What happened to the most popular 50 day moving average in recent times? Wasn’t it supposed to put a lid on the market and create choppiness as the 20 and 10 day averages “death crossed” the 50? Just like any other tool, technical analysis should be part of a basket of armaments an investor has when making decisions. Sometimes it can be very helpful, yet at other times fundamentals, macro events, seasonality, sentiment, and plain ole common sense should take larger roles in making market decisions.Â Gold and bond money has been unleashed, and could be underpinning equities for a while.
Equity volatility is getting interesting now. Not as interesting as when it is elevated and you can sell it with high probability trade structures, but interesting nonetheless. The VIX fell to nearly 14, and the futures are now reasonably priced for this level:
|VX N3-CF||S&P 500 VOLATILITY||July2013||16:11:43||15.05||-0.30||15.25||15.30||14.87|
|VX Q3-CF||S&P 500 VOLATILITY||August2013||16:11:39||16.62||-0.13||16.60||16.65||16.35|
|VX U3-CF||S&P 500 VOLATILITY||September2013||16:11:40||17.70||-0.20||17.75||17.80||17.42|
The roll is 10% and that equates to roughly 9 cents per day in negative yield. I am amazed at how many posts I saw on stocktwits where folks were averaging down their VXX long positions last week as the ETN had so many headwinds. Buying VXX calls should be done at the right times of the cycle and only when you have time to sit in front of a screen all day and sell with lightning speed.
VIX Volatility Index values generated at:Â Â 07/09/2013 14:57:41
|Trade Date||Expiration Date||VIX||Contract Month|
|7/9/2013 2:57:41 PM||13.37||1|
|7/9/2013 2:57:41 PM||14.45||2|
|7/9/2013 2:57:41 PM||15.31||3|
On Friday, the VIX will roll ahead to August and September, and for OPEX week, that means a negative number attached to September. This can occasionally depress the VIX, and get CNBC knuckleheads confused, and saying things like the VIX is no longer a useful tool.
My fascination with oil continues and I added a UCO short call spread for July today, $35-37 for .45. If oil wants to head to $106, then this spread may need adjusting, but it seems to me that this spike is getting long in the tooth. Frequently, an oil spike coincides with the last gasp in an equity rally, but I am not at all suggesting that this is what is happening here; just stating what it has meant in the past.
I am also eying buying the USO August puts at $35.5 for .60 or so, because I can sell against it on a weekly basis and get these puts for free should oil stay high for a bit.
I also sold SPY 166-168 weekly call spread for .32, as 166 seems to be a significant resistance level. The market has come a long way over the past couple weeks, and it has run higher into the beginning of earnings season, which is typical. Â Put calendars on financial stocks look attractive, and if I see anything with a nice asymmetric risk/reward set-up, I will certainly tweet it out. Selling high IV puts into earnings against lower longer term puts are a nice way to have vol working for you.
I expect that between now and the first of August we will see some volatility. I’m not quite ready to trade on that, but I am looking at selling VXX put spreads. OPEX week is next week. Historically, this time period and the week after sees some tumult. Again, like I stated at the outset today, this is a tool that should be a part of a host of tools utilized to aid in making decisions.
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