In this issue:
Main Article
Gap Quotient
Contributed by Steve Lentz
Gaps are the enemy. Yes, that's right. Some traders have real enemies in life and gaps can rank right up at the top.
At DiscoverOptions, we teach non-directional short option premium strategies used successfully by both our mentors and money manager students. One fly in the ointment for these approaches is price gap in the underlying asset from the closing price to the next day's open price. Large gaps can occur quite often with individual stocks due to company announcements and unexpected events. That's why we prefer applying these strategies with index options so that company risk is greatly mitigated.
But regardless of what underlying assets you trade, you should be aware how gaps affect that market relative to other assets. To illustrate, let's take in Figure 1 below at the gap behavior of the SPY during the crash of 2008.
Figure 1
Before September 2008, SPY opening gaps were well under 1%. But then on 9/19 and 10/13 of that fall, the SPY had gaps of 5.5% and 6.0% respectively. Up to this time, these were rivaled only by the post 9/11 gap on 9/17/01 of 8.2%.
More important, though, is the overall character of an asset's gap behavior. We calculate this through the use of average gap levels. Although daily gaps are charted in Figure 1 above, we can take an average of the most recent 20 trading days' gaps and display it with the gap levels.
Figure 2
The gap levels were multiplied by 100 for decimalization and scaling purposes.
In Figure 2 above, the solid black line is the Gap Quotient (GQ) which is a 20-day simple moving average of the opening gaps. See how the GQ before September was well under 1% and then rose to over 2% by the end of September 2008.
It's now time to rank several assets by their Gap Quotients, and in MetaStock we do this through the Explorer feature. Figure 3 below displays the formula for the Gap Quotient within the Explorer feature. Digitally, it reads as follows:
Mov((Abs(OPEN-(Ref(C,-1)))/Ref(C,-1)),20,S)*100
Figure 3: Gap Quotient Formula
We now run Explorer on a group of pre-selected candidates and, for us at DiscoverOptions, we like to use a list of underlying assets with very tight spreads between the option bid and option asked prices.
Figure 4 below displays Gap Quotient Rankings from a list of 21 stocks and ETFs that have very tight option bid/asked spreads. These came from a scan I did within OptionVue's OpScan service that can query option bid and asked prices.
Figure 4: Gap Quotient Rankings
With a GC of .306%, the DIA clearly has more stable opening gap behavior than FCX with a GC of over three times as much at 1.167%. This is valuable information if you are an option premium seller and wish to avoid the early morning excitement that opening gaps can bring.
Of course, some trading approaches might favor opening gaps and in that case a trader could invert the approach and rank assets with the highest Gap Quotients at the top. In this case, I suppose we could amend the opening declaration to say, "Gaps are my best friend".
About Steve Lentz
Steve Lentz is the Director of Education and Research at DiscoverOptions, the educational arm of OptionVue Systems, Inc. He can be reached via email at Steve@DiscoverOptions.com or via phone at 847-816-6610.
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Support Tip
What are the various country codes for the QuoteCenter application?
