The sale of a naked put is often a very attractive strategy – especially if the put is “overpriced” (although “overpriced can be a very subjective term). In this article, we’re going to look at some of the background on put writing, and then show a systematic way to select which puts are best to write. We’ll start out with equity put options and then talk about selling index put options later on.
The Standard & Poors 500 Index ($SPX) had a few bearish days, but managed to successfully test support near 2070 twice this month. $SPX remains within the trading range of 2070 - 2135.
The equity-only put-call ratios continue to generally trend sideways, which makes them neutral. Even though the standard ratio is trending slightly higher and the weighted ratio is trending slightly lower, neither is on a valid signal at this time.
Despite some indications this week that the market might break down, it did not do so. In fact, the Standard & Poors 500 Index ($SPX) held near the previous support level of 2070, thereby strengthening that level as market support. On the upside, there is resistance at the old highs of 2135, so $SPX remains locked in the 2070-2135 trading range.
Not much has changed in the market in the last week, with one possible exception: was yesterday's breakdown below near-term support significant, or was it just another meandering that will have no follow-through? Based on recent history, it's probably the latter (no follow-through). More than likely, we are still in a trading range for $SPX, between support at 2070 and resistance at 2135.
Due to both business and vacation travel this summer, we are going to alter the newsletter publication schedule for both June and July. This information supercedes the schedule stated in the previous issue of this newsletter.
There has been a rather large amount of hoopla about two new companion ETF’s that are designed to track the cash levels of $VIX – the CBOE’s Volatility Index. There have been articles on Bloomberg, Seeking Alpha, Barron’s, and Yahoo! Finance, not to mention the web sites of the principal’s involved: NASDAQ and Accushares.
$SPX remains stalled just below the all-time highs, which are at 2135. The support at 2070 (the lows of March and April) remains in place.
Equity-only put-call ratios are technically still on sell signals. But as you can see from Figures 2 and 3, they have been drifting sideways for a couple of weeks.
Market breadth oscillators gave sell signals prior to Tuesday's market decline. They remain on those sell signals, despite the broad market's attempt to recover.
The Striking Price column in Barron’s (May 4, 2015) discussed the fact that there are going to be weekly listed $VIX futures and $VIX options.
Everything is grinding to a halt in this market, and that is probably a sign that an explosive move lies in the not-too-distant future. $SPX has support at the old highs (2120). If that should fail, there should be a good support level at 2070.
Equity-only put-call ratios remain on sell signals, according to the computer programs we use to analyze these charts. However, if one looks at Figures 2 and 3, it is obvious that these ratios have just been trending sideways for the past few days.
