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    • By Levi Ioffe
      S&P 500 Index (SPX) 2792.67 ended the week 17.07 points or +.61% higher, all on Friday's advance of 17.79 points. While well above the 200-day Moving Average it still has three recent prior highs overhead to clear. On any pullback the 200-day Moving Average now 2747.53 will likely provide support. TheStrategy section below has more details.
      CBOE Volatility Index® (VIX) 13.51 declined1.40 points or -9.39%last week.Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, declined .82points or -6.88% ending at11.10.


      Now well below the bottom of the recent range around 14 that began last October,the S&P 500 Index volatility turned even lower, as shown in the one-year volatility chart and the SPX line charts above.
      Downtrending implied volatility always excites the bulls.
      VIX Futures Premium
      The chart below showsour calculation ofLarry McMillan’s day-weighted average between first and second month futures contracts.The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month future converges with the VIX at expiration. 
      Previously, declines below 10% and advances above 30% were unsustainable, but for the last year, premiums above 10% have been scarce. These are crazy times that we live in.

      With 17 trading days until the March expiration, the day-weighted premium between  March and April allocated 68% to March and 32% to April for a 13.92% premium vs. 9.88% week ending February 15;into the green zone between 10% to 20% associated with S&P 500 Index uptrends, adding more support for the bullish view. If there was only one indicator available, this one would be a top contender.
      Once again, as long as the S&P 500 Index remains above the downward sloping trendline from the October 3 high and breadth continues improving, odds favor the bulls.  While advancing on the upward sloping trendline from the December 26 low at 2346.58 the trendline angle at 49° seems unsustainable compared to typical longer uptrends around 30°.  However, equities will likely remain well supported since few are willing to risk being short before a China trade agreement is announced when Trump and Xi meet.  However, then be prepared for a "sell the news" correction now well anticipated.
      Probability Calculator
      This handy auxiliary tool helps determine the probability of the underlying security reaching the desired price in a selected time frame based upon either implied or historical volatility inputs.The goal is to reduce subjectivity by adding objectivity.
      Our SPX example starts by setting the symbol universe to All. The other selections are: USA, Europe and Canada. The last Underlying Price 2792.67 appears automatically along with the Interest Rate and Dividend Yield.

      Clicking on Future Date will list all the future options expiration dates.  For this example, using Custom opens the previous selected date March 15 and then displays the number of days that can also be altered.

      For Implied Volatility, ATM Volatility of 10.63% was selected assuming the current at-the-money implied volatility for this time frame is the best estimate.

      Then, the First Target Price of 2850 and Second Target Price of 2750 were entered based upon our trendline estimate that SPX will continue higher.   

      Selecting Calculate produces the following:

      Based upon this it seems like a 2845/2855 long call vertical spread is about right at 24% of the distance between the strike prices. 2845 was selected as the first strike by extending the upward sloping trendline from the December 26 low and extending it out to March 15.With SPX at 2792.67, an out-of-the-money spread cost less both in terms of the net cost and in implied volatility, since due to volatility skew out-of-the-money calls are less expensive than those in-the-money and near the money.Here they are from Advanced Options using the offer price for the buy and mid price for the sell assuming some price improvement is possible.

      For actively trading underlying’s, with good options volume, the standard pricing practice is to: pay the ask for the buy, and split the difference between the bid and ask for the sell side.  When option volume is low and the bid/ask prices are wide it may be necessary to use the bid on the sell side, increasing the spread cost. This is one reason for preferring underlying’s with more active volume especially for multiple leg strategies, especially butterflies with 4 legs.
      The debit of 2.40 divided by the width of the spread (2845 -2855) = 10, so (2.40/10)  = .24 or 24% of the distance between the strikes.  This makes the vertical spread reasonably priced based upon the current location of the first out-of-the-money strike curvature (location on it's call curve) and fits well with our expectations.

      The out-of-the-money strike price selected is just below the first target price increasing the odds slightly from 41.48% at 2850 and both strike prices are well within one standard deviation up or down.

      Since all trade plans require a SU (stop/unwind) it will be set at a close below the 200-day Moving Average now at 2747.53 but increasing as SPX advances. Should it decline, the 200-day Moving Average is likely to provide support.  Should that support fail, then the plan requires some action, either close the positions, close one leg, or add a put.

