THE OPTION STRATEGIST

McMillan Analysis Corporation

P. O. Box 1323, Morristown, NJ 079621323
email: info@optionstrategist.com

Editor: Lawrence G. McMillan

th

Our 25 Year of Publication

April 1, 2016
Research: Ryan Brennan

MARKET COMMENTARY
There are still no sell signals, although
overbought conditions exist once again.
We remain long for the short term.

he rally off the February lows continues to make

new relative highs. Last week, we had thought
that a correction was due, and there was a 2-day
pullback, but Id hardly call that a correction. $SPX did
not even pull back far enough to touch its rising 20-day
moving average. In fact, the last time that it closed
below that MA was on February 12th, and the last time
it touched it was February 24th. These long periods of
levitation above the moving average are fairly
common (there was one just last October see Figure
1), and they dont mean a whole lot as far as predicting
future price movements.
What is perhaps more interesting is that $SPX
touched the +4 upper modified Bollinger Band
(mBB) this week. It needs to close above it in order to
set up a sell signal, and it has not done that. It has
repeatedly closed between the +3 and +4 Bands, but
that just means that a modest overbought condition
exists. That alone is not bearish. What would be
bearish would be for $SPX to close above the +4
Band, and then to subsequently close below the +3
Band. That would constitute a sell signal. As you can
see from Figure 1, the rally last October culminated in
two such sell signals the second of which was an
excellent signal. I would fully expect something similar
now, but the market doesnt have to do what we expect.
For example, in the Spring rally of 2008 ( we still see
similarities between early 2016 and early 2008), the
rally that failed in May 2008 did not generate a mBB
sell signal.
As for more traditional chart points: there is
support at 2020 (last weeks lows), which is just below
the current level of the 20-day moving average. There
are many other support levels below that as well: 2000,
1970, 1950, and the double lows at 1810.
April 1, 2016

Stocks Only Data

Date

Adv

Decl

Net

20160309
20160310
20160311
20160314
20160315
20160316
20160317
20161318
20161321
20160322
20160323
20160324
20160328
20160329
20160330
20160331

2486
1206
3491
1313
746
2891
3088
2375
1599
1472
484
1793
1793
3406
2153
1794

1136
2305
458
2178
3057
914
748
1248
1820
1878
3498
1524
11561
486
1310
1703

1150
-1099
3033
-865
-2311
1977
2340
1128
-221
-406
-3014
269
232
2920
843
91

90% Days are shown in red

There is risk of loss in all trading

Figure 1

Page 1

Equity-only put-call ratios are interesting. The weighted ratio remains on a buy signal, as it has generally
made new lows almost each day (Figure 3). The little wiggle on its chart from yesterday is not significant
according to our computer analysis programs and thus this weighted chart remains bullish. The standard ratio
is another matter, though. As you can see in Figure 2, the last time that the standard ratio made a new low was
7 trading days ago. A sell signal occurs if that low holds for 10 trading days, so its nearing a sell signal. The
analysis programs are now saying there is more than a 90% chance of that happening. However, there are still
large numbers coming off the 21-day moving average, so even if a sell signal comes in now, it could easily revert
to a buy signal. So, in order to not get ahead of ourselves, we will wait for the full confirmation of the standard
ratios sell signal. If that does happen, it could be significant, because the put-call ratios called the February
bottom within a day. Of course, at that time, both ratios gave buy signals more or less simultaneously, while at
the current time, the weighted ratio doesnt appear ready to confirm a sell signal yet. This situation is vague
enough that we are not going to buy $SPX puts based on it, but one should further tighten stops on long positions.

Figure 2
Figure 3
Market breadth oscillators have remained on buy signals. Despite flirting with sell signals early this week,
the bears were never able to gain any negative momentum, and breadth was positive each day (see table, page 1).
Thus the oscillators both remain on buy signals, and they are in modestly overbought territory. The overbought
condition is actually positive where breadth is concerned, because it indicates that the rally is broad. It would take
two days of decently negative breadth to roll these
oscillators over to sell signals at this time not
impossible, but its something that hasnt happened in a
while.
Volatility indices were sharply lower this week.
Once Fed Chair Yellen spoke on Wednesday, the bears
last hope for volatility in the market seemed to wane.
$VIX closed below 14 for the first time since last
August, before the market had that late August
meltdown. As you can see from Figure 4, $VIX
hovered in the 12-16 range for a long time in 2015
before stock prices eventually broke. So, just because
$VIX is now in something of an overbought state below
14, doesnt mean that the stock market is going to
collapse. In fact, as long as $VIX continues to close
below 16, that should be a benign state and thus stocks
Figure 4
April 1, 2016

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Page 2

can continue to rise.

