Trading Options With CVR Signals, Part II
Trading Options With CVR Signals Part III
Today I’d like to share some option strategies you can use to exploit CVR sell signals.
On Friday afternoon, we had a CVR I sell signal on the Market Bias Indicators page (along with two other sell signals) and the OEX closed at 650.11.
There are two strategies available to exploit sell signals. The first is to sell calls. If you are right, time and price will be in your favor, but implied volatility will work against you. In this scenario, we look at the April 670 calls selling at 8. Even though the implied volatility on these options increased nearly 4%, the option lost more than 60% of its value in two days.
For those of you who do not want to trade naked options because of their risk, a straight put buy offers an alternative. In this case, if you are correct price and volatility will work in your favor but time will work against you. The April 630 puts closed on Friday at 8 * and went out today at 14 5/8.
As mentioned in last Thursday’s (March 18) column, CVR buy signals give you the best of three worlds when you are short puts and the signal is correct. CVR sell signals only give you the best of two worlds, but they do provide an edge when the signal moves in its intended direction.
Markets To Watch: The Japanese yen ^JYM^ looks poised for a large move. In the stock market, today’s sell-off took care of the low-volatility situation in the brokerage stocks mentioned last Thursday.
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