Volatility Trading Digest - Strategy Edition
Volatility Trading Digest - Strategy Edition
Here is our updated chart for S&P 500 Index (SPX). With the active upward sloping trendline (USTL), the relevant April 2 high and June 4 low as well as the recent key reversal on August 21.
As noted above on August 21, SPX advanced to 1426.68 before closing lower at 1413.17 making a key reversal, unable to close above the April 2 resistance at 1422.38. Now it has begun rolling over on low volume, but next week we expect volume to increase giving us a better reading. Currently it takes a close below 1380 to change the uptrend. In the meanwhile, here are some things to be thinking about as SPX drifts down toward 1380 where it should find support at the upward sloping trendline.
- Since most of the 2Q earnings reports are in the record, earnings will not be the driving force.
Last week we suggested a conditional gold position, not implemented, but with Friday's breakout in what appears to be a flag continuation pattern we will book the position Monday. Here is the updated data.
SPDR Gold Shares (GLD)
With the close above 162 GLD has broken out above the downward sloping trendline from the September 5, 2011 high at 185.85. In addition, it appears to have made a bullish flag continuation pattern with a minimum upside measuring objective at 166.31.
If gold diverges from the seasonal pattern for equities and crude oil it will be significant and could indicate expectations for a higher euro on a favorable ruling from the German Federal Constitution Court on September 12 that would clear the way for more financial integration in Europe, which may be interpreted as being inflationary.
Here are the relevant option numbers.
The current Historical Volatility is 11.16 and 9.23 using the Parkinson's range method, with an Implied Volatility Index Mean of 16.65, up from 15.28 last week. The IV/HV ratio is 1.49 and 1.80 using the range method to calculate the HV. Friday's put-call ratio was bullish at .58, while the volume was 371,235 contracts traded compared to the 5-day average volume of 190,750 and substantially higher than the Friday before at 161,427 contracts.
Here is the updated long call suggestion.
With a good risk to reward ratio, use a close back below 160 as the SU (stop/unwind).
The suggestion above uses the closing middle price between the Friday bid and ask. Tuesday the option prices will be somewhat different due to the time decay over the weekend and any price change.
Summary
With the holiday season over there are important fundamental events scheduled in the next two weeks that have the potential to offset the usual September seasonal decline that equities and crude oil experience. In the meanwhile, until the S&P 500 Index closes above 1422.38 we suggest keeping an open hedge position.
"
About Ivolatility
IVolatility.com is based upon the concept of providing affordable options analytics over the internet. We provide options volatility data arranged and interpreted in a manner that creates predictive qualities. Over the years we evolved into the premier provider of analytics, tools and data all delivered over the internet. IVolatility.com clients are represented in all segments of the global derivatives market. More than half of the top 30 options market makers and US options brokers use IVolatility.com financial data services. In addition, IVolatility.com clients include 3 out of 5 of the largest US banking institutions and more than half of the top 50 investment banks. We offer solutions at every level, from beginner to expert professionals at institutional firms and hedge funds.
View Ivolatility's post archive >
