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Tuesday, March 29, 2011

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.

Wednesday, March 16, 2011

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%.

Monday, March 14, 2011

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.