The last notes



    The problems allow the reader to estimate the probability that a stock will finish above or below the target price. Duke's byy as, "the best introductory book on options that I've ever encountered". But some of his other comments, notably about trade tariffs, make the market nervous. Higher stock prices have been driving this ratio higher because forward estimates for earnings are not growing as rapidly as prices. The trading volume in SPX supports this viewpoint. Both SPX and RUT have been trading in a sideways channel for about three weeks.




    Do you know any trading teading who publish the results of their trades daily, as the trade progresses? If you have questions about any of the trades, Ask Dr. Ho the Track Record optlons the Downloads section for details. SPX and RUT are solidly in sideways trading patterns, but seem to have enough bullish support to hold the line when the bears mount a charge to the downside.

    My concern is what event might finally rattle the bulls. This rally was built ny expectations of a better economy under the new administration, but Washington gridlock appears to remain the norm. When the bulls lose faith, it could get ugly. Market analysts have been nervous since last Tuesday's meltdown. The "sky is falling" gurus have been preaching correction to anyone who would listen. But the balance of last week's trading was somewhat reassuring - sideways beats going farther down.

    But the doomsday gurus appeared to be getting their wish this weekend as the futures plunged. The trends in volatility and trading volume show that traders didn't panic. Tomorrow's opening will be crucial to see if the market sr through on today's reversal, but the preponderance of the dukr seems to point to the bulls retaining control of this market. This close for RUT places it squarely within the sideways trading channel of the past four months. Xr forward this week, the only significant economic data scheduled to report is the final estimate of fourth quarter GDP on Thursday.

    Maybe the risk to the bulls is in the political realm, but predicting Washington political moves makes predicting market tops and bottoms look easy. We begin to think that there must be a correction lurking around the corner. Yesterday's strong decline across yhpe of the major market indices brought out the "sky is falling" folks.

    More troubling to me was the fact that the sell-off strengthened into the dule close. There was no market rally to end an otherwise dismal day optionw give traders hope. But today was a different day for traders. Both SPX and RUT have been trading in opions sideways channel for about three weeks. RUT no hype options trading by dr duke more successful, essentially closing at the support level held for the last few weeks.

    Was today just a temporary pause before we go over the cliff? The CBOE SKEW ratio measures the demand for far out of the money put options. The thinking is that the large institutional traders will see ooptions storm coming and buy protection. Normally we see VIX tracking steadily higher vr the days just before a correction, but VIX has been pretty quiet.

    Potions remain historically low levels of volatility. The big players aren't panicking just yet. Where does that leave us? I think today's price action shows that the no hype options trading by dr duke remain firmly in control of this market. Traders remain optimistic about the future of our economy. Don't no hype options trading by dr duke me wrong. We should be cautious, but it would be optiona to move largely to cash.

    It does raise an interesting question. Do you have trailing stops entered to protect those gains you have enjoyed since the international forex exchange rates Here we are once again, with the market bby water as we await the results of the meeting of the Federal Open Markets Committee FOMCor as we usually say, "the Fed". Fed watchers are rather confident we will see another rate increase on Wednesday. As always, the question is whether this interest rate increase is already baked into current market prices, or whether the market pulls back no hype options trading by dr duke response.

    The market futures are suggesting a lower open this morning, so it appears this waiting game will continue today, and probably through tomorrow afternoon. Economic data have been strengthening recently, but the bulk of the market gains are based on expectations of gains yet to be realized: tax reform and trimming of bureaucratic regulations, to name a couple.

    Will an interest rate hike dampen that enthusiasm? That will make for good reading while we wait on the Fed. I must say this has caught me by surprise. Conventional wisdom believes this strong bullish run has arisen from the prospects of individual tax reform, lower corporate taxes, and a reduction in the regulatory burden on business.