Contributed by Equis Support
For all QuoteCenter and MetaStock versions 9.1 - 11
Country codes are used as a prefix to symbols (see examples below)
US;IBM (US = United States)
AU;AAC (AU = Australia)
AE;ACICO (AE = United Arab Emirates)
Country Codes
AE=United Arab Emirates
AF=Afghanistan
AG=Antigua and Barbuda
AL=Albania
AM=Armenia
AN=Netherlands Antilles
AO=Angola
AQ=Antarctica
AR=Argentina
AS=American Samoa
AT=Austria
AU=Australia
AW=Aruba
AZ=Azerbaijan
BA=Bosnia and Herzegovina
BB=Barbados
BD=Bangladesh
BE=Belgium
BF=Burkina Faso
BG=Bulgaria
BH=Bahrain
BI=Burundi
BJ=Benin
BM=Bermuda
BN=Brunei
BO=Bolivia
BR=Brazil
BS=Bahamas
BT=British West Indies
BV=Bouvet Island
BW=Botswana
BY=Belarus
BZ=Belize
CA=Canada
CC=Cocos Islands
CF=Central African Republic
CG=Congo
CH=Switzerland
CI=Cote D'ivoire
CK=Cook Islands
CL=Chile
CM=Cameroon
CN=China
CO=Colombia
CR=Costa Rica
CU=Cuba
CV=Cape Verde
CX=Christmas Island
CY=Cyprus
CZ=Czechoslovakia
DE=Germany
DJ=Djibouti
DK=Denmark
DM=Dominica
DO=Dominican Republic
DZ=Algeria
EC=Ecuador
EE=Estonia
EG=Egypt
EH=Western Sahara
ER=Eritrea
ES=Spain
ET=Ethiopia
FI=Finland
FJ=Fiji
FK=Falkland Islands
FM=Micronesia (Federated States of)
FO=Faroe Islands
FR=France
FX=France (Metropolitan)
GA=Gabon
GB=United Kingdom
GD=Grenada
GE=Georgia
GF=French Guiana
GH=Ghana
GI=Gibraltar
GL=Greenland
GM=Gambia
GN=Guinea
GP=Guadeloupe
GQ=Equatorial Guinea
GR=Greece
GS=South Georgia and The South Sandwich Isl
GT=Guatemala
GU=Guam
GW=Guinea-Bissau
GY=Guyana
HK=Hong Kong
HM=Heard-McDonald Islands
HN=Honduras
HR=Croatia
HT=Haiti
HU=Hungary
ID=Indonesia
IE=Ireland
IL=Israel
IM=Isle of Man
IN=India
IO=British Indian Ocean Territory
IQ=Iraq
IR=Iran
IS=Iceland
IT=Italy
JM=Jamaica
JO=Jordan
JP=Japan
KE=Kenya
KG=Kyrgyzstan
KH=Kampuchea
KI=Kiribati
KM=Comoros
KN=Saint Kitts And Nevis
KP=North Korea
KR=Korea
KW=Kuwait
KY=Cayman Islands
KZ=Kazakhstan
LA=Lao People's Democratic Republic
LB=Lebanon
LC=St. Lucia
LI=Liechtenstein
LK=Sri Lanka
LR=Liberia
LS=Lesotho
LT=Lithuania
LU=Luxembourg
LV=Latvia
LY=Libyan Arab Republic
MA=Morocco
MC=Monaco
MD=Moldova
MG=Madagascar
MH=Marshall Islands
MK=Macedonia
ML=Mali
MM=Burma
MN=Mongolia
MO=Macau
MP=Northern Mariana Islands
MQ=Martinique
MR=Mauritania
MS=Montserrat
MT=Malta
MU=Mauritius
MV=Maldives
MW=Malawi
MX=Mexico
MY=Malaysia
MZ=Mozambique
NC=New Caledonia
NE=Niger
NF=Norfolk Island
NG=Nigeria
NI=Nicaragua
NL=Netherlands
NO=Norway
NP=Nepal
NR=Nauru
NU=Niue
NZ=New Zealand
OM=Oman
PA=Panama
PE=Peru
PF=French Polynesia
PG=New Guinea
PH=Philippines
PK=Pakistan
PL=Poland
PM=Saint Pierre And Miquelon
PN=Pitcairn
PR=Puerto Rico
PT=Portugal
PW=Palau
PY=Paraguay
QA=Qatar
RE=Reunion
RO=Romania
RU=Russian Federation
RW=Rwanda
SA=Saudi Arabia
SB=Solomon Islands
SC=Seychelles
SD=Sudan
SE=Sweden
SG=Singapore
SH=St. Helena
SI=Slovenia
SJ=Svalbard and Jan Mayen
SK=Slovakia
SL=Leone
SM=San Marino
SN=Senegal
SO=Somalia
SR=Surinam
ST=Sao Tome and Principe
SV=El Salvador
SY=Syrian Arab Republic
SZ=Swaziland
TC=Turks and Caicos Islands
TD=Chad
TF=French Afars + Issas
TG=Togo
TH=Thailand
TJ=Tajikistan
TK=Tokelau
TM=Turkmenistan
TN=Tunisia
TO=Tonga
TR=Turkey
TT=Trinidad + Tobago
TV=Tuvalu
TW=Taiwan
TZ=Tanzania
UA=Ukrainian SSR
UG=Uganda
UM=United States Minor Outlying Islands
US=United States
UY=Uruguay
UZ=Uzbekistan
VA=Vatican City State (Holy See)
VC=Saint Vincent And The Grenadines
VE=Venezuela
VG=Virgin Islands (British)
VI=Virgin Islands (U.S.)
