CBOE Mid-Day Update 1.27.15

Volatility as an asset class

Polaris Industries (PII) is recently up $4.81 to $146.18 on better than expected Q4 EPS $1.98 of and 2015 sales guidance of up 9%-12%. February call option implied volatility is at 23, March is at 22, June is at 23; compared to its 26-week average of 28.

Freeport McMoRan (FCX) is recently down $1.08 to $18.46 after reports Q4 adjusted EPS 25c, consensus 35c. February call option implied volatility is at 47, March is at 45, May is at 43; compared to its 26-week average of 28.

United Technologies (UTX) is recently down $2.06 to $116.76 on lower than expected FY15 EPS guidance. February call option implied volatility is at 18, March is at 19, August is at 16; compared to its 26-week average of 17.

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 1.44% to 27.52. cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL RIG MSFT TWTR NFLX C TSLA HPQ

Options with increasing volume @ CBOE: KO RIG NBG SIMG RMD SANM MA SIGM

CBOE Volatility Index (VIX) up 14.6% to 17.80, high 18.41, low 17.16, February 18 and 20 calls are active on total volume of 154K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently up 5.1% to 32.17.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 21.2% to 18.05; compared to its 50-day moving average of 15.68 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 2.70 to 261.32 compared to its 50-day moving average of 262.38 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down 16.36 to 888.15 on weak

The Changing Mindset of Investors and Traders

One thing is for sure, the mood and temperament among investors and traders changes like the direction of the wind.  But leaning to hard one way can be very damaging to your wealth and your mind.  Certainly the unknowns out there are the challenges we have to either dodge or just embrace.  If you have a long term horizon then the bumps in the road are just great opportunities, and those have been great spots to add positions.  That has always been the ritual of the past – buy the dips and just hold until whenever.  I won’t argue that is not still a winning strategy, but I have noticed more often these days a lesser degree of confidence in buying those dips.

There are not often superb opportunities to get in on the ground floor of a company ready to blossom.  Most are in disbelief of the growth chances and shy away, only to regret not getting on board.  Google when it went public in 2004 at 104?  now over 1000 a share (split adjusted).  EBAY in 1997?  It’s up a massive amount since then, more recently Facebook, which had everything go wrong with it’s IPO and then fell sharply – but is now one of biggest companies in the world and has doubled since the IPO, nearly 4x the lows reached in 2013.   How about the great franchise Visa and Mastercard, up massively since they went public? Linkedin?  Certainly there have been some busts like Twitter (so far), but if you held on you were mostly rewarded.

Did you buy any of these early and ditch them at the first sign of what you thought was potential trouble?  Do you regret it today?  The objective here is if you have a plan then stick to it.

Yet, there are many other new companies that have recently come to market but the confidence is lacking.  Take Juno Therapeutics, a small player in the immunotherapy field but has made amazing discoveries.  Jim Cramer talked about it prior to its IPO on Mad Money, and if you don’t know his great track record with biotech then you are not paying attention.  It went public the first day at 38 a share, and I talked it up the first day.  I believe this is going to be a home run play and own shares from the first day, yet even as it rose to the low 60’s I did not sell any.  Why?  Because the short term gains will be paltry compared to where I believe the stock is headed.

We hear all the time this is not ‘your grandfather’s market’.  I understand that, but we have to react to the market, and not let the market make our moves for us.  The game hasn’t changed, it only got faster with more participants.  Now, as an options trader, my focus is short to medium term, never falling in love with anything I trade.  Everything is fair game, but for the longer term portfolio I cannot think in this fashion.  The mentality of investors and traders is quite different as it relates to time-frame.

What’s interesting, some have been asking me what to do with the stock if they bought it, should they trade it and if Juno is going down or up.  The last question:  The answer is YES.  But the point here is while we may have a trader’s mindset these days we should not lose sight of how the big money is made – buy the BEST and hold for the big gains.  Isn’t that how Warren Buffet and William O’Neill made their fortunes over the years?  If it works for them, then why won’t you do it?

Bob Lang, Senior Market Strategist and trades various option trading newsletter Explosive Options.

Blogging Options: CBOE Morning Update 1.27.15

17,8  s 9   v 430

Ugly day on Wall Street – not the weather, earnings.  Several DJIA components have reported, with earnings missing and guidance lowered.  Durable Goods for December showed a surprising 3.4% drop (rise if 0.4% expected), X-transports –0.8% (+0.5% expected) and November revised sharply lower.  US stock futures had shown the DJIA opening down 200 points, after the Durables maybe 300 points.  Bonds rallying. 25K VIX futures trade in early session.  Option volume yesterday good, with 17.8mm contracts trading.  ~900K SPX and 430K VIX contracts at CBOE.   Volatility as an asset class

Microsoft (MSFT) is down $3.71 to $43.30 in the premarket on inline Q2 results and concerns of underlying trends in Windows and Office. January weekly call option implied volatility is at 43, February is at 25, March is at 20; compared to its 26-week average of 20.

