Nb. Our comment from the 10/21/20
When we revealed the ratios, at this point in the October expiry, we rather doubt anyone else other than ourselves saw the scope for this index to move, as it had such a wide Y ratio bandwidth.
In the end, it “just” went down to Y2 (3195) and then all the way up through the Y ratio, to R1 (3530).
Now, we don’t claim to know the future, we just report the facts, as defined by derivatives, which can, and do, reveal what is possible.
In the table above, we have shown the ratio table for the November expiry as it was on the last day of the October one, and as it stands today.
A quick comparison will reveal that it hasn’t changed much.
It also reveals an even wider Y ratio bandwidth than we saw at this point in the October expiry.
However, what perhaps is not so obvious, is that the zone is very likely to continue its upward climb, 3395-3405, then possibly 3455-3455 and even 3495-3505 by the end of this 5-week long expiry.
Even though it has an extra week, please note the expiry is on the 20th, so just before Thanksgiving.
We mention this, as it would be so unusual (not) for the American indices to have a rally, even hitting highs, in the run up to this holiday.
Of course, the big influence this trip will be the election, which, no doubt, will come into focus once they have stopped playing silly-buggers trying to negotiate a higher stimulus from the Fed.
Finally, last expiry was actually very tame, or lame, depending on your view, as it remained very sensitive to what are in reality very minor levels of dynamic delta, but should it get even slightly more aggressive, then the 10% move in 4-weeks we have just seen, could look rather pathetic.
And, the mighty Dec expiry is up next…
Range: 3355 to 3530
Nb. Our comment for 10/28/20
It possibly doesn’t feel like it, but rest assured, those that don’t like volatility should be exceedingly pleased this market remains as sensitive as it is, and as we mentioned above.
The first point to note, is that we have indeed seen the zone move up, and it now resides at 3395-3405.
Again, those fearful of volatility should be very pleased with this, as despite the fact it has been a bit scary coming back down to this level, the fact the market hasn’t gone past it, is a good measure of its sensitivity.
It is also a good measure, that is at least for now, that this market is clinging on to bullish territory.
Having just said that, this now puts the spotlight firmly on yesterday’s close, as it didn’t quite make it back to its zone, meaning it is going to be a rather significant battle between the bulls and the bears today, despite their best efforts.
The other good news, is although both ratio levels have firmed either side of the zone, above it is akin to a tentative creep, whilst below, it is more like a purposeful march.
However, the problem, as it has been from the very start, has been the ginormous Y ratio bandwidth.
Admittedly, it has shrunk considerably, from 535 to 410-points, but this is still huge.
And, if you hang your hat on the market’s sensitivity remaining, then currently Y2 below the zone is at 3245, and above it at 3515.
In either scenario, this represents a serious move, which brings us neatly back round to our opening paragraph, as for those that don’t like, or want, volatility, then best keep those fingers crossed that the zone continues to exert, for as long as it already has, its unlikely and surprising influence.
Don’t forget the last expiry, which went down to Y2 before reversing all the way back up to its R ratios, in a 10% or 350-point recovery. Nb. The purists would note if you caught the down leg at the start, that adds another 3% on to the 4-week total round-trip ride. Nice.
Range: 3245 to 3395
Type: On balance definitely bearish