Thursday, December 23, 2010
Monday, December 13, 2010
-On 12/9, SPY broke out of my trading range 117.5-123 that I had forecasted for over three weeks. Problem is that I focused on predicting the future and being right, rather than recommending the best trades, especially when all my indicators turned bullish on 12/2. Here is SPY chart intraday.
Wednesday, December 8, 2010
- SPY still moving within a trading range 117.5-123, that I set forth on 11/17, but bulls have and are still testing the upper end of this range. I was able to sell the 124/126 call spread and 119/117 put spread for combined 0.86 credit yesterday.
-FVE Indicator's value is 17.3, while IV Index Mean according to IVolatility is 15.87 as of yesterday's close. Taking into account market's being closed on 12/24 and the current market bullishness, I'd say IV is close to fair value.
Wednesday, December 1, 2010
- All of the technical indicators did turn bullish today. Based on this, I would expect the probability of SPY moving up towards 123 to be higher than it moving down to 117.5. The Dec18 119/117 put spread closed at 0.51 and Dec18 124/126 call spread closed at 0.32. I would recommend selling 1 put spread and 1 call spread for combined 0.86 or higher.
- Although, based on my scenario and the FVE Indicator, yesterday was the ideal time to sell this spread. FVE indicator's value was 19.67 yesterday and 19.2 today, while mean implied-volatility was 20.4 yesterday and 17.94 today. Yesterday was the first time in two weeks where implied volatility was higher than FVE indicator's value.
Sunday, November 28, 2010
- Fair Volatility Estimate (FVE) indicator is my own creation, and I believe with it, I could contribute much to the study of markets, of volatility, and of technical analysis. But I am yet unsure of its potential because FVE was developed just this summer. I have been observing FVE Indicator's signals and commenting about the market for the past few months. So far, my observations based on FVE has been very accurate. Of all the technical indicators I use to gauge market energy and it's ever changing flow, FVE is the most valuable and unique.
-I have searched the internet to see if there were other indicators like FVE. VIX is the most similar, but VIX is calculated from options prices on the S&P500 index. FVE is very similar to VIX in that it mirrors VIX (0.988 correlation, variance on FVE 5.29, while variance on VIX is 5.72 for data Jan-Sep 2010), but FVE is calculated from the price of the underlying (SPY in this instance), and not the price of its derivative.
- Why is this relevant? First of all, I would like to think that the FVE could be used as a simple, alternative way to measure appropriate implied volatility (IV) level of options, specifically, at-the-money IV of SPY options. Implied volatility can be described as the expectation of future realized volatility of the underlying by the options market. Well, if everything is already reflected in the Price of the underlying (as technical analysis assumes), why couldn't we estimate the future volatility of the underlying from the underlying market itself? I believe technical analysis adds great value, but technical analysts don't pay enough attention to the importance of volatility. On the other hand, mentioning technical analysis to vol traders would make you instantly lose credibility. Why such divide? I believe that there is value in technical analysis, in volatility analysis, and in technical analysis of volatility.
- FVE offers three general trading rules:
1) for directional or delta traders, when FVE is above/below its moving average, look to go short/long delta, especially when FVE's value has reached around its highest/lowest levels.
2) for gamma (options) traders, when FVE is rising/falling and above/below its moving average, look to go long/short gamma, and even vega especially when FVE's value has reached around its highest/lowest levels.
3) for options market makers, when implied volatility of SPY at-the-money options are significantly above/below (greater than 2-3 points) be better seller/buyer of options.
Examples of trading strategy 3 is on 11/1 ahead of elections and Fed meeting, implied volatility on SPY at-the-money options reached 21, but FVE indicator's value was 17.1. This was a good time to sell options and indeed, IV levels plunged the next few days to below 16. Also, on 11/24, implied volatility of SPY atm options were 16.3, while FVE indicator's value was 19.2. This was a good time to buy options, and on Friday 11/26, implied volatility of SPY atm options soared to 19.3.
