Category Archives for Articles
The Collapsing VIX Just Set a New Record
The VIX hit a low of 9.53 early this morning, marking the 13th straight day with a low in the VIX below 10. This is the first time in history we have seen such a streak. In late to July August, we had a run with 17 of 19 days showing a sub-10 VIX. Let me break down just how bizarre these numbers are. Since January, 2, 1990, the VIX has dipped below 10 on exactly 69 days. 50 of these 69 days were after April 2017. 30 of these 69 days have been after June 2017. Now, on October 6, 2014, the CBOE began using a new method for calculating the VIX to incorporate weekly SPX options. For the sake of an apple to apples comparison, let’s look at those numbers. Since then, we have had a total of 51 days with a low in the VIX below 10. 50 of 51 happened after April 2017! And 30 of 51 happened after June 2017! This is historic… and insane. So is it time to bet on a spike in the VIX? I am considering doing so… but don’t think it’s easy money. Yes, volatility tends to mean-revert, but good luck figuring out when. Here is a 20-year monthly chart of the VIX: As you can see, there have been extended drops in the VIX. For example, the VIX had multi-year downtrends from 2003-2006 and from 2012-2014. We very well could be in another one now that extends to 2018 and beyond. And all of those massive spikes you see on the chart? They were very short-lived, and there’s no guarantee you could have acted quickly enough to lock in massive profits on volatility bets. And while you’re waiting for a spike, what’s happening to your SPX/SPY puts and VIX calls? They’re getting eaten alive by time decay. 2017’s absurdly low volatility feels like the inverse of the tech stock highs of the dot com boom. We all know it’s irrational. But it’s incredibly difficult to predict the end of the craze. I am strongly considering allocating a small amount of capital to far out-of-the-money VIX call options. Why? Because just as the market is underestimating volatility now, it’s likely to overestimate it in the future. The CBOE also recently introduced VIX options with an 8.50 strike price, which is likely a reaction to the VIX’ 8.84 print back on July 26. I suspect that when the VIX has its next megaspike, we’ll look back at this news as a contrarian indicator
Continue Reading -->Scott Redler on CNBC: Is It Time to Buy Oil?
This afternoon, T3 Live Chief Strategic Officer Scott Redler appeared on CNBC’s Futures Now show to break down the action in crude oil and energy stocks. Crude hovering above $50 and @RedDogT3 says THIS could be your best chance to buy into year-end pic.twitter.com/1qYbwBKOav — CNBC Futures Now (@CNBCFuturesNow) October 3, 2017 In this video, Scott breaks down: Exactly where crude became buyable for momentum The best place to buy crude oil Why the next oil move could be to the upside 2 resistance areas oil could hit Scott’s forecast for oil in early 2018 A stop level oil traders can use What just changed in XLE Where traders can buy XLE, and where it can go Why Scott respects the technicals more than the fundamentals
Continue Reading -->Sami Abusaad: How I Traded Equifax for a $2,000 Profit in 4 Days
In this special video, Nightly Game Plan Moderator Sami Abusaad walks you through how he traded shares of credit reporting agency Equifax (EFX), which went into meltdown mode after a major security breach. In this video, Sami’s going to breakdown his Equifax trade, which earned him $2,000* in profit in just 4 days. *Click here for a breakdown on Nightly Game Plan P&L calculations Sami’s going to walk you through: The sideways trend in QQQ How to use the 20-period moving average to judge the trend A breakout/shakedown play in Express inc. (EXPR) on the daily chart A beautiful buy setup in Teva Pharmaceuticals (TEVA) after a pro gap up A weekly buy setup in Adtran (ADTN) A weekly transition sell setup in Masimo (MASM) Sami’s official trade of the week in Equifax (EFX), which has been under fire for a major security breach How to spot a potential bottom in a collapsing stock Sami’s strategy for his profitable exits on the trade Why Sami finally closed the position Click here to learn about Sami’s Nightly Game Plan
Continue Reading -->Do Traders Love the Russell Rocket?
