Midday Market Recap – SPX, VIX, CIEN

Analysis of S&P 500 from QuickTakesPro’s Michael Kahn:

S&P 500 (SPX) – At the time of this broadcast, SPX was around 1,764.32 down 3.61 from Monday’s close. The upward trendline going back to November continues on and the market is well above that. It also appears to have broken out of its “Rising Wedge” pattern we talked about last week to the upside and is resting just above it. So, at this point, it appears the “Wedge” never did form and the market seems to still be is in its rising trend. However, it does appear to be at the top of its recent ebb and flow.

It is above its 50 day moving average of 1702.68 and the 200 day moving average of 1626.55.

              Analysis of Volatility Index from TradeKing’s Brian Overby:

S&P 500 Volatility Index (VIX) – The VIX is around 13.11 up .18 from yesterday. The VIX index has been boring as of late, maybe reflecting some complacency with the markets at all time highs. Surprisingly, it hasn’t quite dropped to its year lows (around 11) despite this fact.

More interesting to point out if we go out further in time, the November (VIXNOV) and December (VIXDEC) contracts are not much higher than the spot index at 13.90 and 15.14, respectively. The marketplace does not appear to be expecting very volatile markets this holiday season. It is not until we look at the January contract (VIXJAN) that we finally see an implied volatility number above 16. Jan contract is trading at 16.47. Its 50 and 100 day moving averages are at about 15.09 and 14.86, respectively. The 200 day is at 14.39.

    The Chart of the Day is Ciena Corp (CIEN) – At the time of this broadcast, CIEN was at 23.17 down 0.19 from yesterday. It recently went through a big decline off its previous positive trend like most others in its sector (telecom equipment). It appears to be at a current support level determined by a trendline that started back in April – between 23.22 and 23.50, and so Michael, in this example, is treating this support as if it will hold like it has in the past. He also pointed out that  after a big downdraft in the middle of August, CIEN touched the line and then immediately bounced back. Finally, he noted that the Stochastic could be in the oversold range. Even though this indicates a bullish outlook, it might be wise to have a tight stop on the downside below the trendline in case this support area does not hold.

It is below its 50 day moving average of 24.80 but well above the 200 day moving average of 19.54.

Brian Overby’s strategy based on Michael’s analysis: CIEN has had a large increase in implied volatility, but earnings is still a little ways off (12/12/13). It could be related to the recent breakdown of the stock price. Because of this fact, Brain would like to start by looking at a strategy that receives a net credit to the account a Bull Put Spread.

Brian’s Potential Trade StrategyBull Put Spread

- Sell 1 Nov 16 2013 CIEN 23 Put

- Buy 1 Nov 16 2013 CIEN 21 Put

- 11 days to expiration

- Bid .45, Ask .50, Mid .47    – Credit is $0.45 if we take the Bid.

- Maximum potential loss is $1.55      Breakeven:  $22.45

- Maximum potential gain: $0.45

- Total commission to enter this trade is $6.25

Brian’s Potential Trade StrategyLong Call Spread

- Buy 1 Nov 16 2013 CIEN 23 Call

- Sell 1 Nov 16 2013 CIEN 25 Call

- 11 days to expiration

- Bid .65, Ask .67, Mid .65   – Debit is $0.67 if we take the ask.

- Maximum potential loss is $0.67

- Maximum potential gain: $1.33    Breakeven:  $23.67

- Total commission to enter this trade is $6.25

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Brian Overby

As Senior Options Analyst for TradeKing, Brian Overby is a widely sought-after resource for his option trading knowledge and market insights. He has contributed to numerous articles for the Wall Street Journal, Reuters and Bloomberg and has had frequent appearances on CNBC Fast Money and Fox Business News. With nearly 20 years…