fbpx Blogs | Option Strategist

Blogs

Is an Increase in Realized Volatility a Bearish Warning? (Preview)

By Lawrence G. McMillan

In our market commentary for the past few weeks, we have occasionally mentioned the fact that realized volatility (the 20-day historical volatility, say) of $SPX was very low and that a sharp increase in that volatility measure would not be good for stocks. This is somewhat akin to how we view implied volatility ($VIX) in that we are not too concerned when it is low, but do become cautious when it starts to rise. The difference in the two is that realized volatility is backward-looking, while implied volatility is forward-looking. On the surface, one might think that forward-lookingwould be better, except that we don’t know who’s doing the looking. Sometimes, $VIX seems to get distorted, so perhaps there are times when realized volatility could be a better measure.

The VIX/$SPX Trade (17:20)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 17, No. 20 on October 24, 2008. 

In recent weeks, one of the more profitable strategies has been the $VIX/$SPX hedged trade. We have recommended it several times in this publication, as well as in other newsletters that we write. Many of our readers have asked for more information on the strategy, as it is either new to them, or they haven’t tried to use if before. So this article will describe the strategy in detail – discussing its basic concepts, determining how many options to trade on each side of the hedge, and finally how to handle follow-up strategies.

VXX vs. $VIX (19:17)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 19, No. 17 on September 17, 2010. 

One of the main problems with commodity-based ETF’s is that they don’t necessarily track the underlying commodity very well. This is mainly due to the fact that the ETF is forced to trade the futures contracts, and there are times when it isn’t feasible for the ETF managers to roll from one futures contract to the next without making a “losing” trade that puts “drag” on the performance of the ETF vis-a-vis the spot index or commodity itself.

THE BASICS: Review and Explanation of Concepts: Implied Volatility (05:09)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 5, No. 9 on May 9, 1996. 

The concept of volatility, and especially implied volatility is extremely important for option traders. We often refer to implied volatility, for it is the foundation of many of our strategies. However, when meeting the public, I find that many people don't have a clear concept of what implied volatility is, so this article will be educational for some readers, and merely review for others.

Weekly Stock Market Commentary 8/2/2019

By Lawrence G. McMillan

Everyone was worried about the FOMC announcement this week, but it turned out to be benign. But, on Thursday President Trump tweeted that there would be more Chinese tariffs. Whether the market over-reacted to this tweet or whether there were just a lot of traders looking to lighten up, a torrent of selling was unleashed.

The Predictive Power of Option Premiums (03:10)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 3, No. 10 on May 27, 1994. 

We have, in the past, often written about the fact that options can be used to help spot "hot" stocks, such as potential takeover candidates. Option premiums tend to inflate and/or option volume tends to increase prior to a major fundamental news event concerning the stock. The reason for this, of course, is that "insiders" — those who have prior knowledge of the news, or at least have a very educated guess — buy options because of the tremendous leverage available from the profitable purchase of an option.

Option Trading: Theory vs. Practice (19:02)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 19, No. 2 on January 28, 2010. 

Over the years, we have written many times about the problems in predicting or estimating volatility. However, it is necessary to attempt the task, because it is so crucial in determining which (option) strategies can be used.

The 90 Percent Rule (16:14)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 16, No. 14 on July 27, 2007. 

What Is A “90% Day?”

A “90% Day” must satisfy two criteria: 1) either advances or declines comprise more than 90% of all issues that moved that day (unchanged issues don’t count), and 2) either advancing or declining volume was 90% or more of the sum of advancing and declining volume.

Weekly Stock Market Commentary 7/26/2019

By Lawrence G. McMillan

Stocks made new all-time highs again this week, overcoming some negativity from a few areas. That negativity remains, but the $SPX chart itself is strong, and so are the NASDAQ Composite and the NASDAQ-100 ($NDX; QQQ).

Early in the week, $SPX pulled back for a couple of days, making daily lows just above 2970. That is the first support area. Just below that is another support area, at 2950-2960.

Is Implied Volatility A Good Predictor of Actual Volatility? (09:02)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 9, No. 2 on January 27, 2000. 

The question posed in the title above is one that should probably be asked more often than it is. Somehow, it has become something of a consensus in the option trading community that implied and historical (actual) volatility will converge. That’s not really true – at least not in the short term. Moreover, even if they do converge, which one was right to begin with – implied or historical? That is, did implied volatility move to get more in line with actual movements of the underlying, or did the stock’s movement speed up or slow down to get in line with implied volatility? In this article, we’ll look at some examples of what really happens with respect to implied and historical volatility, and we’ll try to draw some conclusions regarding this comparison.

Pages

Option Strategist
Blog Search

Recent Blog Posts

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
Visit the Disclosure & Policies page for full website disclosures.

-->