Analysis of S&P500 index from the point of view of volatility trade

Stock exchange news. Currently the motion of American stock index S&P500 lasts within the previously formed zone of wide flat. An attempt to break the flat top line on Friday was unsuccessful, and the proximity of a 50-day moving average lowers the possibility of such break in the nearest future. Taking into consideration the fact that another decision on interest rate is going to be published on Wednesday, the situation is very unlikely to change during the next 2 days. Flat-type movement within the same range is most likely. Current levels of support are option barrier 1150, the flat zone bottom line 1100, and a local minimum 1077. The levels of resistance, in addition to the above-mentioned 50-day average, are a local minimum 1230, option barrier 1250, and a 200-day moving average.

The weekly motion range of S&P500 index future has amounted to 91 future points; the highest actual volatility was observed on Wednesday – the daily motion range has amounted to 48.25 future points; Friday was the calmest day of the previous week with the daily motion range of 19.75 future points. The expected volatility has considerably lowered during the week: VIX index has declined from more than 43 at Monday opening to almost 30 on Friday. Such dynamics of VIX made the tactics of option trade, aimed at volatility sale, rather profitable

The calendar of macroeconomic data issues for the following week:

It is better to withhold volatility trade before the decision on interest rate is issued: despite the expected flat-type motion of S&P500 index futurein the nearest 2-3 days, the current level of expected volatility is low and can considerably rise, which makes volatility trade unsafe. Purchasing volatility in the nearest days can also be unjustified due to the fact that the rise of expected volatility without considerable jumps of actual volatility may be insufficient to cover the time value decay. In case of low expected volatility after the interest rate data is published on Wednesday volatility purchase is possible before unemployment data is issued on Thursday.
Prepared by: MF Academy Department of Options