We have often made note of times when a particular market is so strong that it closes above or below its 20-day moving average for long periods of time. These are rather rare situations. While they are occurring, it seems that the market is going to keep going in that same direction forever. A few bullish cases have lasted so long that it seems that the market is “levitating” above its moving average. The last time this occurred was February-April of this year (Figure 1, yellow area).
This article was originally published in The Option Strategist Newsletter Volume 24, No. 8 on April, 23 2015.
One of the most successful investment strategies practiced by hedge funds (and other sophisticated investors) in the last ten years has been the “volatility short” trade. It is rarely mentioned on TV or in the media, but that is not too surprising. They would rather promote things such as the “Japan carry trade,” which wasn’t necessarily a profitable strategy at all unless a great deal of risk was taken. Not to say that the “volatility short” didn’t have its own share of risk, but it’s a lot more certain to profit if a certain status quo is maintained.
In this article, we’ll look at the history of the “volatility short” trade and see where it stands today. The long-term perspective on this trade may be a bit surprising, for it shows the tremendous toll that the $VIX futures premium takes on a long volatility position.
This article was originally featured in the 5/20/16 edition of The Option Strategist Newsletter.
One way to take advantage of these premiums is to establish the VXX/SPY put hedge. We have had a position on constantly for nearly two months now. These option-oriented positions aren’t making much money because $VIX is going nowhere, and so we are losing the time value. That is offset to a large degree by the “edge” that the position has in the futures premium.
This article was originally published in The Option Strategist Newsletter Volume 19, No. 10-11 on June 3, 2010.
In some of our recent hotlines and daily commentaries, we have referred to the total put-call ratio as something that can be useful when extreme selling occurs. It is not a sophisticated measure (as the equity-only is, for example), because it is merely the total of listed puts traded that day divided by the total of listed calls. This includes all volume on the option exchanges regulated by the SEC – CBOE, AMEX, ISE, BOX, PHLX, NYSE – but not any futures options traded on futures exchanges.
Let’s discuss cumulative breadth for a moment. Cumulative breadth is merely the running total of daily advances minus declines.
This article was originally featured in the 3/27/16 edition of The Option Strategist Newsletter.
A couple of weeks ago, we mentioned that the highest “stocks only” breadth oscillator reading in history had taken place. In fact, the top three readings of all time occurred on March 3rd, 4th, and 7th of this month (March, 2016). In addition, the 15th and 17th most extreme readings of all time occurred on March 2nd and March 11th, respectively. We wanted to study the other extreme readings to see what happened after those. Is this a significant longer-term indicator, or is it just indicative of the fact that short-term momentum is strong? The complete "Top 20" is shown in Table 1.
This article was originally featured in the 4/1/16 edition of The Option Strategist Newsletter.
It is worth noting that there has been a lot of discussion in the media about how cheap $VIX is, and these articles then have a bearish connotation for stocks. Two prominent articles appeared in the Striking Price column in Barron’s and on Zerohedge.com. The Zerohedge article covered a lot of interesting things about volatility futures and ETFs, but both of these articles mistakenly asserted that an upward-sloping term structure in the $VIX futures is bearish. I have seen the same opinion expressed many times on CNBC by traders who should know better, although I haven’t seen it there this week.
A couple of weeks ago, we mentioned that the highest “stocks only” breadth oscillator reading in history had taken place. In fact, the top three readings of all time occurred on March 3rd, 4th, and 7th of this month (March, 2016). In addition, the 15th and 17th most extreme readings of all time occurred on March 2nd and March 11th, respectively. We wanted to study the other extreme readings to see what happened after those. Is this a significant longer-term indicator, or is it just indicative of the fact that short-term momentum is strong? The complete "Top 20"
