RVPCS – 10.10.2014

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Russell 2000 – Vertical Put Credit Spread

The market has been down for the week and has been forcing downwards for the past couple of weeks.  The FED came out on Wednesday and made dovish claims for keeping interest rates low.  The market then rallied.  However, these gains soon dissipated and now the market pushes lower.

The strikes at 990 to 970 have very high premiums attached.  The volatility is the highest I have seen so far with an implied volatility of 24%.  This is a good time to make profit.  However, are we on the brink of a crash?  This is the monthly regular expiration contract of Oct 14.  There is higher open interest and higher premiums on non-weekly expirations.  There are massive OI’s (~55000) at 1045 and 1035.  I have not run the dynamic OI to see the change.  Further development is required to reduce the leg work of producing these graphs.

The 990 strike falls below the 2 sigma and Historical Price of -5.7% (largest weekly drop over the past year) metrics.  It’s interesting when the historical price drop is higher than the 2 sigma.  The news over the coming week is heavy, especially later in the week.  It seems as though the market is taking news seriously now.  Perhaps economic news next week (if poor) could continue to drive this bear market direction.

On a technical and charting basis, there are obvious downward trends.  RSI at ~35.  The MACD is below its EMA and the farthest below “zero” line that it has been this year.  Rightfully so as everything leading to now has been up or sideways.  Taking a PUT could be catching a falling knife.  The goal is that our hands are always under that knife.  As always, we will see.

I am targeting strikes between 990 and 970 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 October 18th (OCT) of this coming week.

1. Standard Deviation (6 days to expiration):

Price 1055
Implied Volatility 24.00%
1 σ 1023
2 σ 990 (always chosen for RVPCS)

2. Technicals:

Donchian 1055 lower and 1162 upper channel
RSI 35 (1 year low = 21.6)
MACD 14, above signal line and below zero with the signal line below zero
Fibonacci Retracements Not Available

Please note the chart below was taken for the futures (/TF) price before opening bell:

RUT _ 10.10.2014

*Charts from Trade Architect™

3. Historical Price Compare:

Time Frame:
For the past 1.5 years



4. Open Interest:

Price at 1055, PUT OI peaks at multiple locations as seen below. Note that the orange highlight is reflecting the price fluctuation as calculations were being performed.



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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