By Lawrence G. McMillan
It’s one thing when the media distorts facts, but it’s an entirely different matter when they try to change the definitions of mathematics. Mathematician Jacob Bernoulli quantified the principle of the Law Of Large Numbers. This “Law” basically means that a random distribution will converge to the mean if a large number of trials is observed.
By Lawrence G. McMillan
For a market that has been rather dull and steady, there certainly seems to be a large number of interesting items to talk and write about. So, this week, we’re going to address a number of these because I think they could all be important at one point or another in the coming weeks and months, as this market tries to determine its major direction.
By Lawrence G. McMillan
In the last issue, we laid out a trading system for VXX and XIV, the most liquid short-term volatility ETN’s. VXX uses the two front-month $VIX futures contract to create an instrument that tracks near-term volatility directly, while XIV is the inverse of the same thing.
We had left a few questions open at the end of that previous article, and we aim to answer those in today’s issue. Moreover, some reader questions have been asked as well, and we will address those too, since they are important to the overall concept.
By Lawrence G. McMillan
The CBOE’s Futures Exchange introduced futures on the volatility index, $VIX, in 2004 and began trading options on $VIX in 2006. The Barclay’s Volatility ETN (VXX) has been around since January 31, 2009. VXX owns $VIX futures and rolls them in a manner consistent with the formula for creating $VIX. Hence the two – $VIX futures and VXX are directly related. We have recently conducted a study, investigating a trading system for VXX, based on the differential in the prices of the two front-month $VIX futures.
By Lawrence G. McMillan
An indicator that doesn’t get a lot of attention is how many stocks are above or below their moving averages. In this article, we’re going to take a look at that indicator, using several different moving averages. Clearly, such an indicator is just another way of discerning whether the market is overbought or oversold (or is not). Does this give a better or complementary picture to the indicators that we already use for these purposes, which largely are market breadth and put-call ratios?
By Lawrence G. McMillan
This issue contains our annual analysis of the trades we’ve made in the past in The Option Strategist Newsletter. 2011 was a very good year for hedged positions, but a poor one for speculation. We’ll delve into the various strategies, attempting to analyze (if possible) why each one performed the way it did.
By Lawrence G. McMillan
...We still expect a bear market to unfold – one that will be far more severe than what we’ve seen in the last few months (although perhaps not so volatile). It is likely that the next bear market will take out the 2009 lows, thereby souring an entire generation (or two) on stock ownership for much of their lives – as happened with investors in the 1930's.
By Lawrence G. McMillan
With this newsletter, we have reached 20 full years of publication. Hopefully, there will be 20 more! As far as the stock market goes, it was a pretty wild year, but not necessarily out of character with the ever-increasing volatility that the market has exhibited much of the time in recent years. Ever since the manipulated interest rate environment and accompanying bull market of 2006, where $VIX repeatedly dipped below 10, markets have been volatile. It began with the volatility explosion in February 2007 and continues to this day.
By Lawrence G. McMillan
While I am a technician, I am the first to admit that not every form of technical analysis yields useful information. In fact, being a mathematician, I really like to know why a particular indicator works – other than “it backtests well.”
By Lawrence G. McMillan
When is it a good time to write naked options? When volatility is high and the market is “dangerous” or when volatility is low and the market is in a bullish mode? Or perhaps never, because one can always construct butterflies or condors to limit risk on all sides? In today’s article, we’ll take a look at these questions and more, because with $VIX remaining above 30 for over four months now, these questions are certainly pertinent...
