Volatility

By Lawrence G. McMillan

The market, after some nasty downside fakeouts, finally staged the oversold rally that we – and many others – had been expecting.  In slightly less than an hour and a half, $SPX rallied roughly 80 points!  Earlier in the day, a rally had been underway also, but it was a nervous one as the market awaited the comments from the Fed after the FOMC meeting.

By Lawrence G. MCMillan

It is almost unfathomable to think that, exactly a mere two weeks ago, $SPX was at 1345 and there were thoughts that an upside breakout was possible.  Now, two weeks later, in a move that can only be described as panic, $SPX is at 1200 with no floor in sight.  Oversold conditions have ballooned to near-historic levels in some cases, but as the last few trading days have shown, "oversold" does not mean "buy."      

Theoretically, there is $SPX chart support in the 1180-1200 area from last November.      

By Lawrence G. McMillan

MORRISTOWN, N.J. (MarketWatch) — Heading into Tuesday, I didn’t think the market could act any worse, but it did. It’s almost impossible to fathom that the market was rising with improving technicals eight trading sessions ago.

By Lawrence G. McMillan

With the current uncertainty in the stock market, the $VIX index has once again received a lot of financial media coverage.  Last week we recommended the purchase of $VIX calls as a hedge for your portfolio.  We received numerous comments from people who took our advice but didn't seem to understand how $VIX options price.

By Lawrence G. McMillan

Suddenly, the stock market started to develop "religion" about the U.S. debt situation, and sold off sharply this week.      

In one sense, this is like any other "event" -- an FDA hearing or a potentially volatile earnings report: the underlying has trouble moving decisively in either direction until the event has passed.      

By Lawrence G. McMillan

There has been something of a “buzz” in volatility forums and in some media articles about a backspread strategy that is designed to take the loss out of using $VIX options for protection or speculation.  As you know, we are running a “perpetual call buy” strategy for long $VIX calls (Position S610).  Also, this week we recommended the purchase of $VIX calls as protection for stock portfolios, for those who were worried about what might happen in the event of a downgrade of U.S. debt or a failure to raise the debt ceiling.

Are you worried that the wrangling over the debt ceiling might become a crisis for the stock market?  A number of analysts are predicting dire results if the ceiling is not passed by the August 2nd deadline.  In fact, some say that even now it's too late to keep the U.S. credit rating at AAA.  I think the stock market as a whole is smart enough to discount these possibilities, and therefore such worries are probably overblown since the market is rallying, not plunging.

By Lawrence G. McMillan

Thursday's breakout upside move in the stock market has solidified the indicators together into a bullish posture. The chart of $SPX held onto a bullish picture even though the selling in the past two weeks was heavy at times. The 20-day moving average has been rising all along, and the index never closed meaningfully below that average

Equity-only put-call ratios have remained bullish, as they have continued to decline from their high peaks of a month ago.

By Lawrence G. McMillan

The market had a powerful showing Tuesday with the Standard & Poor’s 500 Index rallying 1.6% for the day. Market indicators suggest a potential 100-point rise in the index over the next few months.

By Lawrence G. McMillan

July $VIX settlement took place this morning.  The official settlement price was 19.10, just slightly below last night's $VIX close of 19.21.  All outstanding June futures and options contracts will settle at that price.  For example, if you own a July 20 put and didn't sell it prior to today, it would settle for 0.90 ($90 per contract), since it is 90 cents in the money (20 minus 19.10).