest™

Volume 21 Issue 23
Data Dependent [Charts]

Data Dependent [Charts]

The U.S. Labor Department reported nonfarm payrolls increased 559K in May slightly less than expected at 650K while the unemployment rate declined from 6.1% to 5.8%. Describe by some as a "ho-hum" report so equities advanced modestly after being stuck earlier in the week. The 10-Year Treasury Note yield made the most noteworthy move dropping 7 basis points to end at 1.56%. Bond market analysts say the next big scheduled event will occur this Thursday, June 10 when May consumer price data will be released with expectations for the Core CPI to advance +.4%. The Market Review explains why growth stocks will likely outperform early in the week and then looks for clues in the AMC Entertainment Holdings Inc. options data from Friday.

Review NotesS&P 500 Index (SPX) 4229.89 added 25.78 points or +.61% with most of the advance occurring Friday after the payroll report as interest rates declined. In the absence of an unexpected event, the May 7 intraday high at 4238.04 will likely be tested before the release of the CPI data on Thursday. Just in case, look for downside support from the 50-day Moving average at 4138.82.

Invesco QQQ Trust (QQQ) 335.60 advanced 1.67 points or +.50% last week after closing below the 50-day Moving Average on Thursday before the payroll report, only to quickly reverse on Friday to gain 5.60 points or +1.70% almost twice as much as the SPX at +.88%. It closed back above the 50-day Moving Average at 331.01 as the 10-Year Treasury Notes turned higher and the yield declined to 1.56% boosting growth stocks in the QQQ. By sector, Information Technology gained 1.92% followed by Communication Services at 1.38%.

Review Notes
CBOE Volatility Index®
(VIX) 16.42 declined .34 points or - 2.03% 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 .12 points or -.99%  ending at 12.01% , another bullish 52-week low as shown in the six month chart below.


As the charts above show, declining implied volatility (orange line) correlates with rising SPX prices while the spikes reflect pullbacks. Two things are worth remembering. (1) Implied volatility will eventually revert to the mean of its relevant range. Assuming the correct relevant range began on June 5, 2020, the mean is now 18.16. (2) Persistent divergence created when implied volatility increases as SPX advances may lead market pullbacks.

VIX Futures Premium

VIX futures premium ended Friday at 16.42%, still in the bullish green zone, with 7 trading days before June VIX futures expire. Down slightly from May 28 at 18.37%.


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 Notes
Market 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, gained every day last week adding 122.95 points or +20.77% ending at 714.94 and back above the 50-day Moving Average.


All on one page

Our Sentiment Analyzer included in all IVolLive packages features a quick reference one-page summary including moving averages, relative strength, Chaikin Money Flow, correlation, options implied and historical volatility and more.

Alternative EnergyAMC Entertainment Holdings Inc. (AMC) 47.91 ended down 3.43 on Friday, but up 21.79 or +83.42% for the week.

Adding to the media coverage claiming high options volume consisted mainly of single near dated calls we decided to join the frenzy and look at the data.

Our Top 200 stocks by volume /open interest list in the Rankers and Scanners section of our front page shows AMC volume at 3,464,220 contracts second only to the SPY at 3,537,020. While open interest of 3,715,020 looks high, many others have much higher open interest.

The six-month volatility chart shows an unusual relationship with implied volatility rising along with the stock price.


The implied volatility index for options expiring in 30 days ended the week at 363.38 down 25.34 vs. 295 the week before. With an IV/HV ratio of 1.45 and an adjusted ratio using the range method at 1.63 option prices are not very expensive relative to the movement of the stock.

However, the implied volatility of the near term options are much higher as usual, for example the June 11 at-the-money call at 431.71 and the out-of-the-money 52 call at 444.10. The 60 and 65 calls have the greatest open interest at 45,535 and 24, 194, but the 40 and 50 puts also have large open interest of 18,370 and 16, 366.

Options expiring on June 18 also show large open interest in both calls and puts with most calls at the 40 strike of 138,561 and the most puts at the 15 strike of 45,536.

From our Advanced Historical Data charts: Total call volume and open interest.


Total put volume and open interest.


The charts above show call volume exceeded put volume, but put open interest exceeds call open interest. The many June 18 expiration strike prices from .50 to 145 show a few signs of potential straddles. Other combinations are hard to detect, but for direction traders, out-of -the money call and put spreads seem reasonably priced for those with some direction conviction.


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.

Friday's decline in the yield of the 10-Year Treasury Note to 1.56% improves the likelihood growth stocks will outperform at least until the CPI on Thursday.


The less than expected payroll report released on Friday helped boost both the S&P 500 Index and the Invesco QQQ trust as the yield on the 10-Year Treasury Note dropped 7 basis points ending at 1.56%. The Consumer Price Index on the schedule for Thursday could slow further advances should the core CPI gain more than expected. Although last week's price gain by AMC appears driven by near term single call buyers according to  media reports, the data shows a deep active market with nearly as much put volume as call volume and with slightly more put open interest.

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 the Digest will include another Market Review along with another trade idea to consider.

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

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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".