Trader’s Digest: The 10 Stories We’re Reading Right Now
Wonder what traders are talking about today?We’re here with the top 10 stories we’re sharing with colleagues today, covering topics like:Can Apple Overcome iPhone 8 Rumors?Amazon Putting Packages In Your Home When You’re Not ThereHow Changing the World Starts With Making Your BedAnd more!So check out these links right now and get up to speed:1) Scott Redler: Can Apple Overcome iPhone 8 Rumors? (T3 Live) There is lots of talk about soft demand for Apple’s (AAPL) iPhone 8. There are also rumors that they will run short on iPhone X supplies. So let’s focus on the technicals.Read the Story ==>2) Amazon Can Soon Put Packages in Your Home When You’re Not There – Here’s How it Works (Business Insider) Amazon will now allow deliveries inside your home when no one’s there. It’s part of the new Amazon Key program announced on Wednesday. To participate, customers need to be Amazon Prime members and own some special equipment, including a compatible smart lock and a security camera specially made for the program.Read the Story ==>3) Jeff Cooper: The End of the Volatility Fire Sale (T3 Live) The SPX went flat Tuesday, unable to rally back to prior day’s highs. It appears there is a lot of shorting just as big mutual funds try to keep this leviathan levitating into their October 31 fiscal year-end.Continued Reading ==>4) How A Two-Person Montana Company Ended Up With The Biggest Energy Contract In Puerto Rico (BuzzFeed News)Ten miles south of Whitefish, Montana, a paved road turns into gravel, before turning into forest. On one side, there’s a small horse farm. On the other, signs read “Private Property” and suggest the area is being patrolled in order to prevent poaching. At the end of a long private drive lined with towering pines, an RV is parked on the grass in front of a log and stone cabin.Continued Reading ==>5) US New Home Sales Soar to Highest Level in a Decade (U.S. News) Sales of new U.S. homes jumped last month to the highest level since October 2007, a sign that Americans — unable to find existing homes — are turning to new construction. Damage from last month’s hurricanes may have also inflated the data.Continued Reading ==>6) Google and Cisco Have Teamed Up in the Cloud Wars Against Amazon and Microsoft (Business Insider) Google Cloud has signed a partnership with Cisco to bridge their two technological worlds, in a bid to catch up with Amazon Web Services and its domination of the fast-growing cloud computing market.Continue Reading ==>7) 32 Stocks I’m Watching for Earnings Season (T3 Live)In this special video, Nightly Game Plan Moderator Sami Abusaad walks you through his earnings season swing trading watchlist. With volatility so low, not many trades triggered this week, so Sami’s going to take you through the 32 stocks Sami is watching for potential opportunities this earnings season:Continue Reading ==>8) Honolulu’s ‘Distracted Walking’ Law Takes Effect, Targeting Phone Users (NPR) Police in Honolulu on Wednesday will begin writing tickets for people who get distracted by their cellphones while walking in a crosswalk. Honolulu is the first major city in the country to pass such a law, citing a high rate of pedestrians being hit in crosswalks.Continue Reading ==>9) Will Facebook Kill All Future Facebooks? (Wired)In 2010, FOURSQUARE co-founder Naveen Selvadurai believed that his company, and several other social-media upstarts—Twitter, Tumblr, Path—could carve out successful niches against Facebook.Continue Reading ==> 10) One of the Most Motivational Speeches You’ll Ever Hear (YouTube) Watch this video and learn how the simple task of making your bed can set you up for success.
Continue Reading -->Sami Abusaad: 32 Stocks I’m Watching for Earnings Season
In this special video, Strategic Swing Trader Moderator Sami Abusaad walks you through his earnings season swing trading watchlist. With volatility so low, not many trades triggered this week, so Sami’s going to take you through the 32 stocks Sami is watching for potential opportunities this earnings season: Watch the video and learn about: Why Sami is so excited about earnings season How you can take earnings plays alongside Sami The 11 bearish, and 21 bullish play on Sami’s Earnings Watchlist The weekly sell setup in Antero Resources (AR) Why Dr. Pepper (DPS) looks so good for a possible long-term short The climactic run-up in Sociedad Quimica (SQM), which may set up a great shorting opportunity The sub-$3 gold stock Sami is targeting for a long-term swing long The key level to watch in the Gold Miners (GDX) Plus analysis of more than a dozen other stocks! Click here to learn about Sami’s Strategic Swing Trader P.S. Earnings Season is still going strong. Be sure to check out this FREE Earnings Season resource: The Ultimate Guide to Trading Earnings Season
Continue Reading -->Are the Growling Bears About to Get Fed?
