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Weekly Stock Market Commentary 7/5/2019

By Lawrence G. McMillan

The S&P 500 Index ($SPX) has made new all-time closing highs on the last three days. Other indices are following most notably the Dow ($DJX) and NASDAQ (QQQ and Composite).

There is support on the $SPX chart at the old highs (2940- 2950) and below that, where there was more work done, at 2890- 2910.

The equity-only put-call ratios remain strong and on buy signals, as those ratios continue to drop rapidly.

The Dual Calendar Spread (A Strategy for a Trading Range Market) (11:06)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 11, No. 6 on March 29, 2002. 

As this stock market continues to trade in a wide range, it is becoming more and more frustrating to all manner of participants – whether they be traders, investors, or option speculators. While I don’t claim to have done a thorough survey of a broad array of traders, I can tell you that the frustration is evident among those that I have spoken with. They include day traders, short-term traders, mutual fund managers, and investment advisors (newsletter writers). About the only ones who seem to be happy (but they are nervous) are naked option writers. They have been making money – as long as the striking prices of the written options are outside of the trading range – but they recognize (at least the smart ones do) that with volatility this low, a price explosion is possible at any time (hence, their nervousness).

Span Margin (1:13)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 1, No. 30 on June 25, 1992. 

Futures option margin requirements for customers are generally more logical than equity or index option requirements. For example, if one has a conversion or reversal arbitrage in place, his requirement would be nearly zero for futures options, while it could be quite large for equity options. Moreover, futures exchanges have recently introduced a better way of margining futures and futures option portfolios -- the SPAN system (Standard Portfolio ANalysis of Risk). SPAN is designed to determine the entire risk of a portfolio, including all futures and options. It is a unique system in that it bases the option requirements on projected movements in the futures contracts as well as potential changes in implied volatility of the options in one's portfolio. This creates a more realistic measure of the risk than the somewhat arbitrary requirements that were previously used (called the "customer margin" system) or than those used for stock and index options.

Weekly Stock Market Commentary 6/28/2019

By Lawrence G. McMillan

$SPX pulled back this week, partly because the market was overbought and also because the week after June expiration is a seasonally weak week. So far, it's just a normal pullback, with support at 2890-2900.

Equity-only put-call ratios remain strongly on buy signals. Their downward trajectory was not even fazed this week, as they held steady to their buy signals even while $SPX corrected a bit.

Using Futures Options To Hedge Your Loss (02:01)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 2, No. 1 on January 7, 1993. 

The real value in being able to use the options when a future is locked limit up or limit down, of course, is to be able to hedge one's position. Simplistically, if a trader came in long the August soybean futures and they were locked limit down as in the above example, he could use the puts and calls to effectively close out his position.

THE BASICS: Review and Explanation of Concepts CREDIT SPREADS — What's the Attraction? (04:07)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 7 on April 13, 1995. 

Credit spreads using options are a popular strategy. In this article, we'll define them, see how they work, and attempt to assess their true profitability. They have been growing in popularity recently, partially for the wrong reasons, as we will see later in the article.

The Seasonality of Volatility (Preview)

By Lawrence G. McMillan

There is a seasonality to volatility that has persisted over the years. Not every year is the same, of course, but the general pattern is similar. This can sometimes be useful in helping one determine whether to expect increasing or decreasing volatility during the life of positions that are being established.

Weekly Stock Market Commentary 6/21/2019

By Lawrence G. McMillan

The prospect of lower rates in both Europe and the U.S. has driven the market into a bullish stampede, as it seems to be on a massive "high."

There should now be support on the $SPX chart at 2890-2900, the area which was most recently overcome as resistance. Below there, it's a sharp drop down to the major support at 2720-2730 (the March and June lows). There is no formal resistance, since we are trading at new all-time highs.

All Indicators on Buys with Market Hitting New High

By Lawrence G. McMillan

The stock market ($SPX) is opening at new all-time highs this morning, fueled by a very euphoric response to perceived rate cuts coming in both Europe and the U.S. That doesn’t seem like a recipe for long-term market success, but we are concerned with how the indicators look, rather than trying to predict what a small group of central bankers might do.

The Hazards of Buying Expensive Options (10:09)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 10, No. 9 on May 10, 2001. 

Most option traders understand that it is advantageous to buy “cheap” options. Unfortunately, most don’t cite any specific reasons why, other than the general “retail” concept that it’s better to buy something cheap than something expensive. Ironically, in the option markets, that’s not always true. There are times when buying expensive options is actually a “good” thing to do. But one must recognize that those occurrences are infrequent, and he must have a specific knowledge of what he can expect to happen to his position if he has stumbled into one of those more frequent times that expensive options are harmful to his profits.

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