“How to see the world’s investment landscape through a different prism!”
First, a little bookkeeping before I start today, directly below our two [2], 20
Day Range MA’s; Blue New York [7AM - 3PM EST], & Gold the day’s range.
click to enlarge ALL charts in the blog
Looking at this chart closely, you’ll see the declining influence of gold trading
in New York, and the rise of the rest of the world [Asia & Europe] … five weeks
in a row of declining average ranges in New York, and 5 weeks in a row of
advancing average ranges in Asia & Europe … and over the last 2 weeks of
trading [10 days], the average in New York is somewhat deceiving, because 8/10
days saw ranges below $7, and 2/10 saw ranges above $12 … without those 2
days, the Blue line would be even worse than what it shows in the graph.
As I stated on Friday, over in “Download Links” is a new directory, called
simply enough “Options Directory” … here, you’ll find four [4] books on
options [all in Adobe PDF] that, IMHO, are very good at educating you
further via options. Today’s title gives the three most important elements
necessary for success, in attempting to use options financial derivatives to
“escape to success”. In “trading”, e.g. the PAMM, “price” is most important,
followed by “volatility” at a distant second place, and time usually isn’t a
factor. “Positioning trades” inside an investment portfolio via options, though,
and the landscape changes immensely, and it doesn’t make any difference if
you’re talking about gold, or any asset class … “the world changes through the
prism of options, and what you think you saw before doesn’t matter … cuz of the
“option goggles” you’re now wearing, you should now have an entirely different
investment view, and see the trading world completely different than before”.
Here, “implied volatility” [IV] is the most important factor, very closely tied
with “time” [days left until expiration] … “price” is the least important factor.
“How many times have I heard in my lengthy career, somebody say to me, that
they have simply bought a “call”, where the price of the underlying instrument
went UP, and the price of the call went down”! … and their reaction? … “WTF
is this shit”!!? … it’s because they don’t understand the importance of volatility
… and so, the “IV” went down, and that matters most, not where price went”!
So, what exactly is “Implied Volatility” [IV]? … and what is
“Historical Volatility” [HV]? … how are they defined? … and finally, what
does the difference between the two mean for my trades? … IV is
traditionally defined as the markets “expectation” of the next 30 days future
volatility, and is sometimes referred to as “IV30” as well as simply “IV”. Over
in “Download Links”, in the “Information Tutorial”, I give readers the website
resource of trading information for FREE [if you choose, you can pay for
“streaming” real time prices]. Directly below, from “Market Chameleon” is a
screenshot, which gives the GLD options chain for GLD for EOD
[End of Day] for Friday, November 2, 2018, and I’ve highlighted the recent
C2 signals advisory trade in the 12/21/2018 expiration.
As you can see, if you enlarge the chart by clicking your mouse on it, you get a
lot of info here … calls & puts IV, for both bid & offer, and the “delta” of the
option [delta = percent the specific strike moves relative to GLD when it
moves].
“Historical Volatility” [HV] is simply defined as the ACTUAL, realized
volatility, of GLD over a 30 day period, not what was EXPECTED by the
market. Now of course, the relationship of these two [2] volatilities are going
to change over time, simply cuz market participants get bullish & bearish, and
attitudes about price change. However, what can’t be denied, cuz history
records the facts, is the fact that approximately 90% of the time IV > HV,
meaning options are OVERVALUED by the market to what actually
happens. The ramifications of this should be obvious; “the vast majority of the
time, selling option premium is the way to make consistent money”.
Directly below are two [2] charts; the first is GLD IV versus GLD HV, from
2007 to the middle of 2016, and the second is the last year.
“BLUE LINE is IV … GREY LINE is HV”.
As you can see, from 2007 to the middle of 2016, only for a few months, has the
gray line been above the blue line, meaning that the vast majority of the time,
the market has overvalued upcoming volatility in GLD, and options are
overpriced!
The second chart, directly below, measures the 20 Day MA of IV versus HV,
over the last 12 months … this chart is from “Market Chameleon”.