We’re closing out another week chock full of all-time highs in the major indices. On Thursday, we had a short-lived scare with futures sinking and the VIX jumping 20% in early trading. But once again, the dip buyers stepped in to stabilize things, and the SPX managed to finish in the green. That means the pain trade lives on… for now. So let’s take a look at our 4 sentiment indicators to see how traders are feeling following Thursday’s minor skirmish. (click here for a primer on the sentiment indicators below) 1) VIX Spread – Bullish Since October 6, 2014, when the CBOE changed the VIX calculation methodology, we’ve had a total of 64 days with a VIX low under 10. So these days have been occurrences… until now. With the VIX under 10 Friday, we’ve had 24 in a row! So we’re either looking at a new normal of incredibly low expectations for volatility, or the crowd has gone mad. Meanwhile, the 3-month spread is at +4.07, which means traders are very bullish. However, the VIX curve is so flat that it may be signaling extreme complacency. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 83, marking Extreme Greed. However, it’s down substantially from the multi-year high at 95 seen two weeks ago. Still, this reading is very bullish. we’re seeing a lot of bullishness here. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 37.9% of individual investors are bullish, down slightly from 39.8% last week. This is in-line with the long-term average of 38.5%, so it’s basically neutral. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.70 on Thursday, which is above the long-term average of 0.655. This indicates some skittishness following Friday’s early drop. The 10-day moving average is 0.672, which is above the long-term average, indicating higher-than-normal demand for put options. This is the highest 10-day moving average since August 24, 40 trading days ago. I would call this very slightly bearish. Conclusion Out of 4 sentiment indicators, we have: 2 bullish (flat from last week) 1 neutral (down from 2) 1 bearish (up from 0) Two weeks ago, I declared “the bulls are clearly insane. They think they’re destined to ride into the sunset on a magic carpet made of cold hard cash.” With the benefit of 20/20 hindsight, we know they were right to be insane, since the market has set multiple record high since then. However, traders have grown a bit more skittish, and bears are starting to growl. Not a lot of them, but they’re on the move. The CBOE equity put-call shows that traders are starting to pick up more put options, so some people are bracing for potential volatility. I’m starting to suspect that’s the right move. The best trade in 2017 has been short volatility, but we may be closer to the end of that game than the start. We’re had 24 straight sub-10 prints in the VIX. Implied volatility has been overshooting to the downside, and I believe it will overshoot to the upside. But of course, the most important question in financial markets is not who, what?, where, or why. It’s WHEN. Even if you can predict the future with 100% certainty, you’ve got nothing if you can’t time the trade.
