This article was originally published in The Option Strategist Newsletter Volume 9, No. 16 on August 24, 2000.
It is somewhat common knowledge amongst option traders that the CBOE’s Volatility Index ($VIX) can be used as a predictor of forthcoming market movements. In particular, when volatility is trending to extremely low levels – as it is doing now – it generally means that the market is about to explode. In this article, we’ll put some “hard numbers” to that theory and we’ll also look at alternate measures of volatility (QQQ and the $OEX stocks themselves) to see what they have to say.
This article was originally published in The Option Strategist Newsletter Volume 15, No. 2 on January 26, 20006.
The time is nigh for us to once again consider one of our most reliable seasonal trades – the January Seasonal. Simply stated, the system is this: buy “the market” at the close of trading at the close of the 18th trading day of January, and sell your position at the close five days later.
February 2018 was a very nasty month for stocks. For some time, we have been mentioning the similarities between current action and that of late 2017 and early 2018: a long rally has taken place, accelerating in January; there have been multiple failed mBB sell signals; put-call ratios are extremely overbought; new highs have completely dominated new lows, etc. And others are watching this as well. In late January 2018, a number of sell signals occurred almost all at once: there was an mBB sell signal, breadth oscillator sell signals, equity-onlyput-call ratio sell signals, VIX began to rise, and new lows exceeded new highs. All of these occurred on or before February 1st, 2018. By February 2nd, the market was collapsing and by February 9th, 2018 – in a matter of just 5 trading days – the entire rally of over four months had been wiped out.
This article was originally published in The Option Strategist Newsletter Volume 16, No. 3 on February 16, 2007.
Last month, we saw the standard put-call ratio experience some very herky-jerky movements on its chart. As we pointed out at the time, those distortions were due to heavy dividend arbitrage in Altria (MO), JP Morgan (JPM), and AT&T (T). Since dividend arbitrage has become much more prevalent in recent quarters, we feel it’s time to examine this issue to see if there is something that needs to be done to “cleanse” the data of this extraneous, but extremely heavy, call option volume.
This article was originally published in The Option Strategist Newsletter Volume 19, No. 24 on December 24, 2010.
The “January defect” is the first seasonal trade of the year. The “system” states that the NASDAQ-100 usually falls from about the 8th trading day of January to the 18th trading day. The system’s results are shown in Table 1, in the next column.
This article was originally published in The Option Strategist Newsletter Volume 6, No. 6 on March 27, 1997.
I was tempted not to label this article as a "basics" article, because the concept we're going to discuss is one that is probably not all that familiar to most option traders. It concerns the rate of decay of in- or at-the-money options versus that of out-of-themoney options. It's a concept that I realized I understood subconsciously, but not one that I had thought about specifically until I recently read Len Yates' article in The Option Vue Informer. Len is the owner and founder of Option Vue, creator of the software package of the same name and is one of the best option "thinkers" in the business (we are going to have a review of Option Vue when their new version is released).
This article was originally published in The Option Strategist Newsletter Volume 13, No. 2 on January 22, 2004.
Question: You have repeatedly mentioned dividend arbitrage. Could you briefly tell me what it is? – J.Z., 1/17/2004
Answer: Dividend arbitrage has been around since listed call options first traded. It has become quite popular lately, though, as heavy call volume is noticeable in nearly every stock with decent open interest in its options that is paying a quarterly dividend of 20 cents or more.
This article was originally published in The Option Strategist Newsletter Volume 9, No. 8 on April 27, 2000.
In the past year or two, there have been many references in this newsletter to the fact that stock prices don’t conform to the lognormal distribution, which is the distribution used in many mathematical models that are intended to describe the behavior of stock and option prices. This isn’t new information to mathematicians – papers dating back to the mid-1960's have pointed out that the lognormal distribution is flawed. However, it isn’t a really terrible description of the way that stock prices behave, so many applications have continued to use the lognormal distribution.
This article was originally published in The Option Strategist Newsletter Volume 17, No. 6 on March 27, 2008.
Amongst our array of technical indicators is the put-call ratio. We use it extensively in analyzing the broad market (equity-only putcall ratios) as well as individual stocks and, especially, futures. It is less useful in the indices and ETF’s, but sometimes has validity there, as well. Furthermore, we use $VIX derivatives – particularly the futures – as predictors of short-term moves in the broad market as well. These $VIX derivatives have been very useful and accurate indicators, with two or three great “calls” again in the last week. So, the question becomes, should we be looking at put-call ratios on $VIX – trying to combine these two indicators which, separately, have proven to be quite useful in their own right? As you shall see, the answer is not completely clear, but there does seem to be some usefulness in $VIX put-call ratios.
This article was originally published in The Option Strategist Newsletter Volume 20, No. 23 on December 9, 2011.
This is the time of year when even the media talks about seasonality. Of course, that doesn’t mean they understand what they’re talking about. Why would it be different on this subject than any other?
We have frequently mentioned the positive seasonality that takes place between Thanksgiving and Christmas. It’s unclear exactly why this happens, but it does. In fact, this particular seasonality doesn’t even have a cute name. But it certainly seems to work.
