Jun 302015

MarketVolatilityThe markets tacked on big losses yesterday as the crisis in Greece escalated. As uncertainty enters the markets, volatility ticks up as indicated by yesterday’s 34.45% increase in the VIX to 18.85. This was the 11th largest one day jump in the VIX since its inception in 1993.

The VIX is a measure of the implied volatility of S&P 500 index options and is often referred to as the fear index. It indicates the market’s expectation of stock market volatility over the next 30 days.

Implied volatility is exceptionally important to the options trader since it is one of the key components in the options pricing models. When there is extreme volatility in the market, it results in a sense of uncertainty as markets make sharp moves up and down. Traders will react emotionally to these whippy markets bidding up the premium of options in that market. Continue reading »

Jun 272015

Market Conditions

The markets continue to trade in a relatively tight range. The S&P 500 opened on Monday at 2112.5 and closed Friday at 2101.49, down 11.01 points or 0.52%. Movements in the market this week were largely news driven with Greece in the spotlight. Rumors of a bailout plan on Monday and Tuesday propelled the market higher. As the end of the week got closer and no deal was disclosed, the markets dropped. Volatility, as measured by the VIX, closed at 12.11 on Tuesday, its lowest point so far during 2015. On Friday, the VIX traded as high as 14.91 before settling at 14.02 to close out the week. The Russell 2000 (RUT) set another all-time high of 1296 on Tuesday. However the SPX continues to fight strong resistance at the 2130 level.


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Jun 202015

Market Conditions

The markets ended a relatively upbeat week on a lower note Friday. The S&P 500 opened on Monday at 2091.34 and closed Friday at 2109.99, up 18.65 points or 0.89%. Friday’s volume was high due to quadruple witching, the simultaneous expiration of options and futures, which occurs just four times per year. Volatility during the week was sparked by both the uncertainty related to Greece and dovish comments from Janet Yellen after the FOMC policy statement was released. Despite the slight increase in volatility, the SPX is still trading in a range between 2070 and 2135. However, the RUT and COMP both achieved new all-time highs this week.


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Jun 142015

questionsI am frequently emailed by readers with questions regarding specific trades, my trading methodology, etc. In the past couple of weeks, I have received several emails regarding the weekly credit spread strategy that I have employed. It became apparent to me that the level of interest (and confusion) about how I trade this strategy warrants a post of its own.  This dovetails into another project that I have been working on for the past several weeks – putting together a detailed trading plan for all of my trading strategies. This has become a humbling experience forcing me to reconcile the inconsistencies in my methodology.

Earlier this year, I traded quite extensively using a weekly credit spread strategy  on the S&P 500 Index ($SPX). In it’s simplest form, the strategy involves selling an SPX credit put spread with no more than 7 days remaining until expiration. The short strike is located 1.5 to 2 standard deviations out-of-the-money and the width of the strikes is 25 points. The options are then held until expiration. Continue reading »

Jun 132015

Market Conditions

The markets spent yet another week in a very narrow trading range. The S&P 500 opened on Monday at 2092.34 and closed Friday at 2094.11, up just 1.77 points or 0.08%. Despite some indications this week that the market might finally break lower, it failed to do so. Rather, it held at the previously established support level of 2070, thereby strengthening that level. Resistance continues to prevail at the previous high of 2135 containing the SPX in the trading range between 2070 and 2135 where it has lived since the beginning of April.


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