Attention Frustrated Chartists: It Ain't High-Frequency Trading, It's The Macro [View article]
It depends on how you feel they have gamed the market. If they are holding their positions, then there's no effect on the markets. If they are shifting from one sector to another, you should be able to see this on your charts, since these players have large positions and take time to move their money around. Again, if you have a thesis about what the big players have to do, you can easily front run the whale's money while they are doing the shifting, since I assume that your trading size is much smaller than theirs.
But my comments are oriented towards active traders who are monitoring their charts for inflows or outflows. I'm not an investor, and I would never trust Wall Street to tell the truth about which stocks are good or bad. Again, this is an argument in favor of TA and charts as opposed to fundamentals, which can be twisted to give you a misleading picture of the company.
Attention Frustrated Chartists: It Ain't High-Frequency Trading, It's The Macro [View article]
Agree with the article, and I want to add an argument of my own:
As a trader, there is no such thing as a "ruined market". If the market has changed, then you would figure out how it's changed and develop new indicators to account for the new environment. One can't bemoan the fact that what was written in a book 20 or 40 years ago and worked for a while doesn't work any more.
Let's assume for the sake of argument that HFTs do account for a large percentage of market volume. And let's say they specifically target the established chart indicators that many traders like to use, and deliberately create fake moves to psych out traders. If this were actually true, and you could prove this through back testing, then you would simply trade on the same side of the HFTs and take some of their money. The HFT algorithms, almost by definition, are highly predictable. Instead of fighting them, you could ride on the back of their volume. Again, assuming the HFTs have as much influence as we think they do.
Also, if HFTs make the markets more volatile, well, that's good for traders. It may be bad for the retail investor who is usually skittish, but traders live off volatility. So we should be glad HFTs are there to shake things up during the day.
Markets constantly evolve. You can't expect to use the same old TA indicators year after year and hope to keep making money with them. On the other hand, that doesn't mean that TA or charts have become useless.
Erick, thanks for the clarification. I never knew this, and the CBOE documents do not say anything about this.
VXX was interesting to watch yesterday, with the spot VIX and March futures moving up as VXX sold off big time. I also see days when VXX will increase more on percentage terms than either of the front month futures contracts, and the VXX NAV shows that the value is correct. It's unclear to me how that can happen, but then yesterday VXX dropped far more than the April futures on percentage terms.
You would think that, because of the contango issues, that you could go long the futures and short VXX and make money every day, but that isn't the case, of course. On some days that trade will lose a bit of money, and some days it will make money, just like any other trade. And then you have your own contango issues moving from April to May futures. But I continue to look into it.
Unless my understanding of the calendar is incorrect, today (March 20) was the last day of trading for March VIX futures. There's no more time for traders to send March VIX to 17. Please let me know if I'm wrong on this.
Trading The Big Numbers: Apple At 600, Dow Jones At 13,000 [View article]
This trading strategy is only meant for perhaps the hour, or at most the same day, after something first hits a Big Number. It probably won't happen again since the "Apple $600" story has already been reported. It's a speculation that the folks who have something to gain by the report of the headline are driving it up with the intent to sell it that same day.
I don't follow Apple day to day so I can't say where the support is. No one can, really, otherwise they'd be automatic millionaires. It's all guesses. I have long term put options on Apple, so I'm not the best person to ask if you're looking for a bullish case on Apple. Read the other Apple article I posted a few weeks ago for a somewhat bearish case on Apple.
Credit Suisse has stopped creating new units in TVIX, so they are not necessarily tracking the VIX any more, and they are trading at about a 15% premium. Read Bill Luby's articles for great explanations on what's going on with TVIX.
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
If you want to do this, you can hedge with deep ITM long-dated options. The theta is very low on your hedge, and if you can manage to keep the delta down close to 0, it's theta premium all the way.
I've done this for iron condors close to the money, where even if one of my legs get hit, I'm close to breakeven or even slightly ahead depending on how long the position has been open. But if it closes in between the legs, I'm way up.
Looks like you haven't given up on your AAPL short yet. I'm still holding my AAPL July put options as well. We had a rare happy day today, hopefully there are more to come.