Continue Reading -->Theta: The Options Trader’s Kryponite
Welcome back to our Introduction to Options series! By now we’ve covered: 1) The ABC’s of Puts and Calls And 2) How Implied Volatility Works Now, we’re going to explore another critical factor in options pricing: time You’re about to learn: How the passage of time impacts the value of an option The differences between short-dated and long-dated options How you can buy a call option, have the stock go up, and still lose money! This article is somewhat technical in nature. You don’t need to understand all the math. You certainly don’t need to know this formula: So just focus on learning the basic principles, and you’ll be a step ahead of options traders that fail to grasp the role of time in options. The Basics of Time’s Effect on Options Prices In our recent article on implied volatility, we identified the 7 basic factors that determine an option’s price: The price of the stock The strike price Type of option Time to expiration Risk-free interest rate Dividend policy Implied Volatility While implied volatility is the most important factor in an option’s price, time is a close second. Remember what we said about options — they’re a form of insurance. A call option is an insurance contract that pays off when the stock rises. And a put option is an insurance contract that pays off when the stock falls. And like a car, the faster a stock moves, the higher it costs to insure it with options. But what else affects the price of insurance? Time. Would it cost more to insure your car for 1 year? Or 2 years? Obviously, you pay more for 2 years of insurance coverage than 1. Why? Because over a 2-year period, there’s a much greater chance of something happening than over 1 year. And so it goes with options: the longer the time to expiration, the higher the price of the option (insurance). A Time Example with Facebook Options Let’s take a look at Facebook (FB) $175 call options across a wide range of expirations. As of the time of publication, the stock was trading at $176.46. Here are the prices for all FB $175 call options that are currently trading. They have expirations ranging from 2 to 793 days from today: As you can see, the $175 call option expiring in 2 days is priced at just $2. The option expiring in 93 days costs $9.61. And the call option expiring in 793 days costs $32.10! Why? Because again, options are a form of insurance. And it’s only logical 793 days of coverage costs more than 2 days of coverage. Theta Is Kryptonite to an Option Remember what I just said about our Facebook example. 793 days of coverage costs more than 2 days of coverage. And you know what? 793 days of coverage also costs more than 791 days of coverage… and 790 days of coverage, and 789 days of coverage… and so on. So all things being equal, options lose value as time passes. And theta is a measure of how fast that loss of value happens. Is Inherently Bad? No. Theta is simply a reality of the world of options trading. And it’s a concept you have to understand if you want to make money with options. Plus, there are strategies that actually take advantage of theta, though they are beyond the scope of this article. An Example of Theta, and How It Eats an Option’s Price At publication, the Facebook $175 call option expiring in 9 days is currently priced at $3.18. The stock is trading at $176.46. This means there is a premium of $1.72 built into the option. This is calculated as the strike price + the options price – current stock price, or $175 + $3.18 – $176.46 = $1.72. The amount of premium built into the option is affected by implied volatility and other factors. The higher the implied volatility, the higher the premium. Theta, or time decay, is the dollar amount by which this premium declines each day. You can find the theta of an option on virtually any trading platform. Theta is displayed as a negative number, typically without a dollar sign. So if you see a theta of -0.10, that means the option will decline by $0.10 per day, all things being equal. (we use dollar signs in this article to reinforce the fact that it is indeed a dollar amount) The theta for our Facebook $175 call expiring in 9 days is -$0.12. This means that if Facebook’s stock doesn’t move at all, it will be worth $0.12 less tomorrow, or $3.06. And that’s why time is an option’s kryptonite. If the underlying stock or ETF doesn’t move, the passage of time will reduce the value of your option. How Theta Varies Over Time Theta continually changes. And the closer an option is to expiration, the faster it loses value. Here is the theta for our Facebook $175 call options by each expiration: As you can see, the option expiring in 2 days has a theta of -$0.16. And the one expiring in 793 days has a theta of just -$0.02. This is a simple illustration of one of the most important concepts in options: the closer an option gets to expiration, the bigger the theta is. Why? Think of of it this way: if an option expires in 9 days, each day accounts for 11.1% of the time left to expiration. And if an option is expiring in 793 days, each accounts for just 0.13% of the time left to expiration. So it’s not going to change much. Now, let’s look at the theta table one more time, because there is an exception to the rule that the closer an options gets to expiration, the bigger the theta is. As you can see, the option expiring in 16 days has a theta of -$0.15, which is bigger than the -$0.12 theta of the option expiring in 9
