QQQs Looking Vulnerable To Downside

- AAPL stock has seen lower lows and lower highs recently, setting up a pattern that rest of tech market could follow.  QQQs short-term (11-day) indicators are bearish, while mid-term (22-days) are still in neutral territory.

- Fair Volatility Estimate indicator's value for QQQs are at 17.98 in intraday trade 4/15.  IV Index mean of QQQ as of 4/14 close was at 17.12, and is probably lower today.  Should premiums come down Monday morning, I would think it would be a good time to play QQQs to the downside.  Perhaps, buying the May 57/53 put spread 1x2 for under 0.60 would be a good strategy.

- As for SPY, it is expiration day and the April 133/130 put spread bought for 0.30 is still in the money with SPY trading at 132.3 as of mid-day, but not by much.  Admittedly, however, recommending to buy VXX even under $29 on April 4, resulted in small loss.

- FVE indicator is at 16.3 as of 4/15 intraday, which remains significantly above IV Index mean of 14.5.

SPY Range-Bound? If Yes, Time To Bet On Short-term Fall.

- SPY has rebounded sharply the past 2 weeks. I'm inclined to think that this was a bounce from short-term oversold levels, and not the same continuation of a stampeding bull-market that we have seen since Aug 2010.

- If I'm right, now is the right time to put on a short-term bearish bet, for example, buying April 133/130 1x2 put spread for under 0.30.

- FVE indicator's value is at 16.8 and while it's below its moving average, it is significantly above IV Index mean of 14.77% as of Friday's close. So the risk vs reward payout is, I believe, in SPY bears' favor.

- I do not like to buy VXX (it is better to find opportunitites to sell VXX) but for a short-term trade (few days), I'd look for good entry points to buy VXX intraday, especially under $29.

Up or Down for SPY? Implied Volatility Slightly Undervalued

- SPY is trading at 131.5, intraday 3/29. Looking at the chart, this level is at the intersection of a short-term down trend within a mid-term uptrend. My feeling is that we will move sideways or range bound for a week or two between 126 and 134.

- Implied Volatility Index mean is around 17.3, which is below Fair Volatility Estimate indicator's value of 18.04 intraday. Perhaps, the best strategy is to stay out of the market when the technical picture is so unclear. If I was short options, I would cover some of my positions.

Implied Volatility Now Greater Than Fair Value

- Implied Volatility Index mean, as reported by IVolatility.com closed at 24.84%, which is now above my Fair Volatility Estimate indicator's value of 22.25. Obviously, implied volatility can go higher, but I believe it is time to take some profits on long options, long volatility position I recommended getting into two weeks ago when IV Index mean was 15.3%, and even couple days ago when IV Index mean was 17.5%.

Implied Volatility Still Undervalued

- Fair Volatility Estimate indicator's value is at 20 in early morning trade with SPY at 129.88. I'm surprised with all that's happening in this world that SPY implied volatility remains below FVE indicator's value. I mean, at close on Friday 3/11, FVE indicator's value was 19.55, while SPY implied volatility mean index was 17.5%.

- Looking at the trendlines, SPY value of 129-129.5 is an area of potential support, and in a bull market, anytime VIX goes above 20 it would be an opportunity to sell. However, even if SPY were to get support here, I would not look to sell volatility as long as SPY implied volatility mean index remains below FVE indicator's value.

- Simply put, the risk vs. reward is not there yet to sell options.

Looking for Opportunity to Buy Options on SPY

- Many of my indicators are pointing to higher probability of a SPY price correction. This time, however, I would not go against the bull market until SPY closes below bullish trendlines. Short-term Linear Regression Slope has gone negative. I will be watching Volatility Signal to see if it goes negative soon.

- Fair Volatility Estimate is 16.6 as of 2/28 in early trade. SPY mean implied volatility is 15.3%, so SPY options has gone from overvalued to undervalued in a matter of few days. Conditions seem right to look to buy options, but there needs to be a trigger.

-VXX is the symbol for iPath S&P 500 VIX Short Term Futures ETN and is an instrument to trade S&P500 volatility (only for very short-term). I'll study if there are any opportunity to use my Fair Volatility Estimate indicator to trade VXX profitably, although the contango (prices on 2nd month expiration futures trade higher than front month expiration futures) built in to VIX futures makes this instrument difficult to compare with my FVE indicator.

Apologize for the Absence.

- Sorry for lack of updates past 4 weeks. I have been quite busy with other matters but I should have more free time now to post more frequently. As for my simulation, to maintain total integrity, since there were no updates since the last trade recommendation, I assumed the most recent position closed on Feb expiration, which would result in a 2.83 loss! Ouch!

- Looking forward, there are many uncertain factors affecting the markets. This is reflected in volatility having spiked the past 2 days with SPY dropping sharply the past 2 days. Mean Implied Volatility has jumped to 17.90% for SPY options. Fair Volatility Indicator has also spiked, but it's value is at 16.07. The difference in the two is not significant enough for me to say SPY options are overvalued.

- I would pay attention to the bond markets, since bond prices have been crushed the past 6 months. If bond prices start to find a bottom, the bull market in stocks could take a pause.

Stay Long SPY Volatility

- Mean implied volatility on SPY options increased to 16.83 from 14.6 on Jan 20th when I recommended to buy volatility. FVE indicator's value rose from 13 to 14.8 during the same time. Although implied volatility is above the FVE indicator's value, the FVE indicator remains above its moving average so I would not yet take profits on long options, long volatility positions.

- All my indicators are pointing to higher probability of SPY correction than they were a week ago, although SPY price trend is still bullish. I feel comfortable in my current options position.

Time To Buy Volatility

- Fair Volatility Estimate indicator's value is 13, while mean implied volatility on SPY is 14.6. While SPY implied volatility is above FVE indicator's value, I believe one should be looking to buy options and buy volatility because FVE indicator has crossed above its moving average from low levels.

- I would also think that buying the Feb 128/125 put spread and selling Feb 132 call for under 0.30 would be a good trade to put on for a possible correction.

GLD Position Looking Good

- Most recent push up to 138.72 stopped short of GLD's previous high of 139.11. By Jan 22 expiration, the chance that GLD prices would go above 142 is very small. Now the question is will the Jan 132 puts be in the money by Jan 22 expiration? GLD is testing 133-134 support level once again.

- As for SPY, mean implied Volatility has dropped a point to 15% from 16% as of Monday morning's post. FVE indicator's value is 11.5. According to my indicators, implied volatility remains overvalued.

Implied Volatility High Compared to FVE

-FVE indicator's value is at 12.1, compared to mean implied volatility on SPY options of 16.12, according to IVolatility.com. As I expected last week, market makers would take profits and buy back their short options positions. This is probably the reason why implied volatility has risen over the past week, even though the market had remained quiet and unchanged.

-Some of my indicators are starting to show bullish energy subsiding, and SPY is due for a correction, but I feel implied volatility (although still at low levels) is overvalued.

-I would sell the Jan 22 120/129 strangle for 0.90 or better.