The combination of VIX dropping dramatically AND NYSE New Highs reaching 260 creates a 90%+ chances that the market will grind sideways with dips under current prices in the next 1-2 months.
I left the VIX on the chart without comment, but in a previous chart I showed how 75% drops after VIX spikes create a level of demand that gets tested by the market. If that level doesn't hold, then watch out below. The "watch out below" scenario unfolded in October when the August 75% retracement of VIX level didn't hold.
If you are long the market, the signal that the market is giving you is to sell "at the money" calls and collect low levels of premium, because the odds are high that you'll keep it all. When VIX is high, writing calls is risky because although you receive a high premium, odds are high that you'll have your stock called away.
In summary, when VIX is "low", it's time to "Go". Therefore, sell "at the money" calls. When VIX is high, it's time to BUY. Therefore, don't sell calls at all. Hold on for a rally, then sell calls after the rally when VIX is low.
Cheers.
Tim
Saturday, November 1, 2014 2:07PM EST
(If you need help understanding listed options - ask questions and we will direct you to online resources)
I left the VIX on the chart without comment, but in a previous chart I showed how 75% drops after VIX spikes create a level of demand that gets tested by the market. If that level doesn't hold, then watch out below. The "watch out below" scenario unfolded in October when the August 75% retracement of VIX level didn't hold.
If you are long the market, the signal that the market is giving you is to sell "at the money" calls and collect low levels of premium, because the odds are high that you'll keep it all. When VIX is high, writing calls is risky because although you receive a high premium, odds are high that you'll have your stock called away.
In summary, when VIX is "low", it's time to "Go". Therefore, sell "at the money" calls. When VIX is high, it's time to BUY. Therefore, don't sell calls at all. Hold on for a rally, then sell calls after the rally when VIX is low.
Cheers.
Tim
Saturday, November 1, 2014 2:07PM EST
(If you need help understanding listed options - ask questions and we will direct you to online resources)
Subscribe to my indicator package KEY HIDDEN LEVELS $10/mo or $100/year and join me in the trading room KEY HIDDEN LEVELS here at TradingView.com
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Subscribe to my indicator package KEY HIDDEN LEVELS $10/mo or $100/year and join me in the trading room KEY HIDDEN LEVELS here at TradingView.com
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.