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
Richard,
I will say that in previous weeks, the Apple weekly options even on Wednesday (2 days left until expiration) have held their value far better than you'd expect. But the 2 minute candlesticks have been expanding the last few days, and I'm wary of a big move next week.
2 more points to make about VXAPL:
I believe VXAPL measures the VIX of the front month contracts. Do we know when it goes out to the next month? Is there any kind of adjustment made given the distance to expiration date, since options with a week to go will have different IVs than 3 weeks to go?
Obviously the weekly contracts will have a different VIX reading than the monthly. Anecdotally, I get the sense that as Apple has moved higher and the retail investor is willing to buy lottery tickets in the form of Apple weekly options, that weekly IV will probably have creeped up in the last few weeks. I'm too lazy to produce the proof, but that's my gut feel as I look at some of (what I think are) these crazy prices.
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
You can download free Black-Scholes models for Excel from somewhere out there on the web, then solve for IV by putting in prices, days to expiration, etc. Also, as I noted in a comment to one of Richard's previous articles, VXAPL only measures at-the-money IV. The volatility skew as you move away from the money will change, and changes shape every day. In general, the further you move out from the money, the higher the IV, and the further you move in, the lower the IV.
One of my favorite ways to hedge delta is to buy a deep in the money option in a distant month, and I've sometimes seen these trading for virtually no premium over intrinsic value. They are more expensive, of course, but still costs less than hedging delta with stock. Just to give you an idea of how much the IV changes as strike prices change.
If you're trading options in any size, I've found it's a useful exercise to download (or better yet, build) a Black-Sholes model in Excel, so you can download the options prices in different months and compare the IV across months and strike prices. I used to think that market makers kept options prices efficient everywhere on the curve, but I see mispricings (or rather, options that are better bargains than others) every single day. You can pay a provider like Optionetics $1200-$1400/year to do these calculations for you, or you can build it yourself in Excel in a few days, and learn something along the way. I would argue that this knowledge will make you a better options trader.
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
Or, the VXAPL will simply stay up, at least until the full iPad3 announcement is out.
Wednesday and Thursday were roller coaster rides, and if I were an options seller (I was last week, but not this week), I'd be nervous. Personally, I don't see VXAPL falling next week until after the announcement.
Follow The 'Apple VIX' For Option Opportunities [View article]
Yeah, I would love to see it too, and it wouldn't be too hard to program. The HTML5 spec contains a 3D engine loosely based on OpenGL, and Google Chrome and Firefox have already implemented a useful subset of it. If you had a data feed and your own internal Black-Sholes calculator, you could write it to work in the browser. Well, someone could. I probably could, but it would take me a while, and I'm not sure that it would help me make more money on my options sales. General guidelines like "sell options before the shareholder meeting (or earnings) when IV is high" is often sufficient.
Follow The 'Apple VIX' For Option Opportunities [View article]
Good article. The problem with VXAPL is that it only tracks at the money volatility. If you aren't selling (or buying) at the money, then the volatility skew will come into play, and the volatility skew can vary greatly from one stock to the next, or even one day to the next, and differ on the call and put side for the same stock. It's a 3 dimensional surface that is constantly changing. The skew can change shape even if the volatility for at-the-money options stays the same.
On the other hand, having VXAPL is better than nothing.
Second Quarter 2012: The Beginning Of An Earnings Collapse [View article]
Attention Frustrated Chartists: It Ain't High-Frequency Trading, It's The Macro [View article]
But my comments are oriented towards active traders who are monitoring their charts for inflows or outflows. I'm not an investor, and I would never trust Wall Street to tell the truth about which stocks are good or bad. Again, this is an argument in favor of TA and charts as opposed to fundamentals, which can be twisted to give you a misleading picture of the company.
Attention Frustrated Chartists: It Ain't High-Frequency Trading, It's The Macro [View article]
As a trader, there is no such thing as a "ruined market". If the market has changed, then you would figure out how it's changed and develop new indicators to account for the new environment. One can't bemoan the fact that what was written in a book 20 or 40 years ago and worked for a while doesn't work any more.