      For other strategies, such as an Iron Condor the strike prices selected to sell should be around two standard deviations up 2931.09 or down 2658.41. For a short Iron Condor consisting of a short OTM call and a short OTM put, the objective is to place the first strikes far enough away from ATM, so as not to touch them.  Two standard deviations away is a reasonable distance—any farther away and the net credit for the spreads is likely to be too small, while any closer and the probability of one leg being reached increases; meaning it will need to be closed for a loss while the second will remain open.
      As the S&P 500 Index continues higher options and futures indictors continue to improve much to the delight of the bulls. Expectations seem focused on an upcoming trade deal with China that could trigger a "sell the news" correction when announced. Fortune favors the well-informed.

      Written by Jack Walker. Jack Walker is the author of’s Volatility Trading Digest. Jack is a former PSE options market maker and hedge fund manager. Jack has contributed to SeekingAlpha, TalkMarkets, amongst other financial news sites.
      All SteadyOptions subscriptions include FREE access to IVolatility Tools ($468/year value). The same set of tools is also available as a Standalone Subscription for non members.
      Related articles:
      IVolatility Tools: Advanced Ranker IVolatility Tools: Advanced Options IVolatility Tools: PnL Calculator  
    • By Levi Ioffe
      Micron Technology Inc. (MU) 38.65 ended up .82 Friday, Mach 8th, making a wide outside range reversal, although down 2.93 or -7.05% for the week.  The Implied Volatility Index Meanincreased to 56.93 from 51.67 last week and will likely continue higher until March 20. The implied volatility/historical volatility ratio using the range method is 1.57 compared to 1.35 last week, so option prices are more expensive relative to the recent movement of the stock.
      Although last week, my long call spread didn't work out, Friday's reversal looks encouraging enough to try once again.  This time the plan includes selling an out-the-money put with a long call spread. Friday, March 8th’s,  prices:
      U Sym
      Mar 22
      Mar 22
      Mar 22
      Using the ask price for the buy and mid for the sell and the bid for the put the combination results in a .73 credit [(1.02-.47) -1.28].
      After opening the New and Improved Live PnL Calculator and entering the strike prices along with the symbol at:

      Then advancing the expiration to March 22:

      Along with reducing the volatility by 15.66% (based upon the volatility chart showing implied volatility declined to about 45% after reporting in previous quarters):

      With all this set up, the calculator displays the following with price set at 43, the call short strike,and then the PnL profile with price set at 43:

      The  displays all available expiration dates along with strike prices for calls and puts that can be entered by clicking on either the bid or ask price.  Then,in the data table,the strikes can be altered: more strikes added/subtracted or quantities changed to produce multiple "what if" scenarios.
      While the profile above shows the expected result at the target price and at expiration, it can also be set to one week or any other number of days.Or maybe add another out-of-the money short put.
      This limited space introduction only briefly mentions the vast capability of the PnL Calculator.
      For more details, check out the User's Guide. Give it a try yourself by setting up "what if" trade ideas.
      The assumption for the long call with a short put, sometimes called a call spread risk reversal, assumes the stock price reversal that began Friday continues higher and reaches the recent previous high around 43 after reporting earnings on March 20 when the implied volatility abruptly declines.
      Use a close back below 38 as the SU (stop/unwind) just in case Friday's reversal fades.
      The spread suggestion above is based on the ask price for the buy and middle price for the call sell presuming some price improvement is possible.  Then the ask for the put sell. Current option prices will be different due to the time decay over the weekend and any price change.
      The PnL Calculator is a trader’s best friend when it comes to what-if scenarios. Sure, checking profit and loss is an inevitable part of setting any strategy, but every options trader knows that they need to be fluid. Circumstances change, and with them, strategies must be adjusted. You may have a trade in mind, but what happens when the volatility changes? What changes as we get closer to expiry and experience time-decay? What happens when the position price isn’t exactly as you expected? These are the questions every trader faces before locking in their trades, and these are the questions the PnL calculator can help answer. So, next time you’re about to allocate and order, take a moment and check your profit and loss under different circumstances with the PnL Calculator!
      Actionable Options™
      We now offer daily trading ideas from our RT Options Scanner before the close in the IVolatility News section of our home page based upon active calls and puts with increasing implied volatility and volume.
      Written by Jack Walker. Jack Walker is the author of’s Volatility Trading Digest. Jack is a former PSE options market maker and hedge fund manager. Jack has contributed to SeekingAlpha, TalkMarkets, amongst other financial news sites.
      Current and previous issues of IVolatility Trading Digest, alongside a wealth of other useful articles and information for those interested in option trading, are available at

      All SteadyOptions subscriptions include FREE access to IVolatility Tools ($468/year value). The same set of tools is also available as a Standalone Subscription for non members.

