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Today’s late day sell down did not evolve into the serious selloff bears have been holding out for. However, it was certainly a good sign for all the shorts out there. Believe me, there are a lot of them. The major indicator I am looking at is that ALL of the IV indexes are in the positive today, mean while all of the major indexes are also in the green. This is a classic contradicting signal. Could this be a sign that the market is setting up for a sell off. As I stated last week these things normal do signal a few red days.

Incidentally, I did some thinking about why the RUT had the contradicting signal of the RVX being up last week while the RUT rallied while all of the other indexes had falling IV’s. I’m guessing there were two factors:

1. The RUT ended up moving more than all the other indexes

2. The RUT had been already been cheap in IV terms relative to the other indexes

This combo produced an index that had the volatility, but not the direction. Thus, the RUT ran up instead of down.

Today when we look at the markets, I see a straight set of contradicting signals. I am not certain we will sell off, but the numbers are lining up for it. Here is todays RUT:

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Popularity: 8%

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on March 9, 2010

Afternoon Turnaround?

2 comments

Written by Mark SebastianTopics - Trades

After several of the indexes were up almost a full standard deviation mid-day, the markets have turned around this afternoon. Based on the look and feel of the turnaround would not be shocked if we ended up in the red and the IV indexes ended up somewhat very green.

I bought more of the RUT 670 straddles, this time for 15.60. Heck if I liked it at 16.00 I loved it for 15.60. Here is the chart:

RUT Straddle



Keep coming back for more updates!

Popularity: 29%

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on March 9, 2010

HAPPY ANNIVERSARY US EQUITY MARKETS!!!!

4 comments

Written by Mark SebastianTopics - Trades

It has been exactly one year since the markets bottomed out after the disaster of 2008. Since March 9th, 2009 the SPX is up over 70%, the NDX 81% and the RUT is up almost 97%. In that time as many of you know the volatility indexes have been completely crushed. The VIX, VXN, and RVX are all down around 65%. The 3 years since about the summer of 2007 have been very turbulent. The SPX went from all time highs unbelievable lows and part of the way back.

The Pink is the SPX, the RUT is the Blue

This is a great lesson in risk management. Many traders understand and know they can ‘win the war.’ Meaning, in the end most traders opinions end up being right at some point. What ends up killing many traders are the battles in that war. The market does not follow a given path and does not need to move one direction or another. Often the markets will defy logic for an extended period of time. The key is not to let these battles in the markets (i.e. the NDX up 10 days in a row). From the day the market began to rally one year ago today, person after person was telling me that the market can’t keep going up. My response over and over and over again was…..YES IT CAN (you’d think I love the President wouldn’t you).

As far as the market go right now the ATM straddles are relatively cheap compared the put and call skew. Call skew is somewhat sharp (I think this has to do with covered shorts) and put skew is even sharper (this has to do with covered longs). In order to get a feel for skew, I like to compare the ATM IV to the underlying’s volatility index. For instance, right now the VIX is at 17.90, the SPX April 1140 ATM IV is 15.80. Thus, the spread is a 2.10. I have seen this spread get close to 1 when implied vols are high; I have also seen this go well over 4. While 2.10 on its surface isn’t high, we have to remember that the VIX is near its 1 year low, thus 2.10/17.90 become a much larger number in relative terms. Thus, if I was going to get short premium today (and I am not sure I would) I would want to sell wing IV and buy ATM IV. Some sort of ratio spread might make sense.

I am looking to possibly buy more RUT straddles (I liked them at 16, I should LOVE them at 15.50, right?)

Popularity: 42%

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Win Streaks A Plenty! RUT selection Discussed

The indexes continued their win streaks again today. The NDX has been up 9 days in a row, the RUT 7, the SPX technically had their win streaks end today, but, I for one am not counting a -.2 in the SPX a win for the bearish traders. Since the NDX win streak [...]

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Long Rut Straddle, Forums Re-Opened

With the RUT trading below at 16 dollars I finally decided to jump in. I bought 1 RUT 1670 in my live account (I will not be discussing that trade). Then I went in and bought 10 of the 670 straddles in the Option911 paper account. Considering the market moved more [...]

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Morning Comments RUT still low. VIX and VXO make sense

The market IV indicators are reading up so IV must be up right? Not necessarily, as we all know there is a built in pop in the VIX, VXN, RVX, and VXO on a Monday morning. That said there are a few things that traders should be noticing today. RUT and NDX [...]

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How much is IV really down today?

There are three components affecting the VIX after the employment report.
1. There is more certainty in the market place. This is responsible for some of the drop in the VIX. This number is very hard to determine, but I am going to try using deduction.
2. As the market has rallied the [...]

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Relative Value of the RUT, SPX, and NDX-no news on CROX

With the employment report due out tomorrow it is no surprise that the IV in the NDX, the OEX, and the SPX were relatively constant. What confuses me is why RUT implied volatility got hammered so much. Despite being the “whippiest” of the indexes, the RVX-VIX spread and the RVX-VXN spread are at [...]

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Guess who got a column at SFO, Market Talk, CROX update

That is right option911 readers! Starting March 11th you traders can find my bi-weekly column at SFO Magazine. I will be talking about that day’s option activity as well as general market trends. It will be a different approach to what i write here, but I promise my readers will enjoy it.
The Markets [...]

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RVX Contrary Signals an official Confirm? CROX Trade

There was a period today where I thought my whole premise of yesterday’s post may be incorrect. I pointed out yesterday that the RVX was predicting an up-in-coming RUT selloff. At the point of my greatest doubt the RUT was up several points and the RVX was off over half a percentage point. [...]

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