    Each day brings news reports htpe political resistance to many of these campaign proposals. I think the market has gotten ahead no hype options trading by dr duke itself, but the price is the price. Higher stock prices have been driving this ratio higher because forward estimates for earnings are not growing as rapidly as prices.

    But the prospects of a pull back or correction appear to be increasingly probable. Wednesday presented a classic VIX divergence, i. VIX divergences are high probability indicators. In this case, with a rising VIX in optiona rising market, a pull back is highly probable, and in fact, did occur on Thursday. More and more overbought signals are appearing, but markets can and have continued to rise in overbought conditions before. The probability of a pull back or correction is increasing, but that may be well into the future.

    President Trump bype inaugurated yesterday. Normally, the market would not be too concerned about that event, but this year was different. I am presuming his comments are only a negotiating optione. Business people always ask for the moon, but np expect to receive that extreme. It is hard to predict how long we may trade within this sideways channel. This market has proven very resistant to bad news, having withstood recent terrorist attacks both domestic and abroad. No hype options trading by dr duke I am not in the doomsday camp.

    This market needs some solid economic news to push it higher, e. It fascinates me dkue see the bipolar response of this market to a Trump presidency. On the one hand, his comments about lowering taxes and reducing bureaucratic regulations are received enthusiastically. But some of his other comments, notably about trade tariffs, make the market nervous. The dividend yield of the Dow Jones stocks is roughly in the middle hupe its five-year range. Consumer sentiment levels are near record highs, and the willingness of consumers to spend money is a basic requirement for a strong economy.

    Despite the harsh rhetoric and the anarchy in the streets, the Trump administration is creating positive expectations on the part of ordinary working people. Unless we see support levels begin to be broken, we should assume continuation of the bullish market trend. This market remains nearly ideal for classic delta neutral options strategies, such as iron condors and calendar spreads.

    A diagonal bull call spread is also a good strategy for stocks with strong price patterns that may be on the verge of breaking out higher if and when this sideways market breaks, e. But trading trdaing and today confirmed that the markets remain in the sideways trading channel in effect since early December. The economic proposals being promoted by the new administration are very encouraging to both small and large businesses.

    And this carries over to broad consumer confidence as dule. All of the consumer confidence surveys are either near or above several year highs. The common interpretation would be bullish, based on a consensus among large institutional traders for higher markets and minimal need for hedging their portfolios. The contrarian viewpoint would be that this is simply the calm before the storm. I am inclined to the former viewpoint. In summary, all three market indices, SPX, RUT, and NASDAQ, have been trading sideways for some time and the possible breakouts from last Friday have now been nullified.

    The inauguration is still ddr ten days away and we are just starting to see the legislative battle lines begin to be drawn. Du,e as the overall market indices have slowed, the financial stocks remain strong. Buying diagonal call spreads is working well on these stocks, but be sure you know when the earnings announcements are scheduled. Carrying those positions through an announcement is risky. Most er the volatility national australia bank forex rates vary inversely with the values of the corresponding index, so higher levels of volatility normally accompany lower prices on the index.

    When one trafing a divergence from this relationship, it is worth noting. Today's trading took the broad market indices higher, but their volatility indices also optoons higher tradign a volatility divergence. One interpretation is that the large institutional players were buying protection and driving up the option prices at the same time that the index prices were trading higher.

    Perhaps they are concerned about a pull back? That wouldn't be too surprising. So a bit of a breather would not be too surprising. It could be argued that this increase in volatility is simply reflecting the consensus of professional traders uype are expecting a bit of a pull back after such a strong run higher. Sometimes stocks just continue higher in spite of our best judgment.

    Taking profits on at least a portion of those positions might be prudent. This is probably a good time to wait on the market. Allow some of the Trump euphoria to dissipate. This is the time of year when we begin to see a myriad of articles about the year in perspective. As you may know, the last time one may trade SPX options is on the Thursday of expiration week.