Continue Reading -->Trader’s Digest: The 10 Stories We’re Reading Right Now
Wonder what traders are talking about today?We’re here with the top 10 stories we’re sharing with colleagues today, covering topics like:Why Hayman Capital Management’s Kyle Bass sees parallels with 1987The widespread belief that volatility is dead10 tips for success from Apple (AAPL) founder Steve JobsAnd more!So check out these links right now and get up to speed:1) Kyle Bass says this will be the first sign of a bigger market meltdown (MarketWatch) The stock market may never go down again. Maybe not such a far-fetched notion, when you consider the Dow industrials yesterday nailed its 50th record close of the year and paid a visit to the 23,000 milestone, which it looks set to revisit and maybe stick to today.Read the Story ==>2) Traders have never been more confident that volatility is dead (Business Insider) Traders have never been so sure that volatility in US stocks is over, at least looking one month ahead. Nothing quite demonstrates that mindset more than the chart below.Read the Story ==>3) How Implied Volatility Works (T3 Live) If you don’t understand implied volatility, you don’t understand options. Period. Read this article and learn how implied volatility impacts the price of an option.Continued Reading ==>4) China’s Xi lays out vision for ‘new era’ led by ‘still stronger’ Communist Party (Reuters)Chinese President Xi Jinping on Wednesday laid out a confident vision for a more prosperous nation and its role in the world, stressing the importance of wiping out corruption and curbing industrial overcapacity, income inequality and pollution.Continued Reading ==>5) Bitcoin is a ‘speculative bubble’ and unlikely to become a real currency, UBS says (CNBC) Cryptocurrencies like bitcoin are in a “speculative bubble” and are unlikely to become mainstream currencies, according to UBS. There are over 1,000 cryptocurrencies, bitcoin being the biggest by market capitalization, and many have seen huge rises in value over the past few years. Bitcoin for example is up over 470 percent year-to-date.Continued Reading ==>6) Treasury secretary: Pass a tax bill or markets will tank (Politico) Steven Mnuchin has a stern warning for Congress: You could blow up the stock market if you fail to cut taxes. The Treasury secretary said Wall Street’s big run-up following the election of President Donald Trump is largely based on expectations of Congress passing a major tax-relief bill, and failure to do so could have significant consequences.Continue Reading ==>7) 6 Tips for Picking the Right Stocks for Day Trading (T3 Live) You can spend years learning about moving averages, gaps, trendlines, and indicators. But if you’re day trading the wrong stocks, you’re setting yourself up for failure. If you ever find yourself asking yourself “what should I trade now,” then this article is for you.Continue Reading ==>8) Volvo Prepares to Take on Tesla with a Revamped Polestar (Wired) Volvo is in the midst of a reincarnation. The Swedish automaker is leaving behind its former life as the maker of super safe, super boxy wagons, and embracing an existence dedicated to technological prowess, electric propulsion, and svelte design.Continue Reading ==>9) Google’s AI can create better machine-learning code than the researchers who made it (TNW)Google’s AutoML system recently produced a series of machine-learning codes with higher rates of efficiency than those made by the researchers themselves. In this latest blow to human superiority the robot student has become the self-replicating master.Continue Reading ==> 10) Get Steve Job’s 10 Rules for Success (YouTube) Watch this video and learn 10 important rules for success from Apple (AAPL) founder Steve Jobs, including why you must have passion for what you do.
Continue Reading -->How Implied Volatility Works
In our introduction to options trading, we discussed some basics of options, like the differences between calls and puts, how options contracts work, and why options is a zero sum game. Now we’re going to dig into the single most important options pricing concept: implied volatility. If you don’t understand implied volatility, you don’t understand options. Period. What Is Implied Volatility? Implied volatility is exactly what it sounds like: it is the amount of volatility implied by the price of an option. Put another way, by paying a certain price for an option, we are implying that the stock will have a certain level of volatility. There are 7 basic factors that determine an option’s price: The price of the stock The strike price Type of option Time to expiration Risk-free interest rate Dividend policy Implied Volatility Factors 1-6 have something