      Related articles:
      IVolatility Tools: Probability Calculator IVolatility Tools: Advanced Options IVolatility Tools: Advanced Ranker
    • By Levi Ioffe
      You may be familiar with IVR and IVP, as they’ve become relatively commonplace since we started offering them, but let us review them nonetheless. IVR is the Implied Volatility Rank. It uses the IV over the past year as a baseline from which it ranks the current IV. Sound complicated? It isn’t—let’s illustrate this with an example:

      Assuming volatility hit its high at 135 and its low at 33, and the current volatility is 76, we do the following calculation:


      The formula for this is: (current IV – low IV)/(high IV – low IV) * 100 = IVR

      In the above example, the IVR is just below the middle of its 52 week range. Since regression to the mean is the fundamental concept, the first task is to estimate the mean.  Volatility charts are useful to help determine an estimate for the mean considering it can change dramatically after events such as an announced take over or FDA announcement creating a new "relevant range."

      Typically, an IVR over 50% suggests rising implied volatility often seem before earnings announcements when it advances into the report date and then begins declining back toward the mean. This could be good news for volatility strategists to be long options into the report date and then reverse their position anticipating declining implied volatility after the report.  In general, a low IVR suggests implied volatility is likely to rise back toward the mean while a high IVR suggests that it is likely to decline.

      IVP is the Implied Volatility Percentile—indicating how often implied volatility was lower than its current level. For example, an IVP of 90 suggests that implied volatility was lower 90% of the time over the past year.

      To highlight the difference between these two measures, while the IVR may only be 40%, thus suggesting the current IV is in the lower part of its range, the IVP may be 90, suggesting that 90% of the time, the IV was lower. Here, the IVR indicates that the current IV is relatively low compared to its high, and options could be considered relatively inexpensive. Yet, considering an IVP of 90, we knowthe high IV was an outlier, and most of the time, the IV was lower than the current level, signaling that options are actually relatively expensive. Using only IVP helps resolve this issue, but IVR can still show exactly the current position in the range.

      A rough and ready interpretation of IVP is when considering buying options, look for a low IVP, but when considering selling options, look for a high IVP. This way, you can profit off the price of volatility, rather than pay it.

      High implied volatility relative to the past implied volatility, usually found before events such as earnings reports or FDA announcements, indicates increased options prices in expectation of a large move in the underlying.  While the actual move may not be as severe as suggested by the implied volatility, on occasion it may be even greater resulting in what could be a substantial loss for an option position that is short on one side.  One way to mitigate this risk is to be short both sides by using an Iron Condor or perhaps an Iron Butterfly.  Another alternative is to go with the flow and accept the possibility that the underlying could move even more than suggested by the implied volatility.  Calendar spreads, short the near-term option while long the deferred, may also be considered, but with short gamma, or rate of change of delta, a large move in the underlying will results in a loss. 
      Let’s look at an example:

      In this example the minimum Market Cap was set at of $10B. This may not be necessary since the Advanced Ranker filters out any symbols with inconclusive or difficult to calculate IV data. Next for IVP the minimum was set at 80 and sorted by descending IVP. Typically, a high IVP suggests an increased the risk of a large move in the underlying.  In the top category are CNC, STR, S, etc. A quick google search reveals these companies are planning earnings reports in the next few weeks. The high IVP’s are earnings report related and since they will not report for a few weeks the IVP could increase even more. In fact, the first 8 results are planning to release earnings in the next few weeks (who doesn’t love earnings seasons).

      For SSL the earnings call isn’t until June. Of course, this requires more investigation, but at onset, it seems like a prime candidate for a long volatility strategy into the earnings report date.  IVR shows implied volatility has been over three times its current value, but very infrequently. This suggests implied volatility will likely decline.  Here, an astute trader could gain from the higher implied volatility using short puts.  Of course, it's necessary to understand the risks associated with selling puts.

      An alternative use for the Advanced Ranker is to just use it to search for an underlying when seeking volatility strategies since the Advanced Ranker can help to determine if-and-when options on that underlying are over- or under- priced.

      When looking for trade ideas, the Advanced Ranker will produce a treasure chest full of ideas. In a probability-based environment, getting on the right side of the odds will enhance the bottom line.

      All SteadyOptions subscriptions include FREE access to IVolatility Tools ($468/year value). The same set of tools is also available as a Standalone Subscription for non members.