“Orange line is IV … Gray Line is HV”.
Now, I’m going to introduce 3 new charts [“yes, a lot to “chew on” today, but
you can handle it”!]; the first is the 1 YR chart of the IV in GLD, directly
below.
The second chart is the 1 YR chart of GLD price with volume overlay, directly
below.
Match up dates of price highs & lows with high & lows of IV, and there is a
correlation.
The third chart, which is the most important IMHO, is “Option Skew”, which is
defined as the measure of market implied volatility to both the upside and the
downside, and the comparison of how they relate to each other. That 1 YR chart
is directly below.
So, the 25 delta strikes in the 12/21/2018 expiration, looking at the “Market
Chameleon” screenshot from Friday, are the 121 GLD Call & the 114 GLD
Put … the call is 4.36 OTM [Out of The Money] from the closing price of GLD
at 116.64, is 0.73 offered, AND the IV is 12.4 … the Put is 2.36 OTM, from the
closing price of GLD, is offered at 0.72, AND the IV is 10.6 … take the put IV
and subtract the call IV, and in the chart you can clearly see that the market is
moderately bullish on gold [-1.8]! … “right now, the calls are OVER priced cuz
the market is bullish gold!
So, let’s look back over the last year and look at the extremes in GLD &
“option skew” by comparison… during the middle of April 2018, price topped
out in GLD right at the time the “option skew” went heavily bullish. Before
that, in the middle of December 2017, when GLD was bottoming,
“option skew” was heavily bearish. “The importance of this “skew” can’t be
denied … at market tops the public is bullish, and at bottoms the public is
bearish; not exactly a “news flash” in any market, but from a volatility
perspective it’s important to note where IV is at and how it should influence your
strategy for profit”.
Cuz bottom line OF ALL OF THIS I’M PRESENTING TO YOU TODAY is
simply this; “you don’t make money from guessing price, you make money via
high probability of success trades through changes in volatility”! Throw
depreciating “time to expiration” into this equation [a/k/a “Theta”], and you
can set up highly probable successful trades that consistently make money
over time, with PREDEFINED RISK. “And, as current C2 subscribers know, I
took full advantage of gold volatility last week, and nailed the trades perfectly”!
Now, I realize today’s blog is a “mouthful” for Newbies … I get that, but the
good news is, you don’t need to be an options expert professional like me
… “knowing” what’s going on, meaning when I put on position trades you
generally have an idea of why, versus setting trades up and reacting in real time
to market price changes, and volatility flows, are two [2] entirely different
animals … it’s not “brain surgery”, it simply takes experience & knowledge,
and putting them together so it becomes as easy as breathing … anybody can
do it, and if you are so motivated to DIY, I give you the tools in
“Download Links”.
However, you don’t need to do this, unless you so desire … the C2 advisory
service for GLD options, pretty much takes care of the whole banana … you
get THREE MONTHS FOR FREE, which I’ve explained before gives you time
to 1) open an options account, 2) bring yourself “up to speed” and educate
yourself in real time, and/or 3) if you’re already an options trading client
somewhere, it gives you ample time to follow the trades … after that, it’s
60 cents a frickin’ day … “unless anybody else reading this works for free, is
that what is expected of me? … cuz I got to tell you, IMHO paying 60 cents a day
is literally nothing … unless you’re homeless & reading this at the library, which
I highly doubt”! … in the “Information Tutorial”, I list some alternatives to C2
brokerage.
Please fully realize, the positions I put on last week controlled 300 OZ. of gold,
and my total predefined risk was a little over $1200 … and that’s what the
initial margin was for the trade … my real risk was just slightly half of that in
the 12/21/2018 expiration … if gold went to “0” or “∞”, that was my MAX risk
in the trades combined … I was trading 3 options contracts per side, and did 5
round turn [RT] trades … more than likely, this activity will be repeated in the
future, and total RT trades will be probably around 30+ trades per month.
