Here’s a table that was printed on Bloomberg this week. It shows the percentage of equity options and index options (and total) that each U. S. Option exchange trades.
I thought we’d take a look at one of these covered writing ETFs that did not have to do with such volatile things as Bitcoin or AI. TSLY, the one on Tesla (TSLA) immediately came to mind. This might have been the first such ETF that was issued by YieldMax. It was launched in November 2022 and began paying dividends in January 2023.
We wrote an article last week regarding the Microstrategy (MSTR) covered writing ETF (MSTY). The only addition there is to that information right now is that we observed their action regarding rolling the call credit spreads that are expiring today. Mostly, they waiting until later in the week, and then rolled out just one week – resetting the strikes slightly in most cases. These rolls took in considerable credits.
The inauguration of President Trump seemed to spur the market this week, after a strong rally the previous week. $SPX has now advanced well over 300 points since its upward reversal on Monday, January 13th. In doing so, it has left three gaps on its chart. Short- term gaps like that are often closed fairly quickly, but the momentum is strong now. Another close above 6100 today would be a two-day confirmation of the new upside breakout.
The January seasonal trade is usually one our best seasonal trades (right behind the October seasonal). Typically, large fund managers will put money to work at the beginning of the year (hence, the positive seasonality of the January early warning system), and then complete their buying at the end of the month.
We have had some requests for more information on these types of ETFs, so here is the first attempt to answering those requests. In the last couple of years, several new ETFs have come to market that essentially write calls against a popular, volatile stock. The ETFs are not all constructed the same way, although there is a basic format to begin with. Sometimes, variations are made if the performance of the underlying stock is exceptional.
Much of what is written below was written a year ago, when the Santa Claus rally also produced a loss. At that time, $SPX rallied immediately from there and never looked back. But the analysis is still valid.
When the typical Santa Claus Rally seven day trading period produces a loss, it is generally a short term problem for stocks. This was stated, poetically, by the system’s creator, the late Yale Hirsch: “If Santa Claus should fail to call, bears may come to Broad and Wall.”
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The new trend of $VIX buy signal is the third one in the last year. The $VIX chart from Figure 4 is reproduced here, without the “spike peak” buy signals, so we can discuss these trend of $VIX signals.
First some background: a trend of $VIX buy signal occurs on the first day when both the 20-day Moving Average of $VIX and $VIX itself are below the 200-day Moving Average. Conversely, on the first day that they are both above the 200-day MA, that is a sell signal.
