To gain an edge, this is what you need to know today.

Gamma Hedging

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • The chart compares QQQ with  Cboe NASDAQ 100 Volatility Index (VXN).
  • Most investors are familiar with the volatility index (VIX). VIX, also known as the ‘Fear Gage,’ is based on S&P 500 (SPX) options.  VXN is similar but is calculated on Nasdaq 100 (NDX).
  • QQQ is an ETF that represents NDX.
  • The normal behavior is for VXN to go down when QQQ goes up.
  • The chart shows that yesterday VXN went up along with QQQ.  This is abnormal behavior.
  • This abnormal behavior is likely caused by gamma hedging.
  • Gamma hedging is a sophisticated technique to hedge risks from options when the underlying market moves rapidly.
  • In plain English, somebody bought extremely aggressively call options on tech stocks with the aim of running tech stocks up by their own buying. Market makers were likely forced to hedge by buying stocks to cover their risks.
  • This behavior is similar to what caused the run-up in tech stocks in August and the ultimate swoon in September. At that time, the buyer of the options was reportedly SoftBank (SFTBY).

New Buying From Europe

It appears that aggressive new buying was coming from Europe in tech stocks starting about 4:00 am ET this morning.

Vaccine Trial

J&J (JNJ) has paused its vaccine trial due to the illness of a patient.

Earnings

The earnings season has started.  JPMorgan (JPM) and Citigroup (C) earnings are good.

Big Events

Apple (AAPL) is introducing iPhone 12.

Amazon (AMZN) Prime Day is underway.

CPI

Core CPI came at 0.2% vs. 0.2% consensus.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) in the early trade. Smart money is🔒.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is 🔒oil in the early trade.  Smart money is 🔒.

For longer term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is neutral but due to artificial option buying, tech stocks are likely to be driven much higher.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1906, silver futures are at $24.51, and oil futures are $40.22.

S&P 500 futures resistance levels are 3600  and 3630: support levels are 3460, 3420 and 3390.

DJIA futures are down 182 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒in cash or treasury bills or short term bond funds or allocated to short term tactical trades and short to medium-term hedges of 🔒 and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

This post was just published on ZYX Buy Change Alert.

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