Saturday, September 06, 2008

Qs & IWM Weekly Update

Above is the rolling update of the Qs & IWM weekly pivots. I've highlighted the weekly range in yellow on the pivot scale to get a quick visual on how each fared this week. Clearly, the IWM held ground much better than the Qs. Whether that weakness was all DELL driven is doubtful, but it certainly was a catalyst. Looking forward into next week's action the PPs have dropped a couple notches and a test of the March lows seems like a strong possibility.
Here's an interesting situation:
Last week Qs pivot range R4-S4 = 8.16; IWM R4-S4 = 23.76
Next week Qs pivot range R4-S4 = 25.86; IWM R4 -S4 = 32.16
This is true volatility expansion, with the Qs delta from PP to S1 now just about 3X that of last week.
Above is the 3 linear regression study (30,11,3) of the Qs daily and weekly bars.
For the week, the Qs were off $3.66 or 7.8%. That's the widest range weekly down bar all year and now that the Qs have broken through mid July support, things could get dicey. All the mid-panel daily indicators are solidly oversold, but the weekly chart is showing the probability of more of the same to come and is in a basically neutral mode. The lower LR30 channel support band is pegged at 41.77, which is S1 for the week.

Compared to the Qs, IWM looks almost bullish, with both the daily and weekly mid panel technicals chattering along on a neutral track. The caution here is most obvious on the weekly chart as IWM retraces through LR30 upper channel resistance. If things do get ugly next week and IWM starts to slide, the first target to the downside will be the LR30 mean at 68.83, a half buck below S1.

I expect the Qs pivot range to be significantly narrower next week, as the expansion demonstrated last week was extraordinary. As such, my focus will be on selling premium at every opportunity. With 14 days until expiration, I would normally expect premium decay to start accelerating in the OTMs and the dramatic jump in Qs put premium last week has only added support to my focus on the Qs next week. We shall see.


GS751 said...

When in doubt sell volatility, as long as ur HV / IV spread is nice. A lot of the market makers are getting slaughtered trading this market, because they have under hedged a lot of things. I'd much rather be short theta than directional gamma any day in these market's. When I have been selling volatility thought I am keeping my positions smaller than usual.

bzbtrader said...

Thanks for the insightful comment George. I'll explore my current bias in other posts next week. I think the current situation with the Qs is unique, which is why I focused on it this weekend. Like you, I'm hedging risk by trading small.

GS751 said...

Another thing Is I'm not sure about the global macro outlook... With the field in Brazil, seeing whats that going to do to the oil markets.... Just too many unknown variables. I'd rather sit on my hands (as I have been doing, even though it is hard sometimes) than take un-prudent risk.

bill said...


thanks for your insights on the last post. I am not trying to just blidly follow your instructions.

I earlier had put lot of effort in finding out iron condors for consistent profits. to say the least it creates sleepless nights, so not worth it.

Now butterfly - i read in elitetrader somewhere that you should aim to get a free butterfly.
so try legging into it. Buy the call at support and sell the calls on resistance. I would say try to get as close to 0 or +ve credit.

i will try to see how far its doable.