By Chris Ebert

These days, there are lots of different options expirations available, so no single expiration is quite as important as it may have been in the past when availability was much more limited. Even so, some options expiration dates, such as September 20, 2014 are more significant than others because they coincide with expirations of other derivative contracts, namely futures.

When the expirations of options and futures coincide – generally on the third Friday of March, June, September and December – the effect on the stock market can be magnified. The term witching is often used synonymously for the final hour of expiration. Triple-witching or quadruple-witching simply refers to the number of options or futures expiring at the same time.

Witching occurs this Friday, September 19.

To understand the potential effects of witching this week, it may be helpful to take a look at the reasons that options expiration can affect stock prices. Once the reasons are known, it should become easier to notice the effects, thus allowing trader to differentiate those effects, which are generally temporary, from the effects of broader-market forces, which may be more permanent.

Nobody likes to be stopped out of a stock during witching only to have the stock reverse when the effect of witching disappears the following week. The following analysis looks specifically at this Friday’s options witching on the S&P 500. To begin, it is important to know what types of options are currently profitable.

Stocks and Options at a Glance 09-13-14

Click on chart to enlarge

* All profits are calculated at expiration, as a percentage of the underlying SPY share price. SPY is an Exchange Traded Fund (ETF), the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) that closely tracks the performance of the S&P 500 stock index. All options are at-the-money (ATM) when-opened 4 months (112 days) to expiration. (e.g. Profit of $6 per share on an expiring Long Call would represent a 3% profit if $SPY was trading at $200, regardless of whether the call premium itself actually increased 50%, 100% or more)

You are here – Bull Market Stage 1 – the “Digesting Gains” Stage.

Options Market Stages

Click on chart to enlarge

On the chart above there are 3 categories of option trades: A, B and C. For this past week, ending September 6, 2014, this is how the trades performed on the S&P 500 index ($SPY):

  • Covered Call and Naked Put trading are each currently profitable (A+).
    This week’s profit was +2.6%.
  • Long Call and Married Put trading are each currently profitable (B+).
    This week’s profit was +1.9%.
  • Long Straddle and Strangle trading is currently not profitable (C-).
    This week’s loss was -0.8%.

Using the chart above, it can be seen that the combination, A+ B+ C-, occurs whenever the stock market environment is at Bull Market Stage 2, known here as (more…)

By Jeff Pierce

Gold and Silver both look as though they are approaching some obvious support levels and when I start to see things that look too obvious I start to think the opposite is going to happen.

Gold’s support is roughly $1160-1220 as it’s not even in that zone yet, but Silver is in it’s support zone ($18.20-18.70) Watch how Gold reacts at it’s upper level or how Silver reacts to it’s lower level (whichever comes first) for clues. It’s to early to know if support is going to hold and placing bets right now in my opinion is really just gambling.

One other indicator that concerns me is the RSI for both of these charts. Both RSI levels are starting to gain steam on the downside and there isn’t really any positive divergence, which would be a key if these markets were going to bounce. In fact, the more selling we see in these charts the RSI will weaken considerably further, indicating a big move down is coming. Another way to look at it is the chances of a snap back rally decreases the weaker the RSI is.

gold silver

11
Sep
stored in: Sector review and tagged:

By Poly

This is an excerpt from this week’s  premium update  from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. Now offering monthly & quarterly subscriptions with 30 day refund. Promo code ZEN saves 10%. 

aaaThis looks to me like a very controlled and deliberate move in the equity markets. We had a 100 point move in the first 15 days of this Daily and Investor Cycle, so obviously it has taken some time to consolidate those gains. Coming into this past weekend, I was not satisfied in taking a long position on the daily chart because I was concerned that a real Half Cycle Low was not evident.

But it now looks like the weekend outlook for a further drop and Half Cycle Low has played out. On a shorter timeframe, sentiment has cooled slightly, while technically the S&P is now back to a position that has in the past spawned many a Cycle rally. With such a dominant long term trend behind this market, and being the 1st Daily Cycle, this 35 point retracement in the timing band for a HCL is certainly a great candidate for yet another “buy the dip” trade.

9-10 Equities Daily

 

Related Posts:

Investor Cycle Sell-Off In Crude

S&P Has Topped For This Daily Cycle

Strength In Aluminum Stocks Good For Markets

 


By Chris Ebert

Rarely is the disconnect between the stock market and the economy more apparent than in an extreme Bull market. There are times when stock prices rise so far, so fast that the trend becomes self-perpetuating, feeding on the greed of traders who don’t want to miss the rally.

When such a self-perpetuating trend takes hold, it often seems as if the only thing driving stock prices is the prices themselves, while fundamental economic changes seem to be ignored. Here, such a trend has been given the name Lottery Fever; and when it infects the stock market it’s almost as if no news – not declining corporate earnings, not declining employment, not even the threat of war – can bring stock prices down.

Because traders become so focused on rising stock prices that little else matters, there are only three ways Lottery Fever can end:

  1. Stock prices stop going up (consolidate) long enough to make traders look away from the price long enough question the fundamentals, causing prices to fall
  2. Extraordinarily horrific economic developments demand traders’ attention, causing prices to fall
  3. Stock prices rise so high, so fast, that the market runs out of buyers, causing prices to fall

When it ends, and it will end – someday – it can quickly take away unrealized profits from those who own stocks, mutual funds, or virtually any long-equity position. The following analysis explores ways traders can take actions now to help ensure that all those unrealized profits don’t slip away when Lottery Fever ends.

Using history as a guide, the end is no more than 4 months away. That doesn’t mean the current Bull market will end, necessarily, rather that euphoria will take a break. Lottery Fever will take a break, even if the Bull market continues, almost certainly before January 2015 is over. Now is the time to prepare.

Stocks and Options at a Glance 2014-09-06

Click on chart to enlarge

* All profits are calculated at expiration, as a percentage of the underlying SPY share price. SPY is an Exchange Traded Fund (ETF), the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) that closely tracks the performance of the S&P 500 stock index. All options are at-the-money (ATM) when-opened 4 months (112 days) to expiration. (e.g. Profit of $6 per share on an expiring Long Call would represent a 3% profit if $SPY was trading at $200, regardless of whether the call premium itself actually increased 50%, 100% or more)

You are here – Bull Market Stage 1 – the “Lottery Fever” Stage.

Options Market Stages

Click on chart to enlarge

On the chart above there are 3 categories of option trades: A, B and C. For this past week, ending September 6, 2014, this is how the trades performed:

  • Covered Call and Naked Put trading are each currently profitable (A+).
    This week’s profit was +2.7%.
  • Long Call and Married Put trading are each currently profitable (B+).
    This week’s profit was +4.2%.
  • Long Straddle and Strangle trading is currently profitable (C+).
    This week’s profit was +1.5%.

Using the chart above, it can be seen that the combination, A+ B+ C+, occurs whenever the stock market environment (more…)