Thursday, November 25, 2010
-Despite some volatile up & down movement, SPY is moving as was expected back on 11/17/10, within a trading range, and given the environment of rising uncertainty abroad with improving economic fundamentals here in the U.S., I would think that the 117.5 - 123 trading range for the remainder of the year is the likely scenario.
-And perhaps, this scenario is what options investors are betting as the likely scenario as well, since mean implied volatility index is 16.43% versus 19.8 figure shown by Fair Volatility Estimate Indicator. Even when taking into account Thanksgiving holiday and the weekend, implied volatility seems low when compared to the way SPY is moving.
Wednesday, November 17, 2010
- SPY long position stop/loss triggered on Monday at open. Most of my indicators are in short-term bearish mode, but I see two scenarios of SPY moving for the remainder of the year, either moving within 117.3 - 122.5 trading range, or 115 - 122.0 trading range. Either way, since I'm expecting SPY to be range bound, the best trading strategy would be to use overbought/oversold indicators (like Stochastic Oscillator) that work best in trading ranges.
- A more sophisticated strategy would be to sell slightly out-of-the-money puts when Stochastic Oscillator turns up from oversold condition and buy at-the-money puts when it turns down from overbought condition.
-FVE indicator's value is 20.3 while SPY mean implied volatility according to IVolatility.com is 19. Because FVE is above it's moving average and higher than implied volatility, I would still be hesistant to short volatility.
Sunday, November 14, 2010
- It isn't often I post a technical snapshot of stocks other than SPY, but I wanted to share with you my technical analysis of AAPL, because the stock looks vulnerable to the downside.
Thursday, November 11, 2010
Saturday, November 6, 2010
- I'm glad to have followed my indicators and reentered long positions at 118.4 and 119.48, after having exited at 116.6. This market is exceptionally strong! That having been said, SPY is in very overbought territory, so I'll be vigilant about seeing any bearishness in the indicators.
-Implied volatility has dropped to 16.4, which is closer to FVE value of 15.3. Both values are at very low levels, so I'd be vigilant as well about developments in the market that could spike volatility back up. I'd not be adding to existing short gamma/vega positions.
Wednesday, November 3, 2010
-SPY continues to move within rising channel. Added to Long position by buying 45 shares of SPY at closing price of 119.48 on Tuesday. All technical indicators still pointing to bullish market.
-FVE indicator crossed back below moving average on 11/1, once again reaffirming the likelihood that implied volatility was going lower after rising ahead of the uncertain election results and FED announcement.
-Stop/Loss is now intraday price of 117.8 or closing price below the trendline support, which is currently 118.35 level.
Sunday, October 31, 2010
-The question I have to ask myself is whether I am going to add to my long position or exit out of my call spread. At this moment, it is tough to call. Technical indicators are still in bullish territory, although the bullish energy seems to have weakened once again.
-I would look to add if SPY closes above 119.2 and exit out of my long call spread should SPY close below 116.9.
Sunday, October 24, 2010
-I have to admit, in hindsight, my profit/stops were too tight. The biggest problem with having profit/stops that are discretionary without having concrete rules for reentry is that one could miss out on a monster trend.
-I thought SPY would go through a price correction last week, but SPY continues to rise. I was stopped out at 116.6, but SPY closed the week at 118.35. If I get back long SPY and prices fall, I would feel like an idiot, but on the other hand, if I chose to sit this market out, but SPY continues to rise I would feel even worse.
-All of my technical indicators are telling me to get back long the SPY again. Only the Future Volatility Estimate is telling me that the probability of a price decline is increasing. And because implied volatility on options is cheap, I would recommend buying 1 SPY November 117 call option and selling 1 SPY Nov 121 call option for 2.10 or less. This way, we would get some participation to the upside, but limiting our downside to $210.
