VOLATILITY CYCLE
Above is a weekly CBOE VIX (volatility) price chart. The vertical lines display time cycle studies. The index’s most recent low reading is on the extreme of the last three decades. Option premiums have been steadily depressed. Investor funds of Volatility sensitive ETF are at record levels of 2.3 billion. These instruments are designed to appreciate in a bearish VIX environment. Algorithmic run programs are extremely engaged in short premium strategies. The effect of this current mass mindset can be observed in multiple markets. Market moves in our opinion are highly correlated to investor psychology whether it is overly pessimistic or euphoric. Market extremes are not uncommonly seen in this landscape. It is our belief, as a measure of risk/reward, the opportunity will soon present itself for a contrarian play. Blended times cycles suggest a possible change of course around mid to late December.
1.888.391.7894 or jlunney@walshtrading.com.
***Trade Alert***
A four percent correction into year end and the end of January would push the S&P futures contract down 103 to 105 points to 2460. Four percent would equate to 1/4th of the 16 percent rally that has taken place this year so far. In our view a correction of that percentage would certainly be sustainable. The following trade using end of month (EOM) options for January 2018 would offer downside exposure using the following option strikes. There is no cost per entry minus all commissions and fees using our strategy.
Trade as follows:
Buy 1 January EOM 2500 put for 28 points or better
Sell 1 January EOM 2400 put for 17 points or better
Sell 1 January EOM 2300 put for 11 points or better
John Lunney, Senior Technical Analyst
Direct: 312.957-8108
Toll-free: 888.391.7894
Email: jlunney@walshtrading.com