The construct of the $VIX futures and CBOE Volatility Indices is still bullish. The futures are trading with
premiums extremely large premiums in fact. Also, both term structures slope upward steeply. And thus these
are bullish signs for stocks. See the following short article about the term structure of $VIX futures and how the
media is misinterpreting it.
In summary, there are no confirmed sell signals, although the standard equity-only put-call ratio is very
close to becoming the first one. There are enough overbought conditions that sell signals could arise quickly
especially if the market has a few bad days. But so far, that hasnt happened, and thus we remain short-term
bullish. Tighten stops on longs, and dont be complacent, but its not time to be short yet, either.#

VX Expiration
Dates
4/20/2016
5/18/2016
6/15/2016
7/20/2016
8/17/2016
9/21/2016
10/19/2016
11/16/2016
12/21/2016
1/18/2017
2/15/2017
3/22/2017

Volatility Statistics
On 03/31/16, $VXST = 12.25, $VIX = 13.95,
$VXV = 17.08, $VXMT = 19.03
Regular $VIX Monthly Futures
Apr16 May16 Jun16 Jul17
15.93 17.63 18.43 19.08
42%
35%
31%
25%

Futures
20-day HV

$VIX WEEKLY futures:

Symbol: VX14
VX15 VX17
VX18
Exp Date: 4/06/16 4/13/16 4/27/16 5/04/16
Futures

14.75

15.48

16.55

16.63

ANNOUNCEMENTS AND INFORMATION

Recorded Webinar Coming Soon
Lawrence G. McMillan presents:
Is it 2008 All Over Again?
Available now as a downloadable file.
Http://www.optionstrategist.com/products/recorded-webinar-it-2008-all-over-again
Description: there are a number of similarities between the 2007-2008 market and the 2015-2016
market: from early warning signs in 2007 and 2015, to market movement in early 2008 and early 2016.
Both price and volatility movements will be analyzed. These similarities include signals from some
of our proprietary indicators such as modified Bollinger Bands and $VIX spike peak buy signals,
as well as others. These systems will be fully described in the seminar.

April 1, 2016

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Page 3

Misunderstandings About the $VIX Futures Term Structure

t is worth noting that there has been a lot of discussion in the media about how cheap $VIX is, and these articles
then have a bearish connotation for stocks. Two prominent articles appeared in the Striking Price column in
Barrons and on Zerohedge.com. The Zerohedge article covered a lot of interesting things about volatility
futures and ETFs, but both of these articles mistakenly asserted that an upward-sloping term structure in the $VIX
futures is bearish. I have seen the same opinion expressed many times on CNBC by traders who should know
better, although I havent seen it there this week.
Its easy to see why people make this incorrect assumption. It is based on the fact that they think futures
prices are predicting something. Thats not the case most of the time. So just because the current April $VIX
futures contract is trading at 16, and the September (2016) $VIX futures are priced at 20, it doesnt mean that
futures traders are predicting that $VIX will be 20 by September. But once one makes that incorrect assumption,
then he comes to the conclusion that $VIX is going to be higher by September, and thus stock prices are going to
be lower (since they move in opposite directions).
So these articles make the standard (and incorrect) media analysis that if longer-term $VIX futures are
more expensive than the near-term ones and thus are predicting an increase in volatility, then the stock market is
going to decline. Or, they might also surmise that if the longer-term futures are predicting $VIX is going higher,
then its a good time to buy $VIX calls now.
Of course, we know thats far from the truth, but why let facts get in the way of a good bearish story? An
upward-sloping term structure is a natural byproduct of a bullish market, and thats all there is to it. Yes,
eventually, at the end of the bullish market phase, the term structure will be predicting an increase in volatility,
but what about all the other days during the bull market when it was in the same state, but the market just kept
going higher? As with any of the volatility indicators, it is a change of trend thats important. As long as the
current trend persists, stocks can rise.
What makes term structure slope upward? It is fairly easily explainable. We all know where short-term
volatility is: all we have to do is look at $VIX or the nearterm futures, or look at the implied volatility of the near-term
$SPX options (which is what $VIX is calculated from). Since
were in a bullish market phase right now, volatility is
relatively low, and thus these short-term volatility measures
are reflecting a low volatility in the neighborhood of 14% 16^. So thats one near-term data point.
But what if someone asked a market-maker to make
a market in a 3-year $SPX or SPY option? What volatility
would be appropriate? No one knows where volatility is
going to be in 3 years, so the market maker would normally
just use the average volatility of $SPX. On average, the
implied volatility of $SPX options is in the low-to-mid 20's
Figure 5
(thats actually higher than the longer-term realized volatility
of $SPX, but thats the basis for a whole other article). So
now we have two data points. See Figure 5.
For the pricing of other options along the time spectrum, we can say that their implied volatility would
follow a logical path: if its a short-term option say two months then its going to be close to the near-term
implied volatility, but since there is some more uncertainty about pricing a two-month option than a one-month
one, wed have to allow for some return to the normal or average volatility. Thus the two-month option is
going to be a tad more expensive (in terms of implied volatility) than the one-month one. Again, this is within the
context of an ongoing bullish, low volatility phase in the stock market.
In a similar manner, if one were asked to price a two-year option, there is a great deal of uncertainty, so
one would price it very nearly at the same volatility as the three-year option near the average, longer-term

