This article was originally published in The Option Strategist Newsletter Volume 10, No. 16 on August 23, 2001.
Almost every day, some technician is quoted as saying that market breadth is strong – and, by inference, that there is an underlying positive tone to this market. The indicator that is often used to demonstrate this is the advance-decline (A-D) line – the daily difference between advancing and declining NYSE issues. Of course, we see the same figures. There have been more advances than declines on quite a few days in the last year or so – especially the last eight months. Yet the market continues to struggle. So where is all this supposedly positive action?
A significant battle has developed between the bulls and the bears. There is resistnace at 2425 and support at 3310-3330. A closing price breakout from that range should be significant, especially on a close below 3280. Unless there is such a breakdown, the $SPX chart can still be considered to be bullish.
This article was originally published in The Option Strategist Newsletter Volume 14, No. 7 on April 15, 2005.
An “iron condor” (also sometimes simply called a “condor”) is the name applied to a rather basic strategy that has many adherents. In this article, we’ll define the strategy and give examples, but we also want to look at a possible way to improve upon the strategy by using a new product – $VIX options – which should begin trading soon.
The iron condor strategy is a fairly simple one – the sale of credit spreads both above and below the current (index) market price. Risk and reward are both limited, but rewards are more probable than the risks, assuming that all options are out of the money initially. Specifically, four striking prices are generally used, and thus the spread requires the payment of four commissions – making the strategy viable only for accounts with low commission costs.
Join Lawrence G. McMillan to learn why certain option data is useful in helping predict broad market movements. Larry McMillan will discuss the current state of those indicators. He will share why put-call ratios are powerful, contrary indicators with a good track record of market prediction. He will also discuss why volatility derivatives and indices are useful, especially in determining extreme oversold conditions and buying opportunities, and also in discerning the trend of the broad stock market. Lastly, Larry will touch on the current state of market breadth and how it relates to market prediction as well.
The selling that began on September 3rd has gained momentum, and as the market has declined, confirmed sell signals have been registered in several areas. There is one major roadblock for the bears, though, and that is that the chart of $SPX is still in an uptrend. In my opinion the support at 3280 is the one that needs to hold. If it doesn't, then the $SPX chart will have succumbed to a bearish pattern.
This article was originally published in The Option Strategist Newsletter Volume 8, No. 7 on April 8, 1999.
Statistics are used to estimate stock price movement (and futures and indices as well) in many areas of financial analysis. For example, we have written extensively about the use of probabilities to aid us in choosing viable option strategies. Stock mutual fund managers often use volatility estimates to help them determine how risky their portfolio is. The uses are myriad. Unfortunately, almost all of these applications are wrong! Okay, maybe wrong is too strong of a word, but almost all estimates of stock price movement are overly conservative. This can be very dangerous if one is using such estimates for the purposes of, say, writing naked options or engaging in some other such strategy in which stock price movement is undesirable.
This year has been a wild and crazy year in many respects – probably nowhere more than in volatility. That has manifested itself in the trading of $VIX. Over the years, we have sometimes described the seasonality of $VIX. As it turns out, it often follows a very similar pattern (although not completely this year). Moreover, in election years, the pattern is altered in a way that is, perhaps, developing this year as well.