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This has been a successful seasonal trade in many years, and last year was the second best year in our history. We have used this in 22 of the past 23 years – skipping only 1995, for reasons which I no longer recall.
In this trade, we buy RBOB Gasoline futures and sell Heating Oil futures. This is the simplest way to establish the spread, eschewing futures options and ETF options – the options are just too illiquid in the February contracts, which is what we use for this spread.
The $VIX “spike peak” buy signal that is in place took four trading days to confirm. That is, $VIX spiked up to an intraday high of 17.95 on October 13th, but it did not complete the signal (by closing below 14.95) until October 19th – four trading days later. We are used to seeing $VIX spike up and right back down again, giving these buy signals on the same day that the intraday high was reached, or perhaps the next day.
The time of the year for the October seasonal trade is at hand. This is one of our best seasonal trades – to buy “the market” at the close of trading on October 27th, and to sell the position at the close of trading on November 2nd. However, we do not take the trade in years when there was not a pullback in October.
The CBOE recently listed a Condor Index (symbol $CNDR). It is a benchmark index designed to track the performance of a hypothetical option trading strategy that sells a rolling condor spread. The index uses $SPX options, which settle for cash on a monthly basis (“a.m.” settlement). The hypothetical spread is rolled monthly.
Over the past few days, volatility has exploded, but the decline in the Standard & Poors 500 Index ($SPX) has been muted. This is unusual, but not completely unprecedented. We’ll take a look at what this might mean for movement in the broad market, as well as why this is happening. As you might expect, there is more than one theory about what’s causing this aberration.