April 1, 2016

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Page 4

volatility of $SPX. This gives us two more data points (see

Figure 6).
Finally, by inductive reasoning, we can estimate where
a 6-month option and a one-year option would be priced. See
Figure 7.
And thats why the term structure of the $VIX futures
slopes upward in a bullish market. It has nothing to do with
futures traders trying to predict an increase in volatility over
the coming months.
Figure 8 is a graph that we publish from time to time.
It is a snapshot of $OEX implied volatility taken some time
Figure 6
ago ($OEX options were the most liquid index option for a
long time). In it you can see that the near implieds swing from
very low levels to very high levels, at times. But longer-term
volatility is generally priced at about the same level all the
time. Thats the actual proof of what weve shown in the
argument above.
In fact, one of the best trades of all time was to short
that longer-term volatility (and probably hedge yourself
somehow), because as time passes, and the data points move
to the left, they are continually dropping. We call this The Big
(Volatility) Short, and we often have a position along these
lines (currently Position S761). When $VIX futures were first
listed in 2003, the term structure and futures premium was very
Figure 7
large. Hedge funds made a fortune shorting the longer-term
contracts and covering them when they became near-term.
That game ended with the 2007-2008 bear market, but has
since come back into vogue with the seven-year bull market
that were currently in. Traders today are more apt to buy XIV
than to short $VIX futures (or as we do buy VXX puts).
But the idea is the same: the term structure will always slope
upwards in a bull market, but the individual futures lose ground
as time passes. Hence those longer-term futures are not
predicting a volatility increase. They are merely reflecting the
uncertainty of pricing a longer-term option, when near-term
options are inexpensive.
Figure 8
As we noted above, eventually the stock market will
top and begin to fall, and then volatility will increase. So, yes,
at that specific time, the longer-term futures might have actually been a good predictor of volatility. But thats just
coincidence; its not predicting anything. Its like saying a broken clock is right twice per day.
The term structure also slopes downward in a bear market for exactly the same reasons, but in a bear
market, near-term options are very overpriced, and thus near-term volatility is high, while longer-term volatility
(3-year) is still in the same place. So if one fills in the other data points, the term structure will slope downward
in a bear market.
So now you know why (or have been reminded why) the term structure slopes upward in a bull market.
And the next time you see an expert on TV or in the print media saying that longer-term $VIX futures are
predicting an increase in volatility because they are priced higher than near-term futures, you can say That guy
doesnt know what hes talking about! And if he doesnt know what hes talking about on that subject, why
would you listen to him on another one?#
April 1, 2016

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NEW RECOMMENDATIONS 3/31/2016

Special Biotech Situations
Stock
Symbol
CLVS
HRTX
SRPT

Expensive
Month(s)
April
April
May-Jun

Comment
04/12/2016 FDA panel re NDA; drug trial results during May
FDA to conclude review by early April
PDUFA hearing 5/26/2016

