Strategy Archives - Cboe Blogs

  • Strategy | Dec 4, 2015, 12:25 PM

    Divergent Monetary Policies Widen Euro/U.S. Equity Volatility Spread, Bolster Euro Volatility

    Divergent Monetary Policies Widen Euro/U.S. Equity Volatility Spread, Bolster Euro Volatility

    Central banks made the headlines this week. On Wednesday, Federal Reserve Chair Janet Yellen affirmed that the U.S. appears ready for the first of a sequence of federal fund rate increases, while on Thursday, European Central Bank President Mario Draghi announced the ECB would ramp up quantitative easing. The divergence between transatlantic monetary policies has widened the spread between VSTOXX and VIX and increased the volatility of the Euro. Figure 1.  VSTOXX vs. VIX indexes  Figure[...]

  • Strategy | Dec 2, 2015, 1:53 PM

    Psychological Barriers - Fear of Missing Out

    Psychological Barriers - Fear of Missing Out

    One of the four fears of trading is the fear of missing out. The late Mark Douglas, author of ‘Trading in the Zone’ talks about the relevance and how to overcome the four fears of trading, this one being the most important. Oh, the regret we feel when a trade goes away from us. I’ve felt it many times, so have you. The pain from not participating seems worse than that of getting punished on a bad trade. In options trading you can easily miss opportunity, kicking yourself all the[...]

  • Market News | VIX | Trader Talk | Strategy | Trade Ideas | Nov 22, 2015, 2:13 PM

    The Week in Russell 2000 Trading - 11/16 - 11/20

    The Week in Russell 2000 Trading - 11/16 - 11/20

    Large caps ruled the week with the Russell 1000 (RUI) gaining over 3%.  Small cap stocks were no slouches, but the Russell 2000 did lag the Russell 1000 gaining 2.5%.  For the year RUI is up 1.21% and RUT is down 2.45%.  However, at the end of this blog I’ll note some statistics that show RUT still has a shot at victory in 2015. Both the CBOE Russell 2000 Volatility Index (RVX) and VIX were lower last week based on the rally in the equity markets.  RVX dropped[...]

  • Market News | VIX | Trader Talk | Strategy | Nov 21, 2015, 11:37 AM

    The Week in Volatility Indexes and ETPs - 11/16 - 11/20

    The Week in Volatility Indexes and ETPs - 11/16 - 11/20

    The shift for the VXST – VIX – VXV – VXMT curve was dramatic, but sort of what we have become use to in this buy on the dip culture.  VIX finished the week under 16.00, which voids a prediction that I had for the rest of the year.  I felt concerns about a December rate hike and the impact on stocks into 2016 would keep VIX elevated for the final few weeks of the year. VXX and the other long funds came under pressure based on the drop in VIX and VIX futures[...]

  • Strategy | Nov 20, 2015, 11:52 AM

    Small-Cap Rally RUT Delayed Year-End Play

    Small-Cap Rally RUT Delayed Year-End Play

    The recent market rally we have seen seen has been driven by big cap names such as AAPL, FB, GOOG, but this week it would appear small cap is catching up based on price action in the Russell 2000 small cap index (CBOE: RUT 11.77.32). Small cap stocks are traditionally a big favorite of mutual funds - popular investment vehicles for traditional retirement investors, the same individuals who are known for driving the year-end ‘Santa Clause Rally.’ As year-end approaches, these types of[...]

  • Strategy | Nov 18, 2015, 10:00 AM

    Timing That Top or Bottom?  Forget it! (Unless Perhaps You are Gaming the Fed)

    Timing That Top or Bottom?  Forget it! (Unless Perhaps You are Gaming the Fed)

    We would all love to continually call tops and bottoms in markets and be correct. After all, with that ‘magic’ we could never lose, right? Sell at the exact height of a bull run, get in at the bottom of a bear move. While that can be possible to do from time to time, nobody can call a top or bottom correctly on a regular basis. With so much emotion, psychology and irrationality there is just not a clean path to calling a top or bottom. Charts and technicals certainly are helpful identifying[...]

  • Market News | VIX | Trader Talk | Strategy | Trade Ideas | Nov 17, 2015, 3:15 PM

    Block Trade Analysis - VIX Weeklys Option Trades

    Block Trade Analysis - VIX Weeklys Option Trades

    Tomorrow is November VIX settlement, but that hasn’t stopped some short term VIX traders from putting on new positions, in fact it may have encouraged them to do some trading. I ventured down to the trader floor late today to see what may be going on in the VIX Weeklys options set to settle on the open next Tuesday.  For those that know VIX well, you know that VIX futures and options normally settle on a Wednesday, 30 days before an expiration Friday.  However, December 25th is a[...]

