Here’s A Way To Play The Volatility
After
yesterday’s war day, the
(
SPY |
Quote |
Chart |
News |
PowerRating) is -5.4% in five days from the triple top high level of 85.78. Year to
date, the SPX
(
$SPX.X |
Quote |
Chart |
News |
PowerRating) is -8.3%, the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) -9.3%, while the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s are -1.4%. Just to point out that timing is everything, the SPX is
-13.7% from the year’s high, Dow -14.7%, while the QQQs are -12.2%. It’s when
you do it that matters, as price rules. Overall NYSE volume was just under 1.2
billion, a volume ratio of just 5, which I read in Sentiment Trader was
heavily skewed by Fannie Mae and CE, both big down days on about 5.0% of total
NYSE volume. Breadth was -1575.
The major indices were
all down more than 2.0%, led by the SPX -2.6%. The
(
SMH |
Quote |
Chart |
News |
PowerRating)s lost -2.0%.
Sectors were red across the board, led by banks and brokers, both down about
3.4%. That means I look for some upside reflex today.
The media now has the US
on the verge of nuclear war with North Korea, and now Iran. In spite of the
media war blitz, I see that the
(
OIH |
Quote |
Chart |
News |
PowerRating)s were down 2.1% yesterday, the XAU,
which is the gold index, was -3.7% and is now down 10.3% in six days, and then I
see that the Baghdad Stock Exchange is up 50% in seven months, as per Fox News.
I guess that’s because they are in a delta neutral position as the construction
and engineering companies are going to rebuild regardless of who blows it up.
It surprises me that most
seem to think that it will be a training exercise, like the Gulf action. I, for
one, don’t make that assumption, and anything done in my longer-term positions
is an options strategy. The synthetic straddles I put on had a great day
yesterday, as you would imagine. See the
March 7 commentary where I said “my only decision was that there will be
volatility, nothing more cerebral than that, and it doesn’t matter which
direction.” Isn’t that a better way to play the game in the current market
environment?
The AIV, which is the
average implied volatility, for the SPX yesterday was 31.1, and it is the first
time over 30 since Feb. 13, and that was the 806.29 low day in the .786
retracement zone. Yesterday’s low was 806.58. Yesterday was also a big expansion
range day for the SPX on less than significant volume, as it was a fear day. The
expansion of implied volatility and a significant increase in the actual
underlying volatility is what makes synthetic straddles work. You don’t put them
on after the fact, and implied volatility has imploded. To view implied
volatility charts, go to ivolatility.com.
The early futures are
green, and the major indices closed in short-term extended volatility band
zones, so you will have some opportunity today.
Have a good trading day.
Five-minute chart of
Monday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Monday’s NYSE TICKS