RVPCS – 08.10.2015

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Russell 2000 – Vertical Put Credit Spread


From last Friday (8/7/2015):

“GREXIT is now out of the front running concerns for market moving news. “Good” economic data pointing to stable employment is driving the markets down this morning. As the rate hike in September is seemingly more and more apparent, corrections are being made. The volatility increase is good for getting lower strikes. IV is up to almost 19% after a week of downward price movement. OI is low with the AUG2 being a weekly and not a monthly contract. OI Concentrations are in the range of 1150 and up. Technicals are showing the bearish nature of the RUTs price. RSI is nearing its 1 year bottom. Price is riding the lower indicator for the donchian channel. MACD is down. All of this is providing some guidance to a potential bottom to this short term bearish move. Beneficially for the trade, the increase in volatility provides good premiums, while the bearish move may be ending and stabilizing into the next week. Maybe not. However, there is a decent cushion for strikes 60-70 points away from the price of 1206-ish. Most economic news for next week is coming in on Thursday and Friday morning.”

As could have been hoped, the downward movement from last week abated and has bounced up for this week. The RSI has increased, MACD is little changed, and price is now rising to the middle of its price channel. With the shorter time frame standard deviations have also changed to strikes above the 1145 to 1135 mark for last week. We like to take a 10 point change in strikes, hence the range given. Same news and considerations mentioned above for this trade this week.

We are targeting strikes between 1170 and 1160 with the statistical, technical, historical, news, and open interest metrics providing relative assurance of a RUT price at or above this range between now and expiration morning on August 14th (AUG2) of this week.


1. Standard Deviation (5 days to expiration):

Price 1220
Implied Volatility 17.76%
1 σ 1194
2 σ 1169 (always chosen for RVPCS)

2. Technicals:

Donchian 1196 lower and 1274 upper channel
RSI 42.8 (1 year low = 35)
MACD -10.4, below signal line and below zero with the signal line below zero
Fibonacci Retracements Not Available

RUT _ 2015.08.10

*Charts from Trade Architect™


3. Historical Price Compare:

Time Frame:
For the past 1.5 years

-5.7%

1150


4. Open Interest:

Price at 1207, PUT OI peaks at 1200, 1180, 1160, and 1150 as seen below. Note that the orange highlight is reflecting the price fluctuation as calculations were being performed.

Capture


5. News:

Capture

*From Econoday.com


Disclaimer: The information presented does not consider your personal investment objectives and should not be taken as a recommendation. Further, it shall not be construed as an offer to sell or a solicitation to buy any security mentioned. The risk of loss in any stock, option, or futures trade can be substantial. Consider all relevant risk factors before trading.

 

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