The HRTX April strangles can still be bought, as we

continue to await FDA news there.
Acadia Pharmaceuticals (ACAD) received a favorable
ruling from the FDA, but one would have had to buy the
straddles in advance of the release of the FDA briefing
documents in order to make money on the initial move.
We did not, but we are going to continue to hold the long
calls, as it is often the case that bad news is incorporated
immediately into the stock price in these biotech events,
but good news often takes some time to assimilate.
Clovis Oncology (CLVS) has an FDA event this week, and
its options are very expensive. The April 20 (at-themoney)straddle is offered at 8, with the stock at 19.25.
That seems like a reasonable speculation in a biotech
event.
Position S867: CLVS Event-Driven Straddle Buy
Buy 2 CLVS April (15th) at-the-money straddles
We will hold with a stop, waiting for the FDA ruling on April 12th.#

Naked Put Sales

There is literally one stock with expensive enough options to
consider writing this week, but it seems to be a good
candidate. Accenture (ACN) reported positive earnings, and
spurted higher. But some of its near-term puts are still
expensive in the wake of the earnings report.
Position C579: ACN Naked Put Sale
Sell 2 ACN April (29th) 110 puts
At a price of 0.80 or more.
ACN: 115.40
April (29th) 110 put: 0.80
This is for margin accounts only. The expected
investment is $2,400 per naked put sold. The annualized
expected return is 25%. Stop yourself out on a close
below 109.#

April 1, 2016

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Volatility Skewing
We want to re-establish our put ratio spreads, which are expiring this week.
Position F467: ES put ratio spread
Buy 12 ES Apr (22nd) 2025 puts (symbol: /EW4J6 P2025)
and sell 12 ES Apr (22nd) 2010 puts (symbol: /EW4J6 P2010)
and sell 12 SPY Apr (22nd) 1980 puts (symbol: /EW4J6 P1980)
For a credit of 2.00 or more.
Allow $3,500 in collateral margin for each naked put sold. Roll the position down (and out) if June e-mini
futures (the underlying) trades at the downside breakeven point of 1963 at any time.
Position I592: SPY put ratio spread
Buy 12 SPY Apr (22nd) 202.5 puts
and sell 12 SPY Apr (22nd) 200.5 puts
and sell 12 SPY Apr (22nd) 197 puts
For a credit of 0.20 or more.
Allow $4,925 in collateral margin for each naked put sold. Roll the position down (and out) if SPY trades at
the downside breakeven point of 194.30 at any time.#
As for event-driven earnings straddles, there are none worth buying this week, but there is one worth selling.
Position E1092: Constellation Brands (STZ) Event-Driven Straddle Sale.
Late in the day on Tuesday, April 5th, sell 2 STZ April (15th) At-the-money straddles,
As long as they can be sold for more than 4.6% of the stock price.
STZ is reporting earnings before the market opens on
Wednesday, April 6th.
Do not sell the straddles if the earnings have already been
released (prematurely, as sometimes happens).
If the straddle is sold, then follow these procedures for
exiting the trade after the earnings report.
a) if the stock gaps open by more than the straddle price
when it reopens, cover the straddle immediately.
b) otherwise, attempt to cover half the short straddles for a
50% profit;
c) if the stock opens within the profit range, but later trades
outside the straddle price, cover the straddle immediately
d) finally, cover all remaining straddles at the end of the day.

Extremes In Sentiment In Futures Trading

We have often mentioned the worth of following the Daily Sentiment Index (DSI) readings on the various futures
markets, as determined by Jake Bernsteins trader surveys in those markets: www.trade-futures.com.
April 1, 2016

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Page 7

The only extreme at the current time is an oversold condition in $VIX futures (only 12% bulls).
There is a new sell signal in Lumber (79%, down from 94% a little over a week ago). But this sell signal has not
been confirmed by a weighted put-call ratio sell signal.
As a result, there is no new recommendation in this section this week.#