Procter & Gamble (PG) is down $2.38 to $87.20 in the premarket after warning on negative forex impact to 2H results. January weekly call option implied volatility is at 29, February is at 16, March is at 15; compared to its 26-week average of 14.

Caterpillar (CAT) is off $6.76 to $79.40 in the premarket after FY15 outlook misses expectations. January weekly call option implied volatility is at 54, February is at 29, May is at 23; compared to its 26-week average of 21.

VIX methodology for Apple (VXAPL) @ 39.98, compared to its 50-day moving average of 30.91

Options expected to be active at CBOE: PII DNKN UTX TXN MSTR RMBS PG GLW BMY CAT MSFT PFE MMM

CBOE EuroCurrency Volatility Index (EVZ) @ 13.61; compared to 50-day MA of 9.93

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.83 into FOMC meeting www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 56.65, compared to its 50-day moving average of 46.89, WTI Crude oil trades near $45 cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 135.02, compares to its 50-day moving average of 130.61 SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

CBOE S&P 500 BuyWrite Index (BXM) at 1079.10 compared to its 10-day moving average of 1069.33 cboe.com/bxm

CBOE DJIA BuyWrite Index (BXD) at 263.98 compared to its 50-day moving average of 262.51 cboe.com/micro/bxd/

‏CBOE Nasdaq-100 Volatility Index (VXN) at 16.96 compared to its 50-day moving average of 17.70.

CBOE 3-Month Volatility Index (VXV) at 18.05, compared to its 50-day moving average of 18.23 cboe.com/VXV

CBOE S&P 500 Short-Term Volatility Index (VXST) at 14.88, compared to its 10-day moving average of 19.31, VXST is a market-based gauge of expectations of 9-day stks.co/r0CS2

Velocity Share VIX Short Term ETN (VIIX) at 41.42; compared to its 10-day moving average of 45.61.

iPath S&P 500 VIX Short-Term Futures (VXX) is recently up 62c to 31.27

CBOE Volatility Index (VIX) at 15.22, compared to its 50-day moving average of 16.44 cboe.com/VIX

More

Overcoming The Earnings Dilemma

As a market maker on the CBOE, I always had a simple plan when it came to trading stocks around their earnings announcement: Don’t do it.

I, like most professional traders, didn’t like trading options on stocks with earnings coming out because that was the day of the quarter that typically had the most risk. There’s risk—huge risk—in both the underling stock moving erratically, and also in the option premium potentially being greatly affected by a “crush” of implied volatility. It works like this…

If you buy options, say a straddle, going into earnings to try and make money on the anticipated volatile price action typical on earnings day, the straddle can be very expensive in terms of implied volatility. To be sure, it is common for the implied volatility to get “crushed” when the earnings figures are released. That means that even if your straddle makes money on the underlying stock moving (gamma and delta), it can lose more on implied volatility collapsing (vega) resulting in a net losing trade.

And, of course, selling options has the other side of the risk profile: Yes, you can sell expensive options right before earnings, but if the underlying stock moves too much, you can lose much more on the movement than you’d make on selling expensive options.

And the fact is that the actual stock price action is very unpredictable when it comes to earnings days. So neither (buying or selling) results in a really great trade. Both are craps shoots. … And that is NOT what traders—not good traders, anyway—are in the business of doing.

Rather, clever traders use what they know about option pricing to trade for and advantage. To stack the deck as much as they can in their favor and try and gain an advantage, or edge, and put on a strategic trade.

One way to do this in earnings season is by trading a time spread. These days, that is almost exclusively what I use when I trade earnings. The reason is because under some circumstances, time spreads can give traders that edge they are looking for and traders can structure a sound trade that takes advantage of volatility instead of being at the mercy of it. It works like this…

Typically, options in the expiration cycle that expires just after earnings get very expensive as the collective market buys them going into earnings, driving up implied volatility. But the other months tend to remain relatively stable in terms of IV. So the technique is to buy the “cheaper” (in terms of IV, not absolute price) longer-term options and sell the inflated short-term options. This time spread can be constructed at-the-money for a direction-indifferent bias, above the current stock price for a bullish bias, or below the current stock price for a bearish bias.

For time spreads to profit, the stock must stay in a range, which on the surface seems like the opposite of what a trader wants. But the bigger the disparate differential in IV between the two months, the bigger that range can be and still produce a winning trade. Often a very large range can result. And even if the underlying stock makes a rather large move, it can still land within the profit-making range.