For most of September, stock market sentiment has been very bullish as indices made new highs. But with this week’s astounding surge in the Russell 2000, have the bulls truly gone crazy? Some traders believe this could be the start of a new “risk-on trade” into year-end, while others think this is the calm before the storm — especially since we’re heading into October, a historically volatile period. So let’s take a look at our 4 sentiment indicators to see how traders are feeling. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX hit a low of 9.51 on Friday morning, marking the 10th straight day with a sub-10 print. Meanwhile, the 3-month spread is at +4.2, which means traders are very, very bullish. When this number moves above +4.5, then it’s a clear sign of froth, and we could be there very soon. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 83, up from 66 last week. The F&G Index operates on a 1-100 scale, and a reading of 83 qualifies as extremely greedy. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 33% of individual investors are bullish, down substantially from 40.1% last week. Frankly, I find this reading bizarre, since it was taken on Thursday, right after Wednesday’s massive small cap rally. However, this reading has been pretty depressed all year, so maybe we shouldn’t be surprised. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at just 0.52 on Thursday, which well below the long-term average of 0.655. It’s also the lowest reading since June 22, 68 trading days ago. The 10-day moving average is 0.641, which is slightly below the long-term average, and indicate higher-than-normal demand for call options. So we have a hyper-bullish short-term reading combined with a slighly bullish 10-day trend. On balance, that makes traders moderately bullish. If we see more rock-bottom readings, that could be a sign of true complacency. Conclusion Out of 4 sentiment indicators, we have: 3 bullish (flat from last week) 0 neutral (down from 1) 1 bearish (up from 0) We have 3 bullish, 0 neutral, and 1 bearish indicators this week. The crowd is still fairly bullish overall, but a little bit less so than last week, based on the drop in the AAII survey and more neutral bent to the CBOE equity put-call, Thursday’s extreme reading notwithstanding. This week’s readings are a little less crazy than last week’s but make no mistake about it: the crowd is very bullish. Looking forward, things are obviously a bit tricky. The Russell 2000 and banks are strong, which is a good thing, but it’s starting to look like they’ve come too far too fast. We’re also seeing weakness in market leader Apple (AAPL), and stagnation in the biotech sector, which is always a key area to watch to judge traders’ risk tolerance. The top callers are still coming out of the woodwork, but keep one thing in mind: trends are always tricky to judge because they can go a lot further than many seem reasonable.
Continue Reading -->Your Intro to Options Trading: The ABC’s of Calls and Puts
Are you ready to start trading options?’ Then you’re in luck. You’re about to get a 100% FREE crash course in options trading, comprised of 5 in-depth articles: You’re going to understand how options work in the real world without understanding complex math or financial theory. You’re going to understand vital concepts like implied volatility and time decay, and you’ll get 3 simple strategies that you can use to speculate on stock price movements. Contrary to popular belief, options are actually not that complicated. And they’re not inherently risky — you can take as much, or as little risk as you want. Are you ready to start learning? Let’s go! What Are Options? Derivatives are securities which are priced based upon the price of another security, like a stock, ETF, index, or commodity. And options are the best-known form of derivatives. In this series, we’re going to focus exclusively on options on stocks and ETF’s. Options represent the right but not the obligation to buy or sell a certain stock at a certain price by a certain date. And as the price of the underlying stock fluctuate, those rights change in value. A sports betting analogy can help you understand this concept. An option is at its most basic level a bet on a bet. You’re betting that the value of the bet itself will change. Let’s say it’s the start of the NFL season, and we think the Green Bay Packers will win the Super Bowl. Options would allow us to bet that the value of a bet on the Packers to winning the Super Bowl will rise or fall. If the Packers win their first 10 games in a row, that bet will be worth a lot of money. But if they only win 5, it won’t. Calls vs. Puts Call options give a trader the right but not the obligation to buy a certain stock at a certain price by a certain date. All things being equal, when a stock price rises, the price of a call option goes up. Therefore, the buyer of the call option wants the price of the underlying stock to rise. Put options give a trader the right but not the obligation to sell a certain stock at a certain price by a certain date. All things being equal, when a stock price falls, the price of a put option goes up. So the buyer of the put option wants the price of the underlying stock to fall. Why Even Bother with Options? First, options require less capital to trade than stocks. Let’s assume we’re bullish on Tesla. If Tesla (TSLA) is trading at $380, it would take $38,000 to buy 100 shares of the stock. However, we could buy a call option on Tesla for $2,000 or less, giving us exposure to 100 shares of Tesla at a low cost. So options give you a lot more bang for your buck in terms of upside potential. On the downside, options have a fixed expiration date. You can