  • Market News | Strategy | Nov 13, 2015, 2:24 PM

    A Little Perspective: Will Next Month Be the First Interest Rate Increase Since 2006?

    A Little Perspective: Will Next Month Be the First Interest Rate Increase Since 2006?

    (Source: CME Group) As of 11/12/2015 the market is pricing in about a 64% chance of a 25 basis point rate increase at the next FOMC meeting which concludes on 12/16/2015. If Janet Yellen and the other voting members of the Federal Reserve choose to “liftoff” next month, it will be the first interest rate increase in the US since June 29, 2006. 9 Years 5 months and 17 days will have elapsed. That’s 3457 days. In 2006, GM reached its zenith with Hummer sales. 71,524 units in the[...]

  • Strategy | Nov 10, 2015, 2:22 PM

    The Perils of Following A Hedge Fund Manager

    The Perils of Following A Hedge Fund Manager

    We are all looking for that edge when investing or trading, that one little nugget of information that will over time transform our stake into that pot of gold.  Sometimes that edge is provided by following the big money flows, and when a big money manager is taking a position either short or long we often want to ride his/her coattails, especially when they are so 'generous' to let us know.  The notion that fund managers are much smarter than us and must have some sort of 'information'[...]

  • Market News | Trader Talk | Strategy | Trade Ideas | Nov 9, 2015, 4:00 PM

    Eye Catching RUT Put Spread from Today

    Eye Catching RUT Put Spread from Today

    Surveying the market as the sellers took the Russell 2000 Index lower today, a large trade stood out. There was a Vertical Put spread in RUT traded approximately 12,000 contracts with the trader buying the Nov. 13th 1020 Puts for 0.12 and selling the RUT Nov. 13th 1000 Puts at 0.04 for a net .08 debit.  This was done in a few lots with the underlying Russell 2000 Index trading between 1180 – 1182.55. Noting that the trader was buying the higher strike put and recognizing this position[...]

  • Market News | VIX | Trader Talk | Education | Strategy | Nov 8, 2015, 8:13 AM

    The Week in Russell 2000 Trading - 11/2 - 11/6

    The Week in Russell 2000 Trading - 11/2 - 11/6

    The first thing that popped in my mind when I created the first chart in this blog was the story “The Little Engine that Could”.  This was a pre-Thomas the Tank Engine story of a little locomotive that achieves a great feat while telling himself “I think I can” repeatedly.  My mental analogy relates to the Russell 2000 (RUT) line below which pushed higher by over 3% last week closing the 2015 YTD gap with the Russell 1000 and also moved very close to positive territory[...]

  • Strategy | Nov 5, 2015, 3:12 PM

    Strategy: 4 Ways To Pick Stocks For Covered Call Writing

    Strategy: 4 Ways To Pick Stocks For Covered Call Writing

    You can earn consistent double-digit returns with covered calls (on an annualized basis). In fact, the shorter-term expirations yield more, so you're better off writing several smaller premium calls per year than one or two big-dollar but lower-return strikes. A common error is picking stocks based on premium of the call. The more volatile the stock, the more implied volatility in the option and herein lies the problem. If you pick stocks just to write covered calls, you may be taking on more risk[...]

  • VIX | Trader Talk | Strategy | Nov 4, 2015, 7:18 PM

    Reality Check - VIX, SPX, and Non-Farm Payrolls

    Reality Check - VIX, SPX, and Non-Farm Payrolls

    The first Friday of the month means different things to different people.  For instance, at the Rhoads household that’s taco night!  However, in the world that is the financial markets the first Friday of the month is (typically) the day that the market digests the Non-Farm Payrolls number.  This is often the first number to give us insight into the economy from the previous month.  For example this coming Friday’s Non-Farm Payroll report discusses changes in employment[...]

  • Put the Short Premium in the Bag

    Put the Short Premium in the Bag

    The tale of October happens to be the tale of my friend, "Mr. G," and what he did to turn $39,727.47 on September 30th into $56,239.25 on October 31st.  How's that for some trick-or-treat plunder? Here is the breakdown, separated by types of trades, of which there were only a few.  I'll number the types and show the dates and entry and exit points. 1. The greatest number of trades were made by selling short shares of TVIX on different dates between September 22nd and October 23rd,[...]

  • Strategy | Oct 30, 2015, 10:26 AM

    'Halloween Trend' Points To Market Upside In The Coming Months

    'Halloween Trend' Points To Market Upside In The Coming Months

    Calendar Trend Indicates Bullish 4 Month SPX Time Period Upcoming The old market axiom says 'Sell in May and go away' -- meaning avoid the volatile summer months and return to larger allocations in November. With the end of October (and Halloween) upon us, we took a look at the recent market performance in November and the months following.  There definitely has been a trend in place for the past 6 years (since the infamous '666' SPX market panic bottom in 2009) that active investors and traders[...]