Volatility Should Pick-Up Following Tomorrow’s Options Expiration

sailboat on the sea with storm and big waves

Look’s really can be deceiving, with the S&P 500 finishing up 34 basis points. The session wasn’t strong, with decliners leading advancers, the S&P 500 EW (RSP) finishing down 37 bps, and the Russell down almost 60 bps.

The interesting thing about the Russell was how it closed right on support around 2,360. I don’t like to talk about the Russell much anymore because of what has happened to it, due to stocks like AMC and Gamestop taking it over and names in the most shorted index running the show. But if the Russell cannot hold this break out, it would be a bad sign of things to come. Even more interesting is that the RSI is sitting right on the uptrend.

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Additionally, we see the percentage of stock above their 50-day moving average breaking down and leading the way lower for the index.

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The actual S&P 500 cash market closed right at 4,704, just close enough to the 4,700 strike price for tomorrow’s options expiration on the opening. Once that expiration pass, this tight trading range we have witnessed since the beginning of November will cease to exist; gamma levels drop, the market will open, and volatility will return. It doesn’t mean the market will go, nor up. It just means that the trading band will grow wider.

Nvidia (NVDA)

Nvidia broke higher today following its quarterly results last night. The stock wasn’t able to pass the previous highs. The RSI is still negative, and the lower gap needs to be filled. I think $265 is still a reasonable place for the stock to settle.

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Disney (DIS)

Disney looks like it may have completed filling the gap today at $154. I saw a lot of bullish options betting on this one yesterday, and like Nvidia, Disney has a gap to fill. I think the stock moving to $168 seems reasonable.

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Mosaic (MOS)

Mosaic was another stock with a ton of bullish activity at the start of the week. The stock is holding on to the uptrend. For now, a push higher to $43 seems reasonable as long as the uptrend holds.

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Amazon (AMZN)

Amazon was up today; I couldn’t tell you why. The stock has been dead money now for over a year. I know people think a range-bound stock is a winner; it isn’t. The stock has been up less than 5% since August of 2020. Could it break out and move to an all-time high, maybe. The company just guided down the fourth quarter out and told everyone their cost are rising; these should be a negative for the stock. It certainly would not work for me. Besides, at this point, it has filled the gap and now successfully retested the broken uptrend. I still believe this is a stock going lower, not higher; when it happens can’t tell you.

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Disclaimer: Mott Capital Management, LLC is a registered investment adviser. Information ...

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William K. 7 months ago Member's comment

How much of "volatility" is emotion driven? It looks like it must be quite a lot, from where I stand. Or am I missing something, possibly a greed/panic oscillation? But that is certainly emotions, isn't it? Or what data are they seeing???