This article was originally published in The Option Strategist Newsletter Volume 16, No. 13 on July 13, 2007.
In this newsletter, over the years we have presented many methods for protecting a portfolio of stocks. Some are “ancient,” such as buying S&P 500 Index ($SPX) puts and some are “new,” such as buying $VIX calls. With the continuation of the bull market well into its fourth year (making it the fifth longest bull market in history – but not the fifth largest), many portfolio managers and individual investors are becoming concerned that a sharp correction may be more than just a remote possibility. As such, the topic of protecting a portfolio with derivatives has once again risen to the forefront. With that in mind, I wrote The Striking Price column in Barron’s this week, on this topic.
The market took a nasty turn downward at the beginning of the week, violating support levels. But that created oversold conditions, and a strong overold rally has followed.
Chart-wise, there is resistance at 2950 and 2980. There is a new support level, at about 2825 (this week's lows), and then below that at 2720-2730, the March and May lows.
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.
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.
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.
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.
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.
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.
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.
This article was originally published in The Option Strategist Newsletter Volume 16, No. 14 on July 27, 2007.
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.