Wednesday's Options Alerts

Today's trading range action ended with all of the ETFs still waiting. Notice the words "trading range," as this action has carried over into the intraday trading as well, as we pretty much finished off right where we started. That's not to say there wasn't volatility--there was to some degree--but even this was confined to less than a percentage point in either direction, as measured by the S&P 500 ETF (SPY | Quote | Chart | News | PowerRating) and the Dow (DIA | Quote | Chart | News | PowerRating).

The Nasdaq has gone from champ to chump the past two sessions as recent relative strength has been put on hold, at least temporarily. Downgrades of QCOM, MSFT, and AMZN, as well as a Neutral recommendation, to start the ball rolling on eBAY, burdened tech heavyweights for much of the day. The Nasdaq 100 (QQQ | Quote | Chart | News | PowerRating), not so coincidentally ended the session down about 1.5%, the worst performer among the big three, and the only major with more than a fractional percentage move.

Volume was moderate today as the ETFs continue to consolidate, and once again my message is to stay prepared. The VXN ($VXN | Quote | Chart | News | PowerRating) is starting to send out what might be considered interesting signals. As mentioned, the Nasdaq was the only major index with real downwards pressure applied throughout the session, and although it remains entrenched in its trading range on the daily charts, the VXN was able to put in fresh lows and essentially test the August lows (August Highs in equity prices). This action has the VXN catching up to the VIX in terms of where they stand on their respective daily charts.

Does this signal too much complacency on the part of investors? Could be, but I'm not betting the ranch on a directional bet in equity prices. As I've stated recently, between more constructive technical action in the ETFs than we've seen in an awful long time, and the fact that if volatility is mean-reverting, then the next percentage move in equities might just be up, before down. The real world is never just black and white, and so it goes that the market is full of shades of gray at the moment. Some of the widely followed sentiment indicators are signaling more complacency than price is, but ultimately, it's price and volume that I respect the most..

During times like these, as option traders, it is especially important to keep focused on opportunities. Volatility in many individual issues has decreased substantially and might present better trading opportunities than the actual underlying stocks or ETFs. Without emphasizing either a bullish or bearish stance, many of our trading decisions might present better risk-to-reward ratios in the form of in or slightly in the money puts or calls. In my normal course of poring over charts and looking at the related option markets, I'm finding options as the vehicle of choice as we drive along this rather narrow road called a trading range.

Points of Significance:

Abnormal Options Volume -- This list includes both percentage movers that are normally associated with an increase in options activity, as well as stocks that have unusually high activity, reflecting increased speculation of a potential price move.

Stocks With Spikes in Implied Volatility -- Stocks with Increases and Decreases in implied volatility compared to previous day. Candidates are then screened qualitatively. These lists represent those issues that carry a blend of liquidity and/or technical setups that might deserve further notice.

Spike Up

Spike Down

Please use stops on every trade!