theoretically wait forever for a stock to move, but an option has to move in your favor quickly. (In a future article, we’ll explain the role of time in options prices.) Otherwise, it will decline in value or expire worthless, giving you a 100% loss. And that’s just long options. Shorting options — a practice we don’t endorse — is even more dangerous, and can destroy your trading account. And that’s the trade-off: options require less capital and they have huge upside potential. But you also face serious downside risk. Another benefit of options is that they can be used to hedge an equity portfolio or individual stock positions at a reasonable cost. And finally, options are incredibly flexible. With options you can speculate that a stock will rise, fall, or even do nothing. Yes — you can use options to make money if a stock does absolutely nothing. We’ll be going over a strategy for this in the future. Strike Prices and Expiration Dates All options have a strike price and an expiration date. If a person says “I bought NVDA $180 November calls,” they are telling you two things: They have the right but not the obligation to buy NVDA at $180 (the strike price) That right expires in November And a person says “I bought TSLA $350 January puts,” they are telling you two things: They have the right but not the obligation to sell TSLA at $350 (the strike price) That right expires in January Most options expire on Fridays at 4:00 p.m. ET. Large-cap stocks tend to have options that expire every week. Small and mid-cap stocks sometimes have options that expire only on the third Friday of each month. The Basics of Options Contracts and Exercising Options Most options contracts represent 100 shares. So buying 1 call option gives you the right to buy 100 shares. 2 contracts give you the right to buy 200 shares. To determine the dollar value of an option, take the current price and multiply it by 100. If an option is trading at a price of $1, it actually costs $100 to buy. As we told you above, when you buy a call option, you have the right to buy a stock at a certain price by a certain date. Let’s say we own 1 NVDA $180 November call. This means that at any time before the November expiration date, we can buy 100 shares of NVDA at $180. Assume NVDA skyrockets on earnings and hits $200. We can then do two things: We can sell the option itself for a profit. Or, we can exercise our right to buy the stock, and purchase 100 shares for $180. That gives us an instant profit of $20 per share, or a total of $2,000. (minus whatever we paid for the call option in the first place) What Is an Options Contract? Options are not like stocks, which have a certain number of shares outstanding. Options don’t actually exist until a buyer and seller come
Continue Reading -->Did Breaking SPX 2500 Put a Spell on the Bulls?
Last week, sentiment among traders went all-out bullish as the SPX flirted with the 2500 mark for the first time ever. Subsequently, the SPX grinded up to set a new all-time high at 2508.85 before backing down just a bit. So let’s see what’s changed this week. Are traders encouraged by a more hawkish Fed? Do they care at all about North Korea? Let’s find out using our 4 sentiment indicators. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX is once again hovering around the 10 level after going as low as 9.54 this week, indicating that traders are not pricing in much volatility. The 3-month spread is at +3.98, which means traders are fairly bullish. When this number moves above +4.5, then it’s a clear sign of froth, and we could get there soon. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 66, down slightly from 73 last week. The F&G Index operates on a 1-100 scale, and a reading of 66 qualifies as moderately bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 40.1% of individual investors are bullish. This is down slightly from 41.3% last week. This 40.1% reading indicates that individual investors are basically neutral, though it’s much higher than readings we’ve seen throughout 2017. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.66 Thursday, which is right in line with the long-term average of 0.655. The 10-day moving average is 0.625, which is below the long-term average, and indicate higher-than-normal demand for call options. Stretching out things just a little bit more, this measure has been below the long-term average for 14 of the last 18 trading days. So there have been a lot of folks gunning for more upside through the options market. Conclusion Out of 4 sentiment indicators, we have: 3 bullish (flat from last week) 1 neutral (flat) 0 bearish (flat) We have 3 bullish, 1 neutral, and 0 bearish indicators this week. This week’s readings are a little less crazy than last week’s but make no mistake about it: the crowd is very bullish. Last week, I said to watch for a possible drop in the VIX to the 9.5 to 9.75 range, which could mark extreme complacency. As noted earlier, we got a 9.54 VIX print on Thursday, and maybe we’re about to find out if that did indeed mark a near-term top. Keep in mind, we’ve had a lot of moments like this in 2017. Sentiment gets super-bullish, technicals look stretched, and the leaders start breaking down. We’re certainly seeing that with profit-taking in names like Apple (AAPL) and Nvidia (NVDA), as well as the biotech sector. And every time, just when it looks like all is lost, the market pulls a rabbit out of its hat and just keeps on chugging. The market ‘feels’ shortable, but one thing has me hesitating: the surging Russell 2000, which has been showing relative strength and looking to makes it own all-time high. That’s a sign there’s still an appetite for risk out there, and perhaps more upside to come.