VN=Vietnam
VU=Vanuata
WF=Wallis and Futuna Islands
XS=Multi Country
YE=Yemen
YT=Mayotte
YU=Yugoslavia
ZA=South Africa
ZM=Zambia
ZR=Zaire
ZW=Zimbabwe
Names
Afghanistan=AF
Albania=AL
Algeria=DZ
American Samoa=AS
Angola=AO
Antarctica=AQ
Antigua and Barbuda=AG
Argentina=AR
Armenia=AM
Aruba=AW
Australia=AU
Austria=AT
Azerbaijan=AZ
Bahamas=BS
Bahrain=BH
Bangladesh=BD
Barbados=BB
Belarus=BY
Belgium=BE
Belize=BZ
Benin=BJ
Bermuda=BM
Bolivia=BO
Bosnia and Herzegovina=BA
Botswana=BW
Bouvet Island=BV
Brazil=BR
British Indian Ocean Territory=IO
British West Indies=BT
Brunei=BN
Bulgaria=BG
Burkina Faso=BF
Burma=MM
Burundi=BI
Cameroon=CM
Canada=CA
Cape Verde=CV
Cayman Islands=KY
Central African Republic=CF
Chad=TD
Chile=CL
China=CN
Christmas Island=CX
Cocos Islands=CC
Colombia=CO
Comoros=KM
Congo=CG
Cook Islands=CK
Costa Rica=CR
Cote D'ivoire=CI
Croatia=HR
Cuba=CU
Cyprus=CY
Czechoslovakia=CZ
Denmark=DK
Djibouti=DJ
Dominica=DM
Dominican Republic=DO
Ecuador=EC
Egypt=EG
El Salvador=SV
Equatorial Guinea=GQ
Eritrea=ER
Estonia=EE
Ethiopia=ET
Falkland Islands=FK
Faroe Islands=FO
Fiji=FJ
Finland=FI
France (Metropolitan)=FX
France=FR
French Afars + Issas=TF
French Guiana=GF
French Polynesia=PF
Gabon=GA
Gambia=GM
Georgia=GE
Germany=DE
Ghana=GH
Gibraltar=GI
Greece=GR
Greenland=GL
Grenada=GD
Guadeloupe=GP
Guam=GU
Guatemala=GT
Guinea=GN
Guinea-Bissau=GW
Guyana=GY
Haiti=HT
Heard-McDonald Islands=HM
Honduras=HN
Hong Kong=HK
Hungary=HU
Iceland=IS
India=IN
Indonesia=ID
Iran=IR
Iraq=IQ
Ireland=IE
Isle of Man=IM
Israel=IL
Italy=IT
Jamaica=JM
Japan=JP
Jordan=JO
Kampuchea=KH
Kazakhstan=KZ
Kenya=KE
Kiribati=KI
Korea=KR
Kuwait=KW
Kyrgyzstan=KG
Lao People's Democratic Republic=LA
Latvia=LV
Lebanon=LB
Leone=SL
Lesotho=LS
Liberia=LR
Libyan Arab Republic=LY
Liechtenstein=LI
Lithuania=LT
Luxembourg=LU
Macau=MO
Macedonia=MK
Madagascar=MG
Malawi=MW
Malaysia=MY
Maldives=MV
Mali=ML
Malta=MT
Marshall Islands=MH
Martinique=MQ
Mauritania=MR
Mauritius=MU
Mayotte=YT
Mexico=MX
Micronesia (Federated States of)=FM
Moldova=MD
Monaco=MC
Mongolia=MN
Montserrat=MS
Morocco=MA
Mozambique=MZ
Multi Country=XS
Nauru=NR
Nepal=NP
Netherlands Antilles=NR
Netherlands=NL
New Caledonia=NC
New Guinea=PG
New Zealand=NZ
Nicaragua=NI
Niger=NE
Nigeria=NG
Niue=NU
Norfolk Island=NF
North Korea=KP
Northern Mariana Islands=MP
Norway=NO
Oman=OM
Pakistan=PK
Palau=PW
Panama=PA
Paraguay=PY
Peru=PE
Philippines=PH
Pitcairn=PN
Poland=PL
Portugal=PT
Puerto Rico=PR
Qatar=QA
Reunion=RE
Romania=RO
Russian Federation=RU
Rwanda=RW
Saint Kitts And Nevis=KN
Saint Pierre And Miquelon=PM
Saint Vincent And The Grenadines=VC
San Marino=SM
Sao Tome and Principe=ST
Saudi Arabia=SA
Senegal=SN
Seychelles=SC
Singapore=SG
Slovakia=SK
Slovenia=SI
Solomon Islands=SB
Somalia=SO
South Africa=ZA
South Georgia and The South Sandwich Isle=GS
Spain=ES
Sri Lanka=LK
St. Helena=SH
St. Lucia=LC
Sudan=SD
Surinam=SR
Svalbard and Jan Mayen=SJ
Swaziland=SZ
Sweden=SE
Switzerland=CH
Syrian Arab Republic=SY
Taiwan=TW
Tajikistan=TJ
Tanzania=TZ
Thailand=TH
Togo=TG
Tokelau=TK
Tonga=TO
Trinidad + Tobago=TT
Tunisia=TN
Turkey=TR
Turkmenistan=TM
Turks and Caicos Islands=TC
Tuvalu=TV
Uganda=UG
Ukrainian SSR=UA
United Arab Emirates=AE
United Kingdom=GB
United States Minor Outlying Islands=UM
United States=US
Uruguay=UY
Uzbekistan=UZ
Vanuata=VU
Vatican City State (Holy Sea)=VA
Venezuela=VE
Vietnam=VN
Virgin Islands (British)=VG
Virgin Islands (U.S.)=VI
Wallis and Futuna Islands=WF
Western Sahara=EH
Yemen=YE
Yugoslavia=YU
Zaire=ZR
Zambia=ZM
Zimbabwe=ZW
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