« May 2020 »

IVolatility Trading Digest™

Volume 20 Issue 19
New Uptrend Underway [Charts]

New Uptrend Underway [Charts]- IVolatility Trading Digest™

Some readers will likely rejoice now that Rising Wedge no longer appears in the title since that risk quietly faded away like a passing shadow. The Market Review explains along with an updated chart showing a new upward sloping trendline.

Review NotesS&P 500 Index (SPX) 2929.80 added 99.09 points or +3.50% last week after turning higher last Monday ending the chance for the activation of a potential Rising Wedge. The updated chart below shows a new developing upward sloping trendline, USTL (without the upper and lower boundaries of the dismissed potential Rising Wedge.)


Included in the SPX, the large capitalization NASDAQ stocks represented by the Invesco QQQ Trust (QQQ) 224.86, gapped open higher and closed above its 50-day Moving Average on April 14, shown on the SPX chart above. Then as momentum in this well- known large capitalization ETF increased, the Energy sector joined in last week ending the Rising Wedge risk. Should it exceed the Fibonacci 62% retracement level at 2937, marked 62%, which seems likely, a new somewhat flatter upward sloping trendline will replace the one above.

Review NotesCBOE Volatility Index® (VIX) 27.98 dropped 9.21 points or -24.76% 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, slipped 9.14 points or -28.44%, ending at 23.00%.

The spike up to 77.15% on Monday March 16, the day SPX declined 324.89 points, will likely mark the top for this market decline. Despite job losses and demand destruction caused by COVID-19, the quick option implied volatility decline toward 20% reflects a sanguine view as restrictive measures ease.


VIX Futures Premium

This next chart shows as our calculation of Larry McMillan’s day-weighted average between the first and second month futures contracts as of last Friday.

With 7 trading days until May expiration, the day-weighted premium between May and June allocated 28% to May and 72% to June for a premium of 8.35% % well into the yellow neutral zone between zero and 10%, moving toward the green zone above 10%, much improved vs. week ending May 1, at -1.39%

The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month futures contract converges with the VIX at the next monthly futures expiration on Wednesday May 20.

The relationship of the futures curve to the VIX, as measured by the premium, makes a good real-time sentiment indicator.


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

Put Volume Indicator

Another indicator confirming bullish improvement, the Cboe reports total put volume for the week declined 21%, to 10.29 million contracts from 13.09 million contracts for the week ending May 1. This chart shows daily total put volume from January peaking at 5.63 million contracts on February 28, with a second on March 9, at 5.45 million and the third on March 12, at 5.51 million contracts.


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

Option Ideas

For ideas go to table Top 5 stocks by implied volatility change located in the Rankers and Scanner section on our home page at the right side.

Of the four sections, section three, the one with greatest implied volatility change shows the top 5 stocks on Friday that could represent those under pressure from COVID-19.

Here were the largest implied volatility changes on Friday.



As Rising Wedge risk to the S&P 500 Index declined last week, the rationale for maintaining SPY put spreads also declined. While the 62% Fibonacci ratio could create some resistance, a new upward sloping trendline appears more important thereby reducing the need for protective put spreads.

Although forward earnings multiples are approaching the highs of 2001, ample liquidity seems more important than valuation based on unknown future earnings as several large companies turned to a receptive debt market. In the contest between liquidity and valuation, liquidity has the upper hand. It's all about liquidity.


Last week, Invesco QQQ Trust (QQQ) and the Energy sector strength reduced the potential Rising Wedge risk to the S&P 500 Index as a new upward sloping trendline became the operative technical indicator accompanied by improving VIX futures and options conditions enough to consider the bear market ended last week without retesting the March 23 low.

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.

Here they were on Friday.

Apple (AAPL) IV Index call at 28 compared to 52-week range 17 to 90 on +14 strikes +1K contracts into reopening retail stores in Germany on May 11, Bloomberg reports

Roku (ROKU) IV Index call at 83 compared to 52-week range 38 to 196 on +10 strikes +300 contracts into release of quarter results and revenue outlook

Tilray (TLRY) IV Index call at 107 compared to 52-week range 51 to 293 on +9 strikes +1k contracts into release of quarter results, cash flow and capital outlook

Increasing unusual call option volume: LOGI EAT DISH
Increasing unusual call option volume: CS XLC RIOT

“The best volatility charts in the business.”

Next week the Market Review will include an update on the progress of the upward sloping trendline.

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

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
Please read IVolatility Trading Digest™ Disclaimer at the very bottom of this page

To add comments or to ask questions please click here (or use the blog "COMMENTS" link at the very bottom of the blog page).



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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".