This is an article about Apple, but in a more general sense it is an article about whether the “modified Bollinger Band” system can be applied to stock charts.
We have been operating an event-driven straddle buying strategy in advance of earnings for several months now, with mostly favorable results. However, this week something happened that we haven’t seen before: the straddles increased greatly in value before the earnings were announced.
With this issue, we attempted to return to the normal publishing schedule – the 2nd and 4th Thursdays of the month. However, due to some scheduling issues, the full newsletter was not available until Sunday, July 26th, although the Hotline was published on time on Friday, July 24th.
The CBOE has listed $VIX weekly futures – their third attempt at a weekly volatility product that might compete with VXX weekly options. Trading began on July 23rd.
It is estimated that options on the new $VIX weekly futures will begin trading in three or four weeks, although that isn’t set in stone. Certain details have to worked out with the OCC, such a margin requirements. Typically, in the past, those things have taken three or four weeks.
It’s been quite some time since we’ve seen the CBOE Volatility Index ($VIX) rise above the 17 level – since early February, in fact. But it did so this week, accompanied by strong advances in the other CBOE Volatility Indices, as well as Volatility Futures, ETFs, and ETNs. These advances in volatility create trading opportunities, mostly when they reverse. In this article, we’re going to review the most pertinent signals, and look at their track records.
Depending on your viewpoint, the “holy grail” of volatility trading can take on a different meanings. To traders, it’s a product that tracks $VIX closely, if not exactly. To exchanges and market makers, it’s a liquid product that draws a lot of trading interest.
Due to both business and vacation travel this summer, we are going to alter the newsletter publication schedule for both June and July. This information supercedes the schedule stated in the previous issue of this newsletter.
There has been a rather large amount of hoopla about two new companion ETF’s that are designed to track the cash levels of $VIX – the CBOE’s Volatility Index. There have been articles on Bloomberg, Seeking Alpha, Barron’s, and Yahoo! Finance, not to mention the web sites of the principal’s involved: NASDAQ and Accushares.
In the April 30th Hotline, we noted that “stocks only” cumulative breadth did make new all-time highs twice recently. Those two dates were April 15th and April 23rd. It has not made another new all-time high since then, although it is only about 1,700 issues below its high right now – so another strong upside day today could produce another new all-time high for cumulative breadth.
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.
