Measuring Near-Term Volatility

Includes: BWV, SPY, VXX
by: Jeff Pierce

The following chart is the put/call ratio minus the actual chart of the put/call. The blue line is the 10day exponential moving average and I find that it takes out a lot of the noise and is much easier to read. We were at extremely complacent levels during mid-April, if you want to revisit this post to refresh your memory, feel free to do so.

Looking at where we’re at now, we’re starting to approach the first level of what I would call resistance. I still have my remaining shorts and think we could have one more violent push to the downside before we stabilize and bounce around for awhile, so entering new shorts at this time could be tricky. You really want to be in the managing part of your trade by now, or just stay on the sidelines until a better risk/reward comes along.

I would really like to see us move outside our lower Bollinger bands on the daily Nasdaq chart. That would cause me to seriously consider banking the rest of my profits and become a spectator. How fast we get there will also depend on my strategy.