« May 2020 »

IVolatility Trading Digest™

Volume 20 Issue 20
Range Emerges [Charts]

Range Emerges [Charts] - IVolatility Trading Digest™

It seems last week's claim about the S&P 500 Index forming a new uptrend was premature. We got ahead of ourselves presuming it soon make a new high and redraw the upward sloping trendline. Instead when it failed to make a new high a potential double top pattern and range formed. The Market Review adds details along with a chart to help tell the story followed by Sorrento Therapeutics Inc. (SRNE) news.

Review NotesS&P 500 Index (SPX) 2863.70 declined 66.10 points or -2.26% last week after challenging the April 29 high on Monday before tuning lower Tuesday. Declining down to support at 2800 on Wednesday would create a potential double top should it close below the May 4 low at 2797.85. Early Thursday it looked as if the double top with a measuring objective (MO) at 2641 would activate. Then, it abruptly reversed and closed well back above 2800.


Support from big capitalization NASDAQ stocks represented by the Invesco QQQ Trust (QQQ) 223.27 helped turn SPX higher, forming a range between 2800 (blue horizontal line above) and 2955, the April 29 high (green horizontal line). The chart also adds the likely Elliott wave 3 at the March 23 low and wave 4 at the April 29 high, still defining a potential double top with its measuring objective at 2641 (MO above).

Review NotesCBOE Volatility Index® (VIX) 31.89 added 3.91 points or +13.97% 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, advanced 4.63 points or +20.13%, ending at 27.63%.

The spike up to 77.15% on Monday March 16, the day SPX declined 324.89 points, likely marks the top for this market decline.


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 just two trading days until May expiration, the day-weighted premium between May and June allocated 8% to May and 92% to June for a premium of 2.31%, just in the yellow caution zone vs.8.35%, for the week ending May 8.

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 comparison with 2019, this chart zooms in to start on January 4, 2019


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.

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.

SRNE in the top spot for both range and change on Friday.


Sorrento Therapeutics Inc. (SRNE) 6.76 up 4.14 points or +158.02% on Friday trading 507.6 million shares and more than 260 thousand option contracts on news of a possible COVID-19 treatment.


As markets respond to COVID-19 news, consider the possibility of a series testing the tops and bottoms of the range –from a potential double top to a potential triple top and perhaps more, until it finally breaks out and up or down to retest the March 23 low, and the much anticipated Elliott 5 wave bottom as the bears expect.

Well-defined trading ranges, such as the one for the S&P 500 Index between 2800 and 2955, provide easy definable action levels. On a close below the range, open new out-of-the-money protective put spreads should the S&P 500 Index close below the May 4 low at 2797.85. Alternatively, a breakout above the range will activate a new bullish upward sloping trendline.

In the meanwhile, liquidity and narrow credit risk spreads seem more important than price-to-earnings ratio valuation based on unknown future earnings.


After coming close to activating a small double top last week the S&P 500 Index supported by the large capitalization favorites in the Invesco QQQ Trust (QQQ), reversed higher last Thursday establishing a well defined trading range between 2800 and 2955. A close below the range should activate protective puts while a breakout above the range creates a new bullish upward sloping trendline.

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.

Special situation SRNE was included in both the unusual call and put volume categories on Friday.

“The best volatility charts in the business.”

Next week the Market Review will update progress of the newly formed trading range

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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