    But SPX options do not settle at the closing prices on Thursday or Friday of expiration week. You may download a copy of the spreadsheet in the free downloads section of my website. Why would I keep updating this spreadsheet every du,e for eleven years? One of the reoccurring questions facing me over these years has been: Is it safe to allow these options to enter expiration and expire worthless, or should I close them now?

    As an empirical attempt to answer this question, I started keeping this spreadsheet, comparing the closing price on Thursday ttrading expiration week with the settlement price determined sometime on Friday usually by noon for SPX, but a couple hours after Friday's close for Russell. A key question for index option traders on Thursday of expiration week is how far might the index move between Thursday's hypr and settlement on Friday? So it wasn't just your imagination, it was a volatile year in the markets.

    Therefore, the empirical answer is pretty simple. If your short SPX option is less than ten dollars from expiring in the money on Thursday of v8 option trading week, you would be well advised to close it while you can on Thursday. Of course, that answer of ten ooptions as a guideline is oprions very rough approximation. The most accurate method would be to compute the standard deviation of the option expiring in the money.

    Higher values of implied volatility lead to larger values of the standard deviation and therefore higher dukke of the index moving far enough between Thursday's close and settlement to result in your short option being in the money. Let's look at a couple of examples from this year. The low volatility example is from December expiration. January expiration came during the correction this year, so volatility was much higher.

    This illustrates why I formulated my "Two Sigma Rule" for closing index spreads in advance of expiration. On the Friday before expiration week, I calculate one standard deviation one sigma. If the short option of either du,e my spreads is less than two sigma out of the money, I close the spread. Consequently, I have never been surprised by a short option expiring in the money at expiration. If you choose to carry your index option position to er Thursday of expiration week, the ten dollar guideline is a "quick and dirty" approximation, but calculating the standard deviation and using the Two Sigma Rule would be safer.

    After posting an impressive bull run after the election, the markets pulled back this week, prompting traders to wonder whether the run was over. Some analysts are arguing that the prospects of an interest rate hike are applying the brakes to this rally. Optione am more inclined to think we are looking at a simple case of profit taking. The large players were no hype options trading by dr duke nervous and ready to take profits the minute any softness appeared.

    The trading volume in SPX supports this viewpoint. The two strongest down days this week were Wednesday and Thursday, and trading volume spiked way above average both days. Anecdotal evidence comes from individual stocks. Some of the best recent stock runs abruptly ended ni week for no apparent reason, e. Traders were locking in profits before they got away. The prospects of lower corporate tax rates and a more business friendly administration has fueled this recent market run higher.

    But now the market is taking a bit of a breather. By most measures, this market is at least fully priced and options trading price type be nearing an overbought stage. The so-called Santa Claus rally during the last week of the year is thought to be triggered by large funds kptions losers for tax purposes. This may lower the prices of some attractive stocks that are quickly bought up, resulting in a short-lived rally.

    This effect tends to begin around mid-December and lasts well into February. Therefore, we are entering a time of the year that tends to be bullish, whatever the explanation. Home About Byy Our Clients Videos Downloads Dr. Duke's Blog Coming Events Contact Us Online Store. Bh practices what he preaches! You are entering the "No Hype Zone"! Is The Rally Over or Just On Pause?

    Is the Sky Falling? Waiting On The Fed. Can The Bulls Continue? An Historic Market Rally. Can This Rally Continue? Don't Hide Under The Desk.




    Dr. Duke: Options Trading Coach


    Dr. Duke (Kerry Given): The Calendar Spread

    No-Hype Options Trading (a.k.a. Dr. Duke), founder of Parkwood Capital No-Hype Options Trading is a thoughtful guide to sound options - trading strategies.
    Dr. Duke: Options Trading Coach . About Dr. Duke The trading track records for Dr. Duke 's Trading Group, (No Hype Options Trading), thank you.
    No-Hype Options Trading (a.k.a. Dr. Duke), founder of Parkwood Capital No-Hype Options Trading is a thoughtful guide to sound options - trading strategies.

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