They Actually Threw A Mother Out Of The Game!

Well, the Little League Baseball and Fast Pitch Softball Season has now officially begun here in Southern California with both my kids playing their opening games last weekend. This is the first time in a while that I have not been a manager, coach, assistant coach or water boy for one of my kids' teams. At first I felt very guilty about this but that guilt has passed (and you'll soon see why). I help out from time to time when asked and the fact that I'm not getting phone calls seven nights a week from parents really is an enjoyable experience.

So you can imagine how much I was looking forward to my son's opening game last Sunday, knowing I had no responsibilities. He and I arrived at the field at 8 am for his team's warm-up, I took out my fold-up chair, placed it in right in front of the ball field, and opened my New York Times to enjoy the warm Spring morning sun that makes Southern California one of the nicest places in the country to be in March. And this nice peaceful experience lasted a good 3-4 minutes before one of the coaches ran up to me and asked, "Can you help coach today? One of the guys can't make it."

Being the nice guy that I am (OK, SAP) I mumbled, "Sure, I'd love to." So I folded up my chair, put my newspaper away, got my glove from my car and proceeded to again be "Coach" (they even gave me a shirt that said "Coach" on it). And of course, being low man on the totem pole meant I got the job that no one else wanted...being bench coach for 13 hyperactive bat-wielding 6- to 8-year-old kids who can't sit still for a nanosecond.

My concerns about the kids killing each other with (and without) the bats was unfounded, though. They played well, behaved well and none needed to be rushed to the local emergency room. And, I wish I could say the parents behaved as well as the kids...but I can't. The kids are truly clueless as to what the score is and who's winning (I heard them quoting scores ranging from 0-0, to 20-19, to 346-184. And of course according to the kids, we were winning with each of these scores, which we weren't. We were losing every inning for the entire game). But as I said, the kids don't know any of this, nor do they seem to care. But for the coaches and parents...that's another story. For them, the home opener seemed to be a matter of life and death.

First, there were at least three times during the game that I thought a fight may break out amongst the coaches (and the league we play is made up of educated, upper-middle-class citizens and at least the coaches on my son's team are really good guys). The third of the three near-battles involved a play my son was in. Runners on first and second, one out. He's at shortstop and a hard ground ball is hit to him. He fields the ball, pivots to make the force at third and as he's about to release the ball he notices our third baseman is not at the base. In fact, our third baseman hasn't even moved since the ball was hit. Why? Because at that moment, a hang glider was sailing over the field and the kid was in a trance-like state, staring at this guy as he was sailing through the sky.

My son, seeing this, decides to race to third where he beats the runner out by a step. Nice play right? Coaches and parents on both teams should be commending such a heads up play by a kid, especially one who hasn't even graduated kindergarten yet. Wouldn't you think so? Well not from the other team's coach (and his assistants). They come running out onto the field screaming "INTERFERENCE! He interfered with our runner!" Our runner should be safe...and on and on and on. And this is being done right in front of our dugout, which promptly brings me onto the field. And as the coaches are arguing about the play (and acting as if the umpire doesn't exist), I'm reminding the coaches on the other team to "Forget about it, he's 5 years old...let it go," (plus the play wasn't even close to interference). Thankfully, the 13 bat-wielding 6- to 8-year-olds on the other team didn't come after us (they also were too busy watching the hang glider) and no punches were thrown. Runner out!

So my intentions of sitting back and enjoying a quiet morning of baseball eventually turned into a day that had as much mayhem as a World Wrestling event. But what topped the game off was what happened to the only mother assistant coach in the entire league. She had the honor of being the first coach this season to be ejected from a game. That's right, the kids are ages 6-8 and the mother was tossed out. The umpire had had enough of her. He made her watch the rest of the game from the stands (and worst of all she had to deal with the evil glares of the 13 moms of the kids on our team...a fate no one should have to endure!).

I love it! Another season of Little League baseball is off and running!!!

A New Market To Trade

As many of you know, next Friday (March 26) the CBOE will be launching a futures contract to trade the Volatility Index (the VIX). This instrument may end up becoming one of the more popular trading vehicles available as its potential use is widespread, especially amongst fund managers. For nearly a decade I have been researching and publishing information on how to use the VIX to help better time stock market entries.

Now, for the first time, we'll be able to use this research to trade the outright instrument and in our opinion there may be tremendous opportunity here.

Over the next few weeks, I'll share with you some of our research on trading the contract. This week, to make sure we're all on the same level playing field, I'm going to do an introduction as to what the VIX is, what it means and how it can be used. For many of you this will be new and for others this will be a review. And then next week we'll start building on this base and begin looking at the opportunities that exist.

The VIX

What is the VIX? The VIX is the market estimate of future volatility, based upon the weighted average of the implied volatilities of a wide range of strike prices for S&P 500 options traded on the CBOE. This definition may be difficult to understand but it should become clearer as we proceed. What's important to understand is that when volatility increases (and this usually happens when the market declines as has happened recently) the VIX rises in value. When volatility decreases (and this usually happens when markets are rising or are quiet as the market has been before the past few weeks), the VIX decreases.

Using The VIX

Why does the VIX rise when markets decline? Because declines are usually accompanied by fear (again, think about the past few weeks with the terrorism fear). The more fear that's in the marketplace, the more aggressive hedgers and speculators will be in buying put options to either hedge their long positions or to profit from an expected further decline.

When the fear passes (think this past Tuesday and Wednesday) the market rallies and the demand for puts collapses as does the value of the VIX.

Here is a recent chart of the VIX. As you can see, when the market was quiet in February, the VIX was low. It then spiked up to its highest level this past week before declining, as fear left the marketplace and stock prices rose.

One of the edges that exists for traders is the times when the VIX is stretched too far away from its 10-period moving average. When it closes 10% above its 10-period moving average, it's historically preceded strong short-term rallies. When it's been well below its 10-period moving average, the market has proceeded to move sideways to down over the short term. The bigger the stretch from the moving average, the nearer the move will likely be and the bigger the potential move will be. On Thursday, March 11, the VIX closed 30% above its 10-period moving average (something that is very, very rare when the S&P 500 has been above its 200-day moving average). The next day the Dow rose 111 points. On Monday March 15, the VIX closed 24.7% above its 10-day moving average (again, a level rarely seen in an upward-trending market). The next two days the Dow rose 197 points.

This pattern of the VIX stretching away from its moving average and then seeing the market rally has occurred over and over again since the VIX was first calculated in 1986. It's far from perfect but it has done a very good job of predicting future stock market moves.

The New VIX Futures Contract

On Friday, traders will have the opportunity to trade the VIX outright. Based upon our initial research, we feel there may be more opportunity to use analysis such as the analysis mentioned above, with the VIX itself versus using it to trade the direction of the stock market. Next weekend, after the contract has opened, I'll share with you some of the research we have and some of the ways you can use the new contract for your trading.

Have a great week trading (and look out for that irate mother who was thrown out of my son's Little League game)!

Larry Connors