This article was originally published in The Option Strategist Newsletter Volume 16, No. 20 on October 25, 2007.
We have seen a renewed interest in how the $VIX settlement price is computed, as it pertains to expiring $VIX futures and $VIX options. Most of this interest has come from people who feel that they may have been “duped” by a somewhat biased settlement of $VIX. This is a false notion, fostered by the fact that $VIX has often “jumped” or “gapped” from its close on the last trading day (a Tuesday) to the morning settlement price (on Wednesday morning).
This article was originally published in The Option Strategist Newsletter Volume 8, No. 19 on October 14, 1999.
There is a seasonal strategy that we use each year, and the time is drawing nigh to implement it once again. The strategy is a simple one, and it is this: buy the S&P 500 Index at the close of trading on October 27th of any year (or on the preceding Friday if Oct 27th falls on a weekend). Sell your purchase at the close of trading on November 2nd (or on the following Monday if Nov 2nd falls on a weekend). This year, both of those days are days on which the market is open.
The major indices all broke down this week, as the accumulated pressure that had been building up finally was released after a poor economic survey. There is resistance at the old highs (3020-3025) and now at 2940, where the breakdown took place. There is support at 2825, and then at 2720.
Both equity-only put-call ratios rolled over to sell signals. They are now trending higher and, as long as that is the case, these sell signals will remain in place.
..The equity-only put-call ratios have both rolled over to sell signals. As we have pointed out, the standard ratio started moving higher a few days ago, but the weighted ratio just turned upward in the past two days. The computer analysis programs did not confirm sell signals from either ratio until after the close on October 2nd. So, these are “fresh” sell signals. The computer analysis was influenced by the fact that some rather large numbers were coming off the 21-day moving averages of these ratios, but as it turned out even larger numbers came onto the averages, and they rose anyway – eventually setting off these sell signals...
This article was originally published in The Option Strategist Newsletter Volume 2, No. 9 on May 13, 1993.
Covered call writing is not one of our normally recommended strategies, because we prefer ratio writing or the equivalent, since it is a more neutral strategy. However, covered writing is a strategy practiced by many option investors and therefore is a topic worthy of discussion. In this article, we will approach this subject from a slightly different, more sophisticated viewpoint: we will compare the covered call write with the sale of a naked put. In addition, we'll see how this comparison leads us to conclusions regarding neutral strategies such as ratio call writing or straddle and combination selling.
Stocks have struggled a bit over the past week, but not to any great extent. Support has held in the 2950-2960 range. That has preserved the bullish gap on the chart that extends down to major support at 2940. If $SPX were to close below 2940, that would be a direction-changer, from bullish to bearish. But so far, it hasn't even been tested.
It turns out that the strange behavior in $VIX9D on Monday, when it was down –4.85 while $VIX and other CBOE Volatility Indices, as well as $SPX, were relatively unchanged was due to a computer malfunction at the CBOE. Yesterday morning, when the market was still rather stable, $VIX9D was up almost 4 points, with $VIX again relatively unchanged; the computer error had been corrected. I don’t know if there well be an updating of the Monday prices for $VIX9D, but probably not. So, anyone using $VIX9D as an indicator or as part of a trading system should be aware that Monday’s prices were erroneous...
Yesterday, the 9-day Vol Index dropped from 14.68 to 9.83! This was not some arithmetic quirk with expiring options or a holiday or anything like that. This was a true drop in the price of near-term $SPX options. $VIX9D is based on the Sept 27th and Oct 4th expirations. $SPX was essentially unchanged yesterday (down 23 cents). Here is what happened to the at-the-money put – the 2990 strike:
Once $SPX broke out over resistance at 2940, especially considering that it was a strong gap breakout, it has not looked back. There was a slight consolidation in the 2960-2980 range, and now the Index is apparently on its way to challenge the all-time highs at 3025. The chart will be bullish as long as $SPX continues to close above 2940.
Equity-only put-call ratios continue to drop and thus they remain on the buy signals that were generated in late August.