This past weekend was a short one for me, fellow contributor Mark Sebastian, and about 40 students. An eager group joined Mark and I for a one day seminar covering the VIX Index, Futures, Options, and a variety of other volatility related instruments. It was the first outing for a Saturday devoted to the VIX and hopefully will not be the last.
Options Action –
Starts out reviewing what everyone was focused on last week – the price of silver – specifically, the dramatic drop in the price of silver. There was a bearish recommendation on the show last week, however, you had to be pretty nimble to take advantage of it as the iShares Silver Trust ETF (SLV) opened down a couple of points and basically never looked back as it lost over 25% last week.
The VIX was discussed as well. For the second Friday in a row, the VIX and SPX both traded higher. This statement was made in passing as if it may have been a signal for the market’s eventual declines that occurred starting in 2007 and running through 2008. I fired up Microsoft Excel and downloaded some S&P 500 data to see what actually did happen after March 24, 2006. The table below shows the S&P 500 performance for a variety of time periods beginning with the close on
March 24, 2006.
Time +/- Points +/- Percent
1 Day -1.34 -0.10%
5 Days -8.08 -0.62%
10 Days -7.45 -0.57%
1 Month +5.16 +0.40%
3 Months -58.45 -4.49%
6 Months +23.42 +1.80%
1 Year +133.16 +10.22%
Notice a month, six months, and a year later the S&P 500 was higher than this “two Friday” occurrence. A coincidental VIX and S&P 500 move higher is rare, but is usually a shorter than longer term indicator related to the market. Time will tell on this rare occurrence of it happening two Fridays in a row.
As far as trading recommendations, first they discussed a bearish put spread on the GLD ETF that had a pretty attractive payout if the price of Gold moves lower over a short period of time. The second discussion was about the iShares S&P GSCI Commodity-Indexed Trust ETF (GSG). The trade recommendation was based on a continued drop in energy prices which compose a large part of this fund.
There is a column making a pretty bullish case for owning shares of U.S. Steel (X) and a price target of 76.00 is mentioned based on 2012 earnings. Long term price targets always force me to check out the LEAPS and there are plenty of January 2013 Calls listed on U.S. Steel. Strikes from 22.50 all the way up to 90.00 (too high for a price target of 76.00, but worth mentioning) are listed on X. As always, with a longer term outlook on a stock and an aggressive target like 76.00 on a stock that closed just under 46.00 on Friday, LEAPS are always worth checking out if a long position is under consideration.
The first recommendation in the Striking Price column is a bull call spread on the SLV ETF which represents the price of Silver with June expiration. This is mentioned as a ‘contrarian play’ after the dramatic loss of value in the SLV that occurred last week.