Now, a brief discussion about trade commissions, and if I have to point out
why they are important, you’re missing the point … “all RT commissions ROB
YOU of money”! Most “mainline” option brokerage houses, e.g. Schwab,
ETrade, Fidelity, etc., will charge a flat fee of $3 - $5 per trade, and then
something per options contract … if you’re a large trader [10 contracts or
more] this isn’t a problem, but if you’re a small trader [less than 5 options
contracts] it becomes prohibitively expensive. Generally, it would be about
$2 per RT [or $1 per side] per 1 contract, which means total commissions paid
for the month, will more than likely be about 3*2*30 = $180+, trading 3 lots.
Use C2 brokerage, via “auto trade”, and all of your options trades are
commission FREE. “Auto Trade” costs $49 / month, and via “auto trade”, all
of my trade signals are automatically executed in your account at the time I
make the trades … you set the trade parameters for your account, in terms of
the volume you want … there are no time delays, and in many cases you don’t
have minutes to screw around before prices change to your detriment
… “your commission savings pay for the “auto trade”, and if you trade more
heavily than the signals, which is highly likely, the money you save is even larger
… throw in the measly $18/month after the free trial, and for most of you, THE
ENTIRE THING IS FREE from commission savings”!
Seriously, I don’t know how it gets any easier than this. If you trade 10 options
contracts, after the FREE trial, you’d pay 49 + 18 = $67/month … your
commission savings would be 10*2*30 = $600 … YOU PAY $67 and YOU
SAVE $533 … “do I really need to explain this to you? … quite frankly, using
“auto trade” @ C2 is a no brainer … even for a small investor, EVERYTHING
BECOMES FREE, via commission savings … I simply don’t know of any way it
could be more advantageous to you, and in some cases depending on the size of
your account and the number of options contracts you trade, it even pays you
money! … this is how it should be, and now is via C2”.
Next week sees two [2] important events; 1) I switch PAMM trading to Asia
& early Europe starting early Monday morning, and 2) midterm elections on
Tuesday … gold, either spot and/or GLD via the ETF, looks set to be volatile.
Simply looking at the GLD “skew”, any market disappointment in terms of
gold’s outlook into 2019, could see sharp declines cuz the public is very bullish
gold at the moment … it will be an interesting week to say the least.
I’m currently working on “Information Tutorial, Part II”, which I hope to have
done soon, and explains my investment strategies regarding the utilization
& trading of options in my own portfolio, now and in the past. Regardless of
the market(s), the same concepts & strategies apply, and are universal in
scope. Think of this for a second: “any options trader/investor that trades
options in quantities of 3 or more in ANY MARKET, which is about 95% of the
option trading universe, should open a C2 signals advisory service, charge $0,
make himself its only client and then close subscriptions, and with “auto trade”,
he/she would pay a flat $88 per month, and can trade thousands of options
contracts where all RT COMMISSIONS ARE FREE. If he/she traded 1,000
contracts, which is easy to do with spreads, iron condors, butterflies, etc., that
would work out to 8.8 cents RT commission per contract … 2,000 contracts and
its 4.4 cents per contract … there isn’t another place that I know of, where this
kind of savings is possible … maybe it exists, but I don’t know of it … and the
money savings into your pocket add up quickly … thousands of dollars per year,
maybe more”!
I covered a lot in today’s update … “You want a total package that is FREE,
and in most cases, actually PAYS YOU, while you do nothing but watch once set
up, and at the same time have complete control over your investment account”?
… Well, here it is.
Have a great rest of your weekend everybody!!
-vegas
OUR TURNKEY FOREX “PAMM/MAM” IS OPEN AND
OPERATIONAL, AS WELL AS OUR C2 OPTIONS ADVISORY
SERVICE. DETAILS IN “DOWNLOAD LINKS” SECTION IN
RIGHT HAND COLUMN. START YOUR JOURNEY FROM
WHERE YOU ARE AT TO “ESCAPE TO SUCCESS”!
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