Continue Reading -->Sami Abusaad: How to Trade a Slow and Sleepy Market
In this special video, Nightly Game Plan Moderator Sami Abusaad walks you through how he traded a sleepy week for stocks. Typically, Sami showcases one of his swing trades so you can understand his strategies, but this was a particularly slow week, so instead, he’s going to break down a variety of this trades: In the video, Sami’s going to walk you throgh The extremely tight trend in QQQ, which didn’t matter in August, but which matters now The time frames Sami uses for finding patterns and perfecting entries The bearish 1-2-3-4 continuation pattern The weekly buy setup in Adtran (ADTN) An after-hours entry in Microbot Medical (MBOT) Why Sami bought the controversial Equifax (EFX) Earnings plays in Steeelcase (SCS) and Copart (CPRT) (click here to learn about Sami’s Earnings Play strategy) Click here to learn about Sami’s Nightly Game Plan
Continue Reading -->Did a Whiff of SPX 2500 Makes the Bulls Crazy?
This week, the SPX set multiple records with a new all-time high at 2498.43. And the index is still within striking distance of 2500, even with a missile launch in North Korea and a terror attack in London. So are traders complacent? Are the bulls asleep at the wheel? Let’s find out using our 4 sentiment indicators. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish The VIX is once again hovering around the 10 level, indicating that traders are not pricing in much volatility. The 3-month spread is at +3.86, which means traders are fairly bullish. When this number moves above +4.5, then it’s a clear sign of froth. We’re obviously not there yet. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 73, nearly doubling from 38 last week. The F&G Index operates on a 1-100 scale, and a reading of 73 qualifies as fairly bullish. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 41.3% of individual investors are bullish. This is up huge from 29.3% last week. This 41.3% reading indicates that individual investors are neutral, though it’s much higher than the year-to-date average of 32.9%. This reading has been fairly depressed all year, so I was surprised to see such a big jump, even with the market’s upward momentum. 4) CBOE Equity Put-Call – Bullish The CBOE Equity-Put Call ratio was at 0.56 Thursday, which is well below the long-term average of 0.655. The 3-day moving average is 0.5633, and the 10-day moving average is 0.598. Both are also below the long-term average, and indicate higher-than-normal demand for call options. Conclusion Out of 4 sentiment indicators, we have: 3 bullish (up from 2 last week) 1 neutral (up from 1 last week) 0 bearish (down from 1 last week) Traders are much, much more bullish than last week, and this is perhaps best seen in the AAII Sentiment and CBOE equity put-call measures. AAII sentiment isn’t bullish. But it’s made a huge jump, and a relatively large number of individual investors just got on board the bull train. The CBOE equity put-call is even more interesting. It has been below the long-term average for 11 of the past 13 trading days, which implies that traders are loading up on calls. I love trolling the permabears by correctly pointing out that they always say everyone’s bullish — even when the numbers clearly point to bearishness. But today, the permabears are right. The crowd is very bullish, which leads to a very logical question: are we set for a fall? It’s tough to say. I would watch for a drop in the VIX to the 9.5 to 9.75 range. That could mark extreme complacency, providing a possible opportunity to speculate on a market dip and spike in volatility. In such a scenario, I would certainly consider buying SPY puts, since they provide a cheap, efficient, and liquid way to speculate on a market decline.
Continue Reading -->Morning Call Express: Risk-On Ahead of the Weekend
Catch T3 Live’s latest Morning Call Express video with Kurt Capra:
Continue Reading -->Sami Abusaad’s Trade of the Week: NLNK
In this special video, Nightly Game Plan Moderator Sami Abusaad walks you through a winning trade in Newlink Genetics (NLNK). Biotechnology stocks have been hot as of late, but few are hotter than NLNK, which recently skyrocketed on positive results from a clinical study. After NLNK’s rally, Sami spotted the opportunity for a Climactic Sell Setup, giving him a profit of over $3,100 in 4 days*. Here’s how the trade worked: *(click here for a breakdown of our P&L calculations) In the video, Sami’s going to walk you through the trade from start to finish so you can understand: Why NLNK showed up on his radar What qualified NLNK as a climactic play Where Sami set his entry, stop, and target for a 3:1 reward:risk ratio How the Climactic Sell Setup works Why he used the 5-minute time frame on this trade The pattern that signaled a breakdown in NLNK was coming Click here to learn about Sami’s Nightly Game Plan
Continue Reading -->