in common: they are pre-determined. Implied volatility is different because it is determined by how much we pay for the option in question. Options are effectively insurance. A call option is an insurance contract that pays off when the stock rises. And a put option is an insurance contract that pays off when the stock falls. And like a car, the faster a stock moves, the higher it costs to insure it with options. It costs more to insure a Dodge Viper than a Honda Odyssey minivan. Why? Because there’s more potential for trouble (volatility) with a 645-horsepower sports car than a minivan. (WARNING: This video may Not be Safe for Work…) An Implied Volatility Example with Tesla As we’re writing this on October 17, 2017, Tesla (TSLA) is trading at $354.72. The implied volatility on the TSLA $355 December calls expiring in 59 days is 40%. What exactly does that 40% number mean? To successfully trade options, you don’t need to understand all the nitty gritty of options math. But you do need to understand the basic fundamentals of options prices. So let’s jump back to Statistics 101 so you understand what that 40% implied volatility number means. We use implied volatility to lay out the implied 1-standard deviation move in the underlying stock. This is the movement that is expected 68% of the time. Here is the formula to determine a 1 standard deviation move using implied volatility: Stock Price * Implied Volatility * Square Root of Calendar Days/365 = 1 Standard Deviation For our Tesla example, this becomes: $354.72 * 40% * .40205 = $57.05 This implies a 68% chance Tesla will move $57.05 or less by expiration in December. Put another way, it implies a 68% chance that Tesla will stay between $297.67 and $411.77. (calculated as $354.72 minus and plus $57.05) If implied volatility was just 30% instead of 40%, there would be less implied movement. And if it was 50%, there would be more implied movement Take a look at this table of implied stock movements at different implied volatility readings: As you can see, if implied volatility on our option is 30%, the implied movement (up or down) is just $42.78. And if it was 50%, it would imply movement of $71.31! You don’t need to do this math every time you look an option. Just remember this: the higher the implied volatility, the more movement in the underlying stock you need to make money on the option. Why? Because the higher the implied volatility, the more you’re paying for the option. Implied Volatility Levels on Different Kinds of Stocks Remember our car insurance comparison. The insurance company will charge a lot of money to insure a 645 horsepower Dodge Viper because there’s a lot of potential for trouble. Sellers of options are no different: if a stock can move a lot, the options seller (who is in effect selling insurance) will require a high premium for the related options. Here is a table showing implied volatility readings for at-the-money call options expiring in 59 days on 5 popular stocks: Applied Optoelectronics (AAOI), a very volatile semiconductor stock with a $860 million market cap, has 60% implied volatility. Snap (SNAP), a volatile tech name, is at 54%. And Pfizer (PFE), a slow moving pharma giant, has implied volatility of just 14%. Why the difference? AAOI and SNAP are much more volatile, so options seller demands higher options prices — which means higher implied volatility. Since Pfizer doesn’t move much, the seller must charge a lower price to draw in options buyers. Our TSLA Option Under Different Implied Volatility Scenarios Let’s take a look at our December TSLA $355 call one more time. Using the CBOE’s options calculator, we can calculate the price of the option under various scenarios. With a stock price of $354.72 and implied volatility of 40%, the December 355 call has a value of $22.95. But if we assume implied volatility of 30%, the value of the option drops to just $17.28. Here’s a table showing the value of the option at different implied volatility levels: As you can see, at 50% implied volatility, the option would be worth $28.61. Implied vs. Future Volatility As we’ll discuss in our next article on time decay (or theta), options are decaying assets. All things being equal, an option loses value every single day. You need movement — or volatility — in your favor to offset the impact of that time decay. So when you buy an option, you are essentially going long volatility on the underlying stock, ETF, index, or commodity. You are saying that the actual volatility in the future will be greater than the implied volatility that is currently priced in. And all things being equal, if you are long options, you want implied volatility to rise. However, there are some differences between calls and puts. When stocks fall, implied volatility typically rises. That’s great for owners of put options. But it’s not so good for calls, because a falling stock price will hurt the options price, and offset the impact of higher implied volatility. Implied Volatility
Continue Reading -->Sentiment Report: Bears Fight the Pain Trade