Tuesday, October 19, 2010
-SPY undergoing price correction, just as I expected from my posting over the weekend. My technical indicators were and still are showing that the bullish momentum is losing its strength. However, I would not be looking to short this market, but rather wait and see for how long and how much SPY prices correct.
-I would look to go long 1/2 position again should SPY fall to 115.0, but perhaps a better rule would be to wait a few days until stochastic oscillator turns up from low levels.
-FVE indicator has crossed above its moving average, so I would not be looking to short volatility at this time.
Sunday, October 17, 2010
- Linear Regression Slope has started to turn down. Fair Volatility Estimate has started to move up and Stochastic Oscillator has started to turn down as well. So my technical indicators are signalling the rising probability of a price correction in SPY.
-However, SPY is still in a very strong uptrend, and we don't want to get off this ride. I'm moving my profit/stop level to 116.6 and would consider getting long again around 115.0
Tuesday, October 12, 2010
Wednesday, October 6, 2010
- In hindsight, 113.9 may have been too tight of a profit/stop to take off 1/2 our position, but that's what my trading rules suggested. SPY has remained very strong, longer than most investors would have anticipated. My feeling is that if you have riden this tremendous run from start of September, now may be a good time to take some profits, but I would still maintain a bullish position.
- Linear Regression Slope, FVE, and Stochastic Oscillator indicators are still bullish, while surprisingly, the Volatility Signal indicator remains in bearish territory. I'm moving up my 2nd profit/stop level to 112.8.
-The FVE indicator has remained in a downtrend since 8/25, correctly instructing us not to have been long volatility all this time.
Thursday, September 30, 2010
Tuesday, September 28, 2010
- SPY bounced off near trendline support this morning. All indicators are still in bullish territory, except for Volatility Signal. However, all indicators are a little "off" because of 0.60 ex-dividend on 9/17. Nevertheless, it is only natural that SPY cannot continue its torrid pace of ascent.
- Therefore, I'd suggest moving profit stop up to 113.18 and 111.8. If SPY is to continue rising, I'd have to think financials and other laggards would have to start rising.
- FVE is 18.8 and implied volatility on SPY is 20. I'd be neutral vol at this moment because the probability of a price correction is getting higher.
Friday, September 24, 2010
- Durable Goods Orders and German Business Sentiment helped boost the market in early trade. This market is very strong based on the speed and duration of ascent from the most recent bottom of 104.5. Just look at AAPL, AMZN, NFLX, FCX that are leading the market.
- Having said that, yesterday's low of 112.18 gives us a reference to draw a trendline, and I would use this trendline as my first profit stop/limit. Second profit stop/limit is being raised to 111.9.
- Fair Value Estimate Indicator is 19.6 and SPY IV which was creeping higher last few days is now at 19. FVE indicator is, however, above its moving average. Whether this continues in the next few days is uncertain, but should prices break below profit stop levels, we may want consider going short at those levels as well.
Tuesday, September 21, 2010
Friday, September 17, 2010
- I had named the FVE indicator previously as the Estimated Future Volatility Indicator, but that is not appropriate. The correlation of my FVE indicator value to actual implied volatility data is 0.9115. If we offset implied volatility data 1 day forward, the correlation declines to 0.8799, 2 days forward the correlation is 0.8523, while 1 day backwards correlation is 0.9196 and 2 days backwards is 0.9079. So, the FVE indicator is not a predictive indicator of future implied volatility. But I believe the FVE indicator is a good measure of what implied volatility "should or may be"...and of course, implied volatility on options implies what options market is expecting future realized volatility to be.
Thursday, September 16, 2010
Monday, September 13, 2010
Thursday, September 9, 2010
- SPY is in the midst of a very quick move upwards. I'd have preferred SPY move sideways this week before breaking above trendline resistance. SPY is 111.2 level at this moment, and there is always the chance that today's intraday breakout is false and we'll close below the resistance trendline, but all indicators are pointing to probability that SPY would move higher.
