Heather Cullen

Heather Cullen

In The Money

Heather Cullen Blog Consolidation

Consolidation - Again!

Well, SPY is going nowhere fast. We are in a consolidation period, and have been for almost 2 months. From the chart you can see that it is consolidating at the same level as in February. We have not yet exited the bear market, which means that it is getting on for a year since we entered it, and almost 18 painful months since the downtrend started. We are still a long way from the previous high of $477 that we reached at the start of 2022.

Heather Cullen Blog SPY

We looked at the concept of consolidation in a previous post, so to save you looking for it here is part of what I said:

  . . price consolidation, which means that the asset (in this case SPY) is oscillating between a support line and a resistance line. I have marked them on the chart above. Why does it happen? Because traders can’t make up their minds whether it is going up or going down, hence the low volatility.

When it breaks above resistance or below support then that is seen by traders as the way it is going to trend. From my own observations, the longer something stays in consolidation, especially if it is getting tighter and tighter, the more extreme the breakout. Here is an excellent example from 2015. SPY traded in a very tight range of $205 – $215 for 7 months before breaking out – in this case to the downside.

Heather Cullen Blog SPY Consolidation 2015

Let’s hope we don’t have to wait another 5 months before we get out of the current consolidation, and that it breaks to the upside not the downside.

SPYG (Smaller Accounts)

SPYG is showing almost exactly the same consolidation pattern as SPY.

QQQ (The Nasdaq ETF)

QQQ is showing better signs of life. It went through the same consolidation period as SPY but seems to have broken out of it and is heading upwards. It has traded above the bear threshold for 3 days. Will it continue up? Who knows, but an encouraging sign is the triple bottom in October / November and December at the 260 level. That indicates that there is significant support at that level.

Heather Cullen Blog QQQ

The Dow

I thought it might be interesting to see what is happening with the Dow. As we know, it is not indicative of the entire market being made up of only 30 stocks, but it is widely watched and commentated on.

Heather Cullen Blog Dow

We can see from the chart that it only briefly strayed under the bear threshold, and rebounded quickly, looking as though it was going to get above the Bear Exit, but this has proved to be a very solid resistance level, and it has not managed to climb over it yet.


I thought it would be good to look at the comparative performances of the Dow, SPY and QQQ since the start of 2022, the high point of the market. The blue line is SPY, green is the Dow and red is the Nasdaq.

You can see that all are still below their previous highs, the Dow by 8%, SPY by 13% and QQQ by 21%. You can also see the comparative depths of the downturn, with the Dow dropping 21% at its lowest, SPY 25% and QQQ 34%.


All hit their lows in September / October 2022, and the performance since then is interesting. QQQ looks to be in an uptrend, SPY also in an uptrend (but less steep) but the Dow looks as though it is in a slight downtrend.

VIX (Volatility Index)

To round things out let’s look at the VIX chart. The VIX continues in its downtrend with only a minor hiccup, sitting quite definitively under 20 which means that we are in a low volatility market. Technically, this should mean that options are getting cheaper. Let’s look at why.

Heather Cullen Blog VIX

Volatility and its effect on options

I have been getting quite a few questions on the cost of options, so let’s do a refresher on volatility. If a stock has:

  • High volatility the options will be more expensive because traders think there is a greater chance that OTM options will be ITM at expiration.
  • Low volatility then it will be less expensive because traders can predict with more certainty where the option will be at expiry.

There are 2 types of volatility:

  • Implied Volatility: the market’s expectation of the likely movement in price of the underlying asset. It is calculated from the current option price.
  • Historical Volatility: measures how much the price has deviated from its average in the past. It is calculated by analyzing the past price movements and fluctuation of the asset (not the option).

Comparing implied volatility to historical volatility shows whether options are expensive or cheap:

  • If implied volatility is higher than historical volatility, then options are considered expensive.
  • If implied volatility is lower than historical volatility then options are considered cheap.

But how do we know? Here’s a volatility graph since the Covid bear in 2020:

  • Red line: 7 – 30 days IV (Implied volatility)
  • Black line: Over 90 days IV (Implied volatility)
  • Purple line: HV (Historical volatility)
Heather Cullen Blog IMplied volatility

You can see that it is more interesting than useful. Personally, I don’t use it except to confirm my own observations. If you have decided to get into a trade then you don’t have a choice but have to buy the options at the price they are. If you think they are too expensive then don’t enter the trade.

Bitcoin Options

This is not recent information so probably things have changed a lot.

A few years ago when bitcoin was becoming a thing, and was around $1K from memory, I decided to check out some options. I thought that if it was moving so quickly (high volatility) a dabble in some OTM options would be good fun.

Heather Cullen Blog Bitcoin

After searching around I found a broker who did bitcoin options – but they had a LOT of implied volatility. At the time the longest dated option was 30 days, and bitcoin had to move more than 35% (up or down) before reaching breakeven. In other words, if within 30 days it hadn’t got over $1,350 then you lost money on a call. That seemed to me to be rather extreme , so I had a flutter on bitcoin CFDs instead. Not a good idea.

Bitcoin dropped, I got a margin call, I didn’t see it, they sold my positions, and, of course, it bounced right back up again but my positions were gone. I remember I only fluttered about $1.5K, but lost $1K of it overnight. Not fun.