      Related articles:
      IVolatility Tools: Probability Calculator IVolatility Tools: Advanced Options IVolatility Tools: PnL Calculator  
    • By Levi Ioffe
      At IVolatility, we’ve committed to bridging this gap. We’ve committed to building powerful and easy-to-use tools at prices that average investors can afford. So clearly, when SteadyOptions decided our tools were a good fit for your community, we were excited. Since, we’ve partnered with the SteadyOptions team to bring these tools, at no additional cost, to SteadyOptions subscribers. This article is the first in a four-part series on how you can use IVolatility tools to better your bottom line and make the murky pools of options trading just a bit clearer.
      IVolatility tools work on a simple principle: that options prices are influenced by measurable, predictable, and publicly available variables; and using these variables, we’re able to build a deep understanding of what contracts are over or undervalued, which way underlyings will trend, and where an option will finish. But before we can get into the software itself, we need to understand the metrics used to measure the factors that influence options prices: the Greeks.
      Delta is an estimate of the theoretical change in the price of an option for a small change in the price of the underlying stock, ETF or futures contract expressed as a percentage of the underlying.  Delta estimates how much the value of an option is likely to change for a one-point change of the underlying with values ranging from zero to 1.  For call options delta is positive so when the price of the underlying advances the option will gain value. 
      Alternatively put options have negative delta and decline in value as the underlying advances.  Options closest to the current price, called at-the-money ATM, have deltas close to .50, +.50 for calls and -.50 for puts. Out-of-the money OTM calls, those with strike prices higher than the price of the underlying have deltas less than .50 and in-the-money ITM calls, those with strike prices below the current underlying, have deltas greater than .50.  Out-of-the-money puts, those with strikes below the price of the underlying have deltas less than .50 while in-the-money puts, those with strike prices above the price of the underlying, have deltas greater than .50.

      Option strategies, from a single call or put to complex positions with multiple combinations will always have some degree of delta.  Since a single option represents 100 shares of the underlying, an at-the-money call represents the equitant of 50 shares (100 x .50 = 50).  A long call spread, long one call and short another will have some positive delta depending upon the strike prices selected.  Alternatively, short call spreads will have negative delta. For the 2270 at-the-money the call, the delta is .5166 while the put is -.4811. 

      Gamma is the estimate of how rapidly delta changes as the price of the underlying changes since it measures the rate of change of delta for a small change of the price of the underlying.  Often referred to as curvature it measures the degree of responsiveness to price changes, with at-the-money options, both calls and puts being the most responsive to changes in the price of the underlying.  Both have positive values for long options (negative values for short options) that reach their maximums at-the-money and decline for both ITM and OTM options. Here the call gamma is .0048, while the put is .0049.

      The next column, called theta is the rate of declining option value each day, referred to as the rate of time decay until the option expires.  Out -of -the money options without intrinsic value, or the difference between the current price of the underlying and the strike price, have higher theta than ITM money options with intrinsic value.  As expiration approaches, the rate of time decay or theta increases noticeably from about 21 days before expiration.  Accordingly, weekly options with high theta are favorites for those selling options that expire at the end of the week.  Because theta for both calls and put are negative, one way to mitigate time decay is to sell other options against long options such as vertical spreads, ratio spread or Butterfly spreads. Here the call Theta is -.3958 while the put is -.4799.

      Alpha is the ratio of Gamma over theta, or the amount of Gamma for a given amount of time decay.  Distinguished here from the more common use of Alpha that measures the additional return of a portfolio from its benchmark like the S&P 500 Index, option Alpha attempts to maximize the amount of Gamma for a given amount of time decay.  The call Alpha is -.0122 and the put is -.0103

      Although not a Greek letter, Vega represents the theoretical rate of change an options price for a 1% change in implied volatility. Since higher priced stocks and ETFs have higher priced options, the amount an option price will change as implied volatility changes will also be higher.
      In addition, at-the-money options will have higher Vega than both in-the-money and out-of the money options, In dollar terms in-the-money and out-of the money options will be less sensitive to changes in implied volatility.  In addition, options with more time to expiration will have higher Vega since with more time there is a greater probability for the price of the underlying to change.  The call Vega is 2.8701 while the put is also 2.8701.

      Because Vega values for both calls and puts are positive one way to mitigate changes in implied volatility is to sell other options against long options such as vertical spreads, ratio spread or Butterfly spreads similar to offsetting time decay. 

      Back to the Greek letters, again in the last column for Rho, the theoretical rate of change in the value of an option for a 1% change in interest rates.  Since interest rates have been historically low this Greek received little attention, but that may begin to change. Here the differences are noticeable with the call at 1.1487 and the put at -1.1324.