We’re closing out another week full of record highs as the market eats everything it sees and smiles. The SPX, Nasdaq Composite, Nasdaq 100, and Dow Jones Industrial Average made new all-time highs, which had the bears coming out of the woodwork to say traders are too complacent. Is that true? After all, sentiment has been super bullish as of late, and higher prices typically means But 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 Since October 6, 2014, when the CBOE changed the VIX calculation methodology, we’ve had a total of 58 days with a VIX low under 10. 58 of them have happened since April. And with Friday’s 9.59 print, we’ve had 16 in the past 16 days. So we’re either looking at a new normal of incredibly low expectations for volatility, or the crowd has gone mad. Meanwhile, the 3-month spread is at +4.1, which means traders are very bullish. However, the spread be wider if the VIX curve wasn’t so flat, which itself is a sign of very low expectations of volatility. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 78, down substantially from last week’s multi-year high at 95. The F&G Index operates on a 1-100 scale, and a reading of 95 qualifies as extremely greedy. So again, we’re seeing extraordinary bullishness. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 39.8% of individual investors are bullish, up slightly from 35.6% last week. This is slightly above the long-term average of 38.5%, so it’s basically neutral. 4) CBOE Equity Put-Call – Neutral The CBOE Equity-Put Call ratio was at 0.70 on Thursday, which is above the long-term average of 0.655. This indicates some skittishness ahead of Friday’s CPI report, which turned out to be weaker than expected. The 10-day moving average is 0.641, which is slightly below the long-term average, indicating higher-than-normal demand for call options. I would call this basically neutral. Put demand has definitely been picking up since early December, when traders were going nuts for call options. Conclusion Out of 4 sentiment indicators, we have: 2 bullish (down from 2 last week) 2 neutral (up from 1) 0 bearish (down from 1) Last week, I declared “the bulls are clearly insane. They think they’re destined to ride into the sunset on a magic carpet made of cold hard cash.” Insane or not, the bulls were right to be insane because the market has simply refused to break down, and in fact, may be tracing out a classic bull flag. I was awfully temped to get long volatility this week, and I’m glad I resisted the urge because the current market scenario — a slow grind up without much intraday movement — is deadly to long volatility trades. Why? Because it kills you a penny at a time. At least if you lose in a one big whoosh, you can be done with the trade and move on. What we’re seeing now is one of the nastiest pain trades I’ve ever seen.
Continue Reading -->Inside Sami Abusaad’s Swing Trading Watchlist
In this special video, Nightly Game Plan Moderator Sami Abusaad walks you through his current swatch list with his top swing trade picks so you can see how he spots potential setups. Typically, Sami focuses on a single swing trading setup, but since there weren’t any noteworthy trades, Sami decided to take you inside a key part of his trading process instead: In the video, Sami will show you: The sideways trend in QQQ, which provides a backdrop for bullis trades The recent broken uptrend in Activision Blizzard (ATVI) Chicago Bridge & Iron’s (CBIE) Weekly Sell Setup Sami’s 1-2-3 Play in Foot Locker (FL), which gave him an initial profit of $723* The Climactic Setup in Green Dot (GDOT), which may be reversing Norstrom’s (JWN) breakdown bar And more! *(click here for a breakdown of our P&L calculations) Click here to learn about Sami’s Nightly Game Plan
Continue Reading -->Trader’s Digest: The 10 Stories We’re Reading Right Now
Wonder what traders are talking about today?We’re here with the top 10 stories we’re sharing with colleagues today, covering topics like:The message from the Fed in today’s Meeting MinutesWhat the incredible passive investing/ETF boom means for tradersTips for success from billionaire Richard BransonAnd more!So check out these links right now and get up to speed:1) Fed Inflation Debate Finds Some Officials on Rate-Hike Fence (Bloomberg)Federal Reserve officials held a detailed debate last month over whether forces holding inflation down were persistent or temporary, with several policy makers looking for stronger evidence of price gains before supporting a third interest-rate hike this year.Read the Story ==>2) Vanguard is nearing the $5 trillion milestone — but here’s where the rush could end (MarketWatch) Given how this market shakes and shakes it off, another record for the Dow may well be in the offing. It’s no secret, then, that this can’t-go-wrong bull market has pumped up the demand for low-cost, passive mutual funds and ETFs.Read the Story ==>3) 9 Tips for Picking the Right Stocks for Swing Trading (T3 Live) As a swing trader, one of the most important decisions you’ll every make is choosing which stocks to trade. You can learn all the winning setups in the world, but if