I am sure that there is a better option market now. Or is there? The standard brokers don’t seem to do it. I asked GPT Chat and got the usual rubbish answer starting : As of my knowledge cutoff in September 2021 etc etc which wasn’t really helpful. Then I asked Bing Chat and got:

Heather Cullen Blog Bitcoin

  Yes, there are Bitcoin option markets. Options are a great way to trade assets that exhibit high levels of volatility There are several Bitcoin options exchanges available out there such as Bybit, Deribit, Delta Exchange and Binance Options. However, there are still no regulated instruments available for trading on any of the large options exchanges around the world.

So I asked specifically, HOW do I trade bitcoin options and got a more helpful:

  There are several ways to trade Bitcoin options. You can register a free account on a Bitcoin exchange such as Binance and choose a contract you want to trade1. You can also trade futures in your brokerage account2. A key difference with Bitcoin options trading is the cost. Bitcoin is so expensive because it is one of the most (arguably, the most) volatile assets currently on the market. This makes implied volatility (IV) an important tool when valuing options. When IV rises, the price of the option does too.

So, please be sure I am not recommending trading bitcoin options, just rounding out our understanding of volatility. As BingChat points out, there are no regulated instruments on any of the large options exchanges.

Daytrading Experiment

No action since previous post. Tom Hougaard is still on his break from live trading, so I am too!


Heather Cullen In The Money Blog ITMeter

Just think – fame! 

Backtesting SPYG Alternatives

I haven’t had any results from any back testing of SPYG alternatives, but look forward to getting some.

I will post results here and attribute it to the backtester with thanks.  

Reader Q&A

There have been a lot of questions about option pricing and volatility, which I tried to cover in the section above. I hope that I succeeded, otherwise leave a comment in the comments and I will try to fix.

I understand that waiting 2 weeks for the answer to a question is a bit annoying, and in 2 weeks you have probably forgotten why you sent it, so I would like to trial receiving questions in the comment box below the blog post. You can use it even if your question has nothing to do with any of the information in the post. I can monitor the comments easily and reply within a day or two.

Well, it should be an interesting 2 weeks – let’s hope SPY breaks out of consolidation and that it breaks upwards.



Please post any questions here and I will answer in 1 - 2 days.

7 thoughts on “Consolidation”

  1. Interesting to watch RSP vs SPY. RSP is an equal-weighted basket of all of the SP500 stocks. SPY is weighed down by AAPL, MSFT etc. Sometimes RSP can show the true strength of the overall market… which doesn’t look great right now…

    1. Interesting – just had a look at the RSP chart. It looks as though it was shadowing SPY until around March then started to deviate. It is certainly not showing the recent bounce. Let me know if you have done any backtesting on it, thanks for the information.
      And yes, last night on the markets was dismal – I wish all this debt ceiling stuff would get sorted out.

  2. Heather Cullen

    (Reposting for Buck – it was buried way back in a previous blog post so i missed it)
    I would like to have your new book, but it’s only on Kindle. (?)
    Do you sell them thru another outlet?
    Thanks. I really enjoy your blog.

    Buck Lester

    1. Hi Buck – i’ve just checked on and it is available in kindle, harcover and paperback – i’ll post a screenshot at the bottom of this page. Not sure where you are looking? or atr you not in the US? Could you let me know? Thank you! h

  3. Query from Ronny.
    Hi Heather! I’ve been told that an option seller’s “edge” is due to the historical volatility being typically greater than the current volatility. Is this true, and if so, why not just plot both and become a seller when the historical volatility becomes much larger than the current volatility? I admit it seems too easy and expect it would already be priced into the markets. Thank you! P.S. Shouldn’t you be in France ✈
    Sorry – I think I sent that last email on the wrong form 🙂 Ronny

    1. Hi Ronny, the Historical volatility jumps around a lot, and on a daily basis. I will post a chart underneath the comments (I can’t put it IN the comment) which shows the volatility for this year. You can see that the IV 7 – 30 days (red) and 90+ (black) is mostly above the HV (magenta dotted) confirming our understanding that options ae expensive. There are also a few days where the HV spiked over the IV, but not for long. The main problem is the HV being calculated on past performance whereas the IV is based on current option prices, so HV is a lagging indicator.
      This seems like a rambling answer, but the takeaway is that I think it is too hard! (and re France, Greek islands first, then England, then Scotland (to revisit my roots – as you would expect with a name like ‘Heather’), then off to my beloved France!
      (And you were quick off the mark – I haven’t sent out the email yet!)

      1. Thank you, Heather – great answer (volatility confuses me more than anything else combined). The ITM blog is part of my weekend financial checkup routine, I would never miss it 🙂

        Have a great, safe trip, sounds like a lot of fun…


Comments are closed.

Heather Cullen Timing the Market

Heather Cullen

Stay up to date

Get notified when there is an ITM Update

Heather Cullen

Book Series

More Blogs

Heather Cullen

Thank you – your message has been sent. Please note that  as of July 2022 Heather will answer all questions in the ITM Blog, not individually. You will be notified when there is a new blog post. Happy trading!