« June 2019 »

IVolatility Trading Digest™

Volume 19 Issue 24
Top 5 [Charts]

3 Top 5 [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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The S&P 500 Index stalled out last week just above the 50-day Moving Average in narrow trading ranges on lower volume and will likely remain subdued awaiting news of a possible Trump meeting with Xi Jinping at the G20 in Osaka Japan on June 28 and 29. Until then equity market volatility will likely decline modestly while options implied volatility will likely remain somewhat elevated and may even increase further. In the meanwhile, we turn our attention to Friday's Advanced Ranker results looking for trade ideas; detailed below right after our regular Market Review.

Review NotesS&P 500 Index (SPX) 2886.98 nudged up 13.64 points or +.47% last week, floating along the top of the 50-day Moving Average on lower than recent volume suggesting diminished enthusiasm by both the bulls and bears although hedging activity increased as shown in the put volume and open interest charts below.


With total open interest of 17.6 million contracts puts represent 11.4 million or 65% of the total, at the highest level in three months. This suggests large institutions and funds are increasing their long stock hedges.

VIXCBOE Volatility Index® (VIX) 15.28 slipped 1.02 points or -6.26% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, drifted lower .59 points or -4.21% to end at 13.43%. Here are the IVXM and SPX charts.



If the new normal is close to 10% then options implied volatility remains modestly elevated and consistent with increasing hedging activity.

VIX Futures Premium

The chart below shows as our calculation of Larry McMillan’s day-weighted average between the first and second month futures contracts.

With just 2 trading days until June expiration, the day-weighted premium between June and July allocated 10% to June and 90% to July for a 9.26% premium vs. 4.78% for the week ending June 7, well out of the red zone and into the caution zone between zero and 10. Next week will be more important when July becomes the front month.


The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month future converges with the VIX at expiration on Wednesday June 19.

For daily updates, follow our end-of- day volume weighted premium version located about half-way down the home page in the Options Data Analysis section on our website.

Big Data? In options we are Big Data!
For a comprehensive review and reminder check this out
Options: Observations of a Proprietary Trader  

Top 5

As a reminder for those looking for trading ideas and may not be familiar with our website. We offer several ideas as a regular feature not requiring a premium subscription located in the “Rankers and Scanner” section, about half-way down our home page. First, is a link to the “Top 200 stocks by volume/open interest” and then the “Top 5 stocks by implied volatility change.” Clicking on the second link shows an Advanced Ranker Sample of the top and bottom five stocks in four categories.

Here are three of those categories as of Friday.




The first table sorts all the underlying securities in our database by their Implied Volatility to Historical Volatility ratios (IV Index / HV ratio ) listing those with the highest ratios in the right column.

A high IV/HV ratio is the first alert that something unusual is happening as options prices are being bid up to abnormal levels. From there a little more investigation will usually provide answers as to the likely reason.

Kroger Co. (KR) 24.26 at the top will be reporting earnings on Thursday June 20 before the opening. When they last reported on March 7 the stock gapped lower by 12.3%. The second table shows KR at the top again with an IV Index Hi/Low Indicator (1..0) at 1.00 meaning the implied volatility index mean at is the highest in the last 52 weeks, shown in the third column. The first column shows the IV Index Mean at 46% and the second has the range used to calculate the 52 week position.

After gapping lower on the last report expectations are to the downside once again, with put volume exceeded call volume by 5 times and put open interest is well above call open interest . The implied volatility index for the June 21 options that expire the day after KR reports are twice as high as the July 19 options, about 84%, so strategies short the July 21 options and long July 19 options such as calendar spreads are attractive, but come with gamma risk if the stock makes a large move as it did on March 7. When IV/HV ratios increase above 2.00 it suggests increased gamma risk. Check the IV/HV ratio near the close on June 19.

BlackBerry Ltd. (BB) 8.55, number two in both of the top tables. Scheduled to report earnings on May 26 before the opening. Since the stock jumped up on high volume in the last 5 days, perhaps information about the upcoming report has leaked. After adjusting the Historical Volatility to the Parkinson's range method the ratio is 2.12 with the June 28 options having implied volatility about 80 compared to 60 for the July 19 options. This time call option open interest exceeds put open interest. Consider long calendar spreads or long call spreads.

Hertz Global Holdings, Inc. (HTZ) 17.57, number three in the top table and number one in the bottom table showing the greatest IV change from yesterday. Here the IV/HV ratio is closer at 1.50 and since their next earning report is scheduled for August 5, the recent activity is unrelated to earnings. On Thursday they announced a complicated rights offer for June 24 and with 25% of the float sold short both call and put volume along option prices have increased dramatically as traders, hedgers and other interested participants attempt to determined the effect of the rights offer. This one belongs on the wait and see list.

There is a story for each of the underlying issues in the tables above and this is just three examples using our complimentary “Top 5 stocks by implied volatility change” as a source for trading ideas located on our website every evening updated about 8:00 p.m. New York time.


From a technical perspective the S&P 500 Index should continue higher and soon test the previous May 1 high at 2954.13, but will likely stall until after the end of the month when more is known about a possible meeting with Trump and Xi Jinping.

Market breadth measured by the McClellan Summation Index gained every day last week adding 134.19 points conforming an upward bias, although the important transports are lagging due to declining trade volume.


The S&P 500 Index along with other major indexes will likely remain in narrow ranges on low volume until after the G20 summit in Japan on June 28 and 29, although option implied volatility remains elevated it will likely increase as traders take positions anticipating China trade news. In the meanwhile, opportunities are always available in selected individual stocks and ETFs.

Twitter Follow us on twitter for more ideas from our scanners and other developments.

Actionable Options™

We now offer daily trading ideas from our RT Options Scanner before the close in the IVolatility News section of our home page based upon active calls and puts with increasing implied volatility and volume.

“The best volatility charts in the business.”

Next week will feature our regular Market Review along with an update of the Commitment of Traders report for WTI crude oil.

Finding Previous Issues and Our Reader Response Request


All previous issues of the Digest can be found by using the small calendar at the top right of the first page of any Digest Issue. Click on any underlined date to see the selected issue. Another source is the Table of Contents link found in the lower right side of the IVolatility Trading Digest section on our website homepage.

CommentAs always, we encourage you to let us know what you think about how we are doing and what you would like to see in future issues. Send us your questions or comments, or if you would like us to look at a specific stock, ETF or futures contract, let us know at Support@IVolatility.com or use the blog response at the bottom of the IVolatility Trading Digest™ page on the IVolatility.com website. To receive the Digest by e-mail let us know at Support@IVolatility.com




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IVolatility Trading DigestTM Disclaimer
IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter constitutes a recommendation to buy or sell any security. Before entering a position check to see how prices compare to those used in the digest, as the prices are likely to change on the next trading day. Our personnel or independent contractors may own positions and/or trade in the securities mentioned. We are not compensated in any way for publishing information about companies in the digest. Make sure to due your fundamental and technical analysis homework along with a realistic evaluation of position size before considering a commitment.

Our purpose is to offer some ideas that will help you make money using IVolatility. We will also use some other tools that are easily available with an Internet connection. Not a lot of complicated math formulas but good trade management. In addition to Volatility we use fundamental and technical analysis tools to increase the probability of success and reduce risk. We prepare a written trade plan defining why the trade is being made, what we call the "DR" (determining rationale) and the Stop/unwind, called the "SU".