you trade the wrong stocks, you’re going to lose money.Continued Reading ==>4) Spain takes step toward direct rule over Catalonia’s independence move (Reuters)Spanish Prime Minister Mariano Rajoy took the first step on Wednesday toward suspending Catalonia’s political autonomy and ruling the region directly to thwart a push for independence.Continued Reading ==>5) Ethereum First: Investment Product Opens for Trading on Nasdaq Exchange (CoinDesk) A first-of-its-kind investment product focused on ethereum is now open to investors on the Nasdaq Stockholm exchange. Announced today, CoinShares, headed by former JPMorgan Chase trader Daniel Masters, is launching an exchange-traded note (ETN) for ether, the cryptocurrency that powers the ethereum blockchain.Continued Reading ==>6) FX Markets Are Stuck in Low-Volatility Quicksand With No Escape (Bloomberg)Currency markets are trapped by low volatility and only a fundamental break of historic proportions can shake them free. Foreign exchange trading has become significantly less responsive to shocks, and when currencies do react it typically isn’t long before they go calm again, according to a study by Bank of America Corp.’s Alice Leng.Continue Reading ==>7) 8 Interviews with 8 Top Traders (T3 Live) One of T3 Live’s most successful content features has been our “Meet the Traders” series, which gives you the backstories of our top traders and educators.Continue Reading ==>8) Investors giving ‘cash incineration engine’ Tesla a lot of rope, but may soon lose patience (CNBC) Tesla shares have crushed the market’s performance for years, but patience is starting to run thin among some investors after Chairman and CEO Elon Musk’s too ambitious Model 3 production goals.Continue Reading ==>9) Market Wizard Tony Saliba on Options Trading (HowMuch.com)The Market Wizards books blew my mind. The original book was one of the first ones I read on trading when I jumped into the industry in 1998. And Tony was the only options trader profiled.Continue Reading ==> 10) Tips for Success from Billionaire Richard Branson (The Tim Ferriss Show/YouTube) Podcaster Tim Ferriss sits down with billionaire Richard Branson for a wideranging discussion on everything from coping with dyslexia, PR stunts, and even Bitcoin.
Continue Reading -->If Loving This Market Is Wrong, the Bulls Don’t Wanna Be Right
It’s been quite a week, with the SPX, Dow Jones Industrial Average, Nasdaq Composite, Nasdaq 100, and Russell 2000 all making new all-time highs, leaving the bears crying on the floors. Now, sentiment was certainly bullish last week. But have the bulls gone completely insane after Thursday’s run up to SPX 2552.51? 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 Since October 6, 2014, when the CBOE changed the VIX calculation methodology, we’ve had a total of 53 days with a VIX low under 10. 52 of them have happened since April. And with today’s 9.11 print, 15 of them have happened in the last 15 days. So the VIX is still breaking new ground… underground, that is. Meanwhile, the 3-month spread is at +5.2, which means traders are extraordanarily bullish. (click here for a primer on the VIX spread) 2) CNN Fear & Greed Index – Bullish The Fear & Greed Index is at 95, marking a multi-year high. The F&G Index operates on a 1-100 scale, and a reading of 95 qualifies as extremely greedy. So again, we’re seeing extraordinary bullishness. 3) AAII Sentiment – Neutral The latest AAII Sentiment Survey shows that 35.6% of individual investors are bullish, up slightly from 33.6% last week. I’m really surprised this indicator hasn’t moved much as the market has soared in the past couple of weeks. 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 a 0.69 on Thursday, which is above average of 0.655. This indicates some skittishness ahead of the Friday jobs report. The 10-day moving average is 0.636, which is slightly below the long-term average, indicating higher-than-normal demand for call options. I would call this moderately bullish, with a little less enthusiasm than last week. 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) 1 neutral (up from 0) 0 bearish (down from 1) We have 3 bullish, 1 neutral, and 0 bearish indicators this week. Let’s not mince words: the bulls are clearly insane. They think they’re destined to ride into the sunset on a magic carpet made of cold hard cash. I can see both sides of the coin here. The bulls may be insane… but they may also be right. Timing market turns based on sentiment indicators is awfully tricky. And remember, the trend can go on a lot longer than may seem reasonable. In particular, we’re in a whole new era for the VIX. No one knows how long this new era can go on. We’ve seen the VIX go through multi-year declines before, and who knows how long this one can go on? The lows in volatility feel like the highs in the Nasdaq in 1998-2000 or the housing highs last decade. I do suspect upside from here is limited, and I’m tempted to get long volatility via VIX calls or a similar instrument. But I admit — I’m having an awfully hard time making the decision.
Continue Reading -->