Volatility Trading
The term structure of the $VIX futures continues to be very steep. The premium on the April $VIX futures is 1.97
and 3.67 on the Mays. They were both about 30 to 40 cents higher all week, until Thursdays close. We are
adjusting our current position (Position I591), but an additional position can be established;
Position I593: VXX/SPY Put Hedge
Buy 4 VXX April (22nd) 18.5 puts and Buy 2 SPY April (22nd) 204.5 puts
These strikes have been adjusted to be at-the-money (assuming the market opens down today). If you are
establishing this position at a later date, use the strikes that are just slightly in-the-money.
We will exit this position if the premium on the April $VIX futures (expiring 4/20/2016) shrinks to 50 cents
or less at any time.#

Put-Call Ratios
There are no new buy signals. There are no oversold conditions.
There are new sell signals in BIDU_w, ISRG, JCP_w, NTAP_w, P, PCLN_w, STX_w, T_w, WDC,
YHOO_w, and SPY.
There are overbought conditions in BG, CAT_w, DD, MRO, WMT, and the following futures: Australian
Dollar_w, e-mini futures_w, and Wheat_w.
There is no new recommendation in this section this week.#

Section 1256 Tax Considerations

utures traders and traders of cash-based options have a tax advantage: on every trade, no matter how long
the position is held, the results are considered 60% long-term gain and 40% short-term gain. These are called
Section 1256 trades.
This tax treatment grew out of the 1986 Tax Reform Act, and it represents a possible boon to traders who have
profits in those areas (futures or cash-based options).
Cash-based options are those that are not exercisable into stock or an ETF, but rather are settled for cash if they
are held until expiration. This includes most index options, including $VIX options.
Other cash-based options would include things like $SPX options, $RUT options (the Russell 2000 Index),
$NDX options, etc.
But this tax treatment does not extend to ETFs on those products. Hence, SPY, IWM, or QQQ options would
not be treated as Section 1256 trades. They would be regular short-term gains or losses unless held for more than
a year.
If you do have Section 1256 trades, be sure to account for them properly, or tell your accountant to do so. He
might not readily be looking for this type of activity in your account, unless you inform him.#

April 1, 2016

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Page 8

FOLLOW-UPS TO PREVIOUS RECOMMENDATIONS

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL
OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND
THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL
TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR
EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY
AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM
WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

Actual performance of futures accounts managed by McMillan Analysis Corp (after fees): 2012 +1.13%; 2013: +13.19%; 2014: +2.68%; 2015: +18.20%.
The following figures represent hypothetical performance; these positions were not actually traded in an account. Position profit includes a commission
of $15 round turn in futures, $15 per side in futures options, $2.00
per option for stock and index options, and 2 cents per share for Category Position
Recent Mark
Comment
stock.
+141
Expiring
Naked Put: C577: S 3 EOG Apr (1st) 58.5p

NOTE: on this page, all stops are mental closing stops

unless otherwise noted.
POSITIONS CLOSED SINCE LAST ISSUE
Category
Position
Profit/Loss
Spec:
S838: EMC takeover
520
S858: Cocoa DSI trade
+130

Equity:
Futures:
Index:

Put-Call:

Position C577: the naked EOG puts will expire worthless

today.
Position E1089: we bought the LULU Apr (1st) 61
straddle last Friday. Late in the day on Tuesday,
March 29th, just before the earnings were announced,
the stock was trading just below 61. Whether or not
you rolled down to the 60.5 straddle, the straddles
were available for purchase well below the threshold
price of 10.9%. So the straddles were carried into the
earnings on Wednesday morning, March 30th. The
earnings were a positive surprise, and the stock gapped
higher, finishing at 61.80, at which point the call
should have been sold. The puts will expire worthless
today. This was a small profit.
Position F465: the e-mini S&P put ratio spread will
expire worthless today. Establish a new one, as
recommended in the Volatility Skew section above.

Spec:

Weekly:

C578: S 10 BTU Apr 2 puts

+20
Stop: 1.50
E1089: LULU Apr (1st) 61 straddle
+484
Sold calls; expiring
F465: ES futures Apr (1st) put ratio
+960
Expiring
L 12 1980p, S 12 1960p, S 12 1920p
I590: SPY Apr (1st) put ratio spread
+276
Expiring
L 12 198p, S 12 195.5p, S 12 192p
I591: VXX/SPY put hedge
+82
Exit if Apr Prem < 0.50
L 5 VXX Apr 20p; L 2 SPY Apr 205 p
Roll VXX to Apr 18
th
PC1381: L 3 AAPL Apr (8 ) 105c
+1989
Hold
PC1382: L 6 SMH Apr (15th) 54 calls
+1086
Hold
PC1383: L 8 AIG Apr (8th) 52 calls
+472
Hold
PC1384: CMG: L 2 Apr (15th) 465 puts 658
Stop > 500
S 2 Apr (15th) 435 puts
th
PC1385: L 3 IBM Apr (29 ) 148 puts
441
Hold
PC1386: L 6 UTX Apr (29th) 99.5 puts
492
Hold
PC1387: L 6 GLD Apr (29th) 116.5 puts 396
Hold
S604: Strategic Alternatives
5992
Results to date
S645: VXX System Trade
+4140
Results to date
S657: First of the Month System
1558
Results to date
S708: $VIX spike peak buy
+9829
Results to date
th
Long 3 SPY Apr (8 ) 204.5 call 21
Stop: 203
S715: modified Bollinger Band System +2197
Results to date
S728: Post-Thanksgiving trade
2207
Results to date
S761: VXX put buy system
+2368
Results to date
th
L 6 VXX Apr (8 ) 19.5 puts
+798
S854: L 5 SYT Apr (15th) 80 calls
485
Hold
th
S855: L 3 SNDK Apr (15 ) 72.5 calls
525
Hold
S859: L 4 TLT Apr (8th) 129 put
128
Hold
S860: L 4 SPY Apr (8th) 204.5 call
+1448
Stop: 203
S862: L 3 May mini-Wheat futures
105
Stop: 445
S863: L 2 HRTX Apr 17.5/15 strangles 328
Hold
S864: L 2 PTLA Apr 25 puts
1222
Stop > 21.5
S865: L 2 ACAD Apr 24 straddles
629
Sell puts; stop calls<25.5
W1: SPY weekly calendar
+7790
See comments:
L 10 Apr 203c, L 10 Apr 198p, S 10 Apr (1st) 203c, S 10 Apr (1st) 199p

Position I590: the SPY put ratio spread will expire worthless today. Establish a new one, as recommended in the Volatility Skew
section above.
Position I591: the VXX/SPY put hedge. Roll the VXX Apr (15th) 20 puts down to the Apr (15th) 18 puts.
Positions PC1381 through PC1387: continue to hold, as the put-call ratio signals are unchanged.
Position PC1388:we did not execute the conditional put buy in USO, but it remains in effect: If USO closes below 9.60, then Buy 12
USO Apr (29th) 10 puts.
Position S708: raise the stop for the SPY Apr (8th) 204.5 calls to 203, basis SPY.
Position S761: the Big (volatility) Short: roll the VXX Apr (8th) 19.5 puts down to the Apr (15th) 18 puts.
Positions S854 & S855: continue to hold the SYT and SNDK calls, respectively.
Position S859: hold the TLT puts.
Position S860: raise the stop for these SPY Apr (8th) 204.5 calls to 203, basis SPY.
Position S862: hold the mini-Wheat futures.

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Page 9

Position S863: hold the HRTX straddles, as we await the FDA decision there.
Position S864: lower the stop for the PTLA Apr 25 puts to 21.50.
Position S865: we bought the ACAD Apr 24 straddles. Despite the somewhat negative aspects of the FDA briefing documents, the
stock opened higher before we bought the straddles. The FDA panel voted in favor, and ACAD opened a bit higher but not as
much as the straddle price. The stock has upside momentum, as it often takes several days for the effects of a positive ruling to be
fully factored into the stock price. So sell the April 24 puts now, and set a trailing stop at 25.50 for the April 25 calls.
Position W1: The SPY weekly calendar spread. We are long April 15th options and short April 1st options. The calls have strikes of
203 and the puts 198 and 199. If it is necessary to roll the entire position, buy May 20th options and sell April 8th options, using
integer strikes closest to +/-2.5 points from the SPY closing price on Friday. Otherwise, roll the April 1st options to April 8th options
as follows:
SPY > 205: re-center as noted above
SPY 204-205: sell 204 calls and 199 puts
SPY 200-204: sell 203 calls and 199 puts
SPY 197-200: sell 202 calls and 198 puts
SPY 196-197: sell 202 calls and 197 puts
SPY < 196: re-center as noted above#

April 1, 2016

There is risk of loss in all trading

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