- I would buy the remaining 1/2 long delta position 111.2. 109.5 would be my 1st stop/loss consideration. 108.5 would be where I get out of all current long delta position.
- EFV value is 20.3 and SPY implied volatility is 20.
Wednesday, September 8, 2010
Friday, September 3, 2010
Wednesday, September 1, 2010
- SPY opened above the short-term channel lines, which was signal to buy-in short position at 106.70. Position entry was at 110.50 so 3.8 points profit plus 1/2 position bought in at 104.5 and resold at 106.5 for an extra 1 point profit.
- SPY level 107.8 - 108.8 are resistance levels. Half the technical indicators are showing bullish signals, half still bearish so no positions at this moment.
- Implied Volatility on SPY has fallen to 23, which is now more in line with EFV value at 22. My short options bias was correct when SPY IV was at 27.
Monday, August 30, 2010
-SPY has rebounded to near the top of the short-term falling channel, which is currently around 107.3. There are may economic indicators to be announced this week which could determine whether the overall market would continue its fall, or establish a new pattern by breaking out of the well-defined channel. I would put back on the short position that I recommended to take off when SPY was near 104.2. However, I would take off the entire short position should SPY close above 107.6.
-Technical indicators for the most part are still bearish, but EFV is below its moving average which is bullish and Linear Regression Slope, while still below zero, is above its moving average as well. Implied Volatility on SPY is 24.
Wednesday, August 25, 2010
-All indicators are confirming that a Trend (down) has taken form. The rule is to follow the trend, but I would be inclined to take some of the bearish position off at around 104.2 and look to add it back on at higher SPY levels. Of course SPY could keep falling, but prices do not go into freefall without a clear and present shock. Fears of a double-dip recession are real and currently has a strong hold on the markets, but this plays itself out over a longer-time period.
-Implied Volatility on SPY has risen now to 27, compared to EFV indicator's value of 24. I would tilt my bias to start shorting options, but not aggressively...yet.
Tuesday, August 24, 2010
Friday, August 20, 2010
-All indicators pointing to high probability of further price declines in SPY. 1) Linear Regression less than 0 and below its moving average. 2) Volatility Signal less than 50 and declining. 3) Estimated Future Volatility Indicator above its moving average. 4) MESA Sine Wave crossed below MESA Lead Sine Wave. 5) MOST NOTABLY, Stochastic Oscillator crossing below its moving average without having risen to overbought levels.
- Current bearish view since SPY opening price of 110.65 on August 11 continues. New short-term trendline drawn to show profit stop of 109.65 as of today's date.
- Estimated Future Volatility Indicator's value is at 24.22 vs. Implied Volatility level of SPY at 25
Tuesday, August 17, 2010
-SPY is currently at 109.01. First resistance level is 109, second resistance level is 110.0. After sharp declines early last week, SPY has shown little movement up or down.
-All indicators are still showing that risk is to the downside. Estimated Future Volatility Indicator is at 24.5, still above it's moving average but lower than the previous day's value. Implied Volatility on at-the-money options for SPY is at 24.
-Still bearish, neutral vol.
Thursday, August 12, 2010
Wednesday, August 11, 2010
Tuesday, August 10, 2010
Friday, July 30, 2010
Monday, July 26, 2010
Wednesday, July 21, 2010
- On July 12, FTC Issues Report on Reforming Debt Collection Litigation and Arbitration; Recommends Steps to Protect Consumers and Repair a Broken System (http://www.ftc.gov/opa/index.shtml).
Legislators pledge to fix state's 'broken' debt collection system (http://www.startribune.com/investigators/98380794.html) in Minnesota. Massachusetts Senate passes debt collection measure (http://www.boston.com/business/personalfinance/articles/2010/07/21/senate_passes_debt_collection_measure/). More and more states are likely to introduce legislation giving consumers more protection against debt collectors.