      Although unlikely, should interest rates suddenly increase 1% the at-the-money call would increase by 1.1487 while the put would decrease by 1.1324.  Notice the out-of-the-money call would increase less 1.0955 vs. 1.1487 while the out-of-the-money put would increase more.  The relationship is reversed for in-the-money options, the calls increase more while the puts increase less as interest rates rise, see the green ovals in the data table below.

      For the S&P 500 Index, a combination of resistance at the 200-day Moving Average made it unusually sensitive to any negative fundamental news—that news arriving Thursday, February 2nd, on a report of declining German exports, resulting in a revised lower Eurozone growth forecast. The combination created a gap lower opening that ended the short-term uptrend from the December 26 low, thereby increasing the chances for a meaningful retest of the low. Accordingly,we are going to try and take advantage of market conditions with a collar strategy for SPY, the details of which you can find below.

      As long as the S&P 500 Index remains above the downward sloping trending from the October 3 high and breadth continue to improve, odds favor the bulls. However, last Thursday's gap open lower suggests it may be prudent to hedge longs. Advanced Options provides the data needed to determine just how much of a hedge can be provided by using a collar.

      SPDR S&P 500 ETF (SPY) 270.47 gained .41 points or +.15% for the week including +.33 points Friday. Interestingly, unlike the SPX it briefly advanced above its 200-day Moving Average last Tuesday, but gapped back below Thursday.

      Assuming a 100 share long position at Friday's closing prices, how much protection can be expected by using a collar?

      As a reminder, a collar consists of a long stock or ETF position and short call with a long put.

      Advanced Options

      The top section of the data table shows "Feb 09 2019 market close" data has been selected. "The New Version (Beta)" will be looked at another time. The green "20-minutes delayed data" displays updates during the day. Additional details are also provided in the "Companion Guide."

      The price data includes the 52 wk high and low while stock volume shows there is plenty of liquidity here along with the end of day options volume (EOD Opt Volume) and week average options volume (1WK Ave Opt Volume), with similar data for high open interest.
      The next section displays volatility data, first implied volatility then historical volatility. Since most analysis uses 30 days for the term they are market with blue arrows.

      Relative to the 30-day historical volatility at 15.89% (calculated using the annual rate of change method) that has declined from 25.15% the prior week, both the mean call implied volatility index (IV Index %) at 12.90% and the put implied volatility index at 12.86% suggest options are reasonably priced compared to a month ago.

      The next section with the graphs requires considerable explanation so we’re going to skip it, but if you want more info, check out the "Companion Guide" available on the application page.

      Since the next monthly expiration will be Friday February 15, going out to March 15 for this trade plan allows more time. SPY has weekly options many so other expirations could be used. The available selections are in this next section with explanations at the “?” marks.

      Next the heading for the selected March 15 data page.

      Once again details are provided at the blue “?” marks.

      This example focuses on the Greeks: Delta, Gamma, Theta and Vega.

      Starting at-the-money 270 with two strikes below and two above with option prices circled in red and the Greeks in purple.

      Collar combination: 

      Results are .10 debit, -.8607 negative delta, with the other Greeks mostly offsetting, where Δ = delta, Γ= Gamma (rate of delta change), Θ = Theta (time decay), V = Vega (implied volatility change).

      For a small debit about 86% of the long ETF risk can be hedged. By selecting other strike prices, the debit amount and Greeks will change.

      The trade plan should also consider adjustments when the price of SPY changes beyond the selected strikes. Since the objective of this plan was to hedge some portion of a long position should SPY quickly decline to the lower strike near 268 a vertical put spread would add additional downside protection. For example, long a 268 put and short a 260 put. Typically, collars are used to protect gains already made by the stock or ETF, an alternative is to just sell the 272 call for a 3.78 credit an create a covered call. All the data needed for vertical spreads or any other combination are available in Advanced Options.
      The short-term uptrend from the December 26 low ended last Thursday after news of slowing growth in Europe combined with solid resistance at the 200-day Moving Average the day before turned the S&P 500 Index lower increasing the probability of at least a partial retest of the December 26 low. Collars and other combinations can hedge some portion of the expected pull back.

      That concludes our investigation into the Advanced Options, but we’ll be back soon. In the next few weeks, we’re going to apply a similar (albeit shorter!) analysis to the rest of our tools.In the meantime, check us out on, and please direct any questions to the IVolatility Tools topic.

      All SteadyOptions subscriptions include FREE access to IVolatility Tools ($468/year value). The same set of tools is also available as a Standalone Subscription for non members.
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