Let's assume for the sake of argument that HFTs do account for a large percentage of market volume. And let's say they specifically target the established chart indicators that many traders like to use, and deliberately create fake moves to psych out traders. If this were actually true, and you could prove this through back testing, then you would simply trade on the same side of the HFTs and take some of their money. The HFT algorithms, almost by definition, are highly predictable. Instead of fighting them, you could ride on the back of their volume. Again, assuming the HFTs have as much influence as we think they do.
Also, if HFTs make the markets more volatile, well, that's good for traders. It may be bad for the retail investor who is usually skittish, but traders live off volatility. So we should be glad HFTs are there to shake things up during the day.
Markets constantly evolve. You can't expect to use the same old TA indicators year after year and hope to keep making money with them. On the other hand, that doesn't mean that TA or charts have become useless.
VIX - Options Volatility Sonar: Tuesday Recap [View article]
VXX was interesting to watch yesterday, with the spot VIX and March futures moving up as VXX sold off big time. I also see days when VXX will increase more on percentage terms than either of the front month futures contracts, and the VXX NAV shows that the value is correct. It's unclear to me how that can happen, but then yesterday VXX dropped far more than the April futures on percentage terms.
You would think that, because of the contango issues, that you could go long the futures and short VXX and make money every day, but that isn't the case, of course. On some days that trade will lose a bit of money, and some days it will make money, just like any other trade. And then you have your own contango issues moving from April to May futures. But I continue to look into it.
As always, thanks for the updates.
VIX - Options Volatility Sonar: Tuesday Recap [View article]
Trading The Big Numbers: Apple At 600, Dow Jones At 13,000 [View article]
I don't follow Apple day to day so I can't say where the support is. No one can, really, otherwise they'd be automatic millionaires. It's all guesses. I have long term put options on Apple, so I'm not the best person to ask if you're looking for a bullish case on Apple. Read the other Apple article I posted a few weeks ago for a somewhat bearish case on Apple.
In any case, best of luck with your trade.
VIX - Options Volatility Sonar: Monday Recap [View article]
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
I've done this for iron condors close to the money, where even if one of my legs get hit, I'm close to breakeven or even slightly ahead depending on how long the position has been open. But if it closes in between the legs, I'm way up.
VIX - Options Volatility Sonar: Monday Recap [View article]
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
I will say that in previous weeks, the Apple weekly options even on Wednesday (2 days left until expiration) have held their value far better than you'd expect. But the 2 minute candlesticks have been expanding the last few days, and I'm wary of a big move next week.
2 more points to make about VXAPL:
I believe VXAPL measures the VIX of the front month contracts. Do we know when it goes out to the next month? Is there any kind of adjustment made given the distance to expiration date, since options with a week to go will have different IVs than 3 weeks to go?
Obviously the weekly contracts will have a different VIX reading than the monthly. Anecdotally, I get the sense that as Apple has moved higher and the retail investor is willing to buy lottery tickets in the form of Apple weekly options, that weekly IV will probably have creeped up in the last few weeks. I'm too lazy to produce the proof, but that's my gut feel as I look at some of (what I think are) these crazy prices.
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
One of my favorite ways to hedge delta is to buy a deep in the money option in a distant month, and I've sometimes seen these trading for virtually no premium over intrinsic value. They are more expensive, of course, but still costs less than hedging delta with stock. Just to give you an idea of how much the IV changes as strike prices change.
If you're trading options in any size, I've found it's a useful exercise to download (or better yet, build) a Black-Sholes model in Excel, so you can download the options prices in different months and compare the IV across months and strike prices. I used to think that market makers kept options prices efficient everywhere on the curve, but I see mispricings (or rather, options that are better bargains than others) every single day. You can pay a provider like Optionetics $1200-$1400/year to do these calculations for you, or you can build it yourself in Excel in a few days, and learn something along the way. I would argue that this knowledge will make you a better options trader.
Apple VIX Rises As Apple Rises? Won't Be Fooled Again [View article]
Wednesday and Thursday were roller coaster rides, and if I were an options seller (I was last week, but not this week), I'd be nervous. Personally, I don't see VXAPL falling next week until after the announcement.
Follow The 'Apple VIX' For Option Opportunities [View article]
Follow The 'Apple VIX' For Option Opportunities [View article]
On the other hand, having VXAPL is better than nothing.