Ultimately, this is a potential way for experienced traders to use certain intricate nuances to take control of volatility and make it work for them instead of the other way around.

For more information, please consider our class next month on time spreads. For more information, please visit: http://markettaker.com/options_education

CBOE Mid-Day Update 1.26.15

Volatility as an asset class

Shares of solar energy companies are rising after President Obama yesterday promised to provide financial support for India’s major solar energy initiative.

First Solar (FSLR) is recently up $1.38 to $43.88. Overall option implied volatility of 52 compares to its 26-week average 48.

SunEdison (SUNE) is recently up 75c to $20.10. Overall option implied volatility of 52 compares to its 26-week average 54.

Canadian Solar (CSIQ) is recently up 82c to $20.12. Overall option implied volatility of 69 compares to its 26-week average 64.

JA Solar (JASO) is recently up 31c to $7.99. Overall option implied volatility of 57 compares to its 26-week average 56.

JinkoSolar (JKS) is recently up 99c to $17.72. Overall option implied volatility of 63 compares to its 26-week average 64.

Active options at CBOE: AAPL TSLA C TWTR NFLX AMZN GILD C LVS BP FXCM

Options with increasing volume @ CBOE: OIL NFX ABB FXCM SANM EL MAT AGO NPSP

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 0.2% to 27.56.
cboe.com/micro/VIXETF/VXXLE/

CBOE Volatility Index (VIX) down 4.3% to 15.94, high 17.43, low 15.90, February 25 and 30 calls are active on total volume of 110K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 3.2% to 31.06.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 3.2% to 15.57; compared to its 50-day moving average of 15.56 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 35c to 263.82 compared to its 50-day moving average of 262.41 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up 70c to 903.84 after Greek elections.

The Fed, Earnings Season & GDP – Weekly Market Outlook 1.26.15

Despite Friday’s lull, the market took a pretty big bullish step last week, following through on the reversal hints it was dropping before the three-day weekend. It’s still not over its biggest hurdles, but at least it’s not knocking on the door of a rather serious breakdown. On the other hand, the hurdles ahead are very big, and backed by stress-inducing fundamentals.

We’ll take a technical and fundamental look below. Let’s first paint some broad brush strokes with last week’s economic numbers and a preview of what’s in the lineup for this week.

Economic Data

It wasn’t a terribly busy week last week, in terms of economic news. But, we did get a big dose of real estate and construction data…. not that it was terribly encouraging.

Housing starts ramped up from a pace of 1.043 million to 1.089 million in December, though permits fell from a pace of 1.052 million to 1.032 million. Both are ok, even if not red hot.

Housing Starts, Building Permits Chart

PH 12515-starts-permits2

Source: Thomson Reuters Eikon

Sales and pricing of homes also continues to edge slightly higher. Existing home sales reached an annual pace of 5.04 million last month, up from November’s 4.92 million. Meanwhile, the FHFA Housing Price Index grew 0.8% for November.

FHFA Home Price Index & Existing Home Sales Chart

PH 12515-sentiment

Source:  Thomson Reuters Eikon

 

 

 

 

 

 

 

 

Economic Calendar

PH 12515-econ-dataSource: Briefing.com

This week is obviously going to be busier, for several different reasons.

We’ll get the party started on Tuesday with December’s durable orders data; the pros are looking for a little bit of an improvement after November’s slowdown.  We’ll also get another key round of real estate data on Tuesday though… November’s Case-Shiller Index (of home prices) and December’s new-home sales pace. Both remain in uptrends, though not super-strong ones

On Wednesday we’ll hear from the Federal Reserve regarding any potential changes in interest rates. Though it’s unlikely any will be altered, the language that accompanies the decision has become as critical and market-moving as the decisions have been.

We’ll get Q4’s first guess (of three) regarding the nation’s GDP growth rate. Economists currently believe we’ll see a pace of 3.2%, following Q3’s growth rate of 5.0%.

Michigan Sentiment Index & Conference Board Consumer Confidence Chart More

Blogging Options: CBOE Morning Update 1.26.15

Greece election and renewed unrest in Ukraine on the frontburner this morning.   Euro hit new lows overnight but has rallied.  VIX futures average volume in overnight session.  Earnings watched closely this week. Overseas markets mixed, Gold lower.  A monster snowstorm is headed to the US East coast tonight, some traders wondering if early hours Tuesday.  Chicago Cubs legend Ernie Banks passed away this weekend, all of Chicago in mourning. Volatility as an asset class:

Global X FTSE Greece 20 ETF is down 53c to $12.53 in the premarket as investors digest news that the left-wing, anti-austerity Syriza party won a general election in Greece on Sunday. Global X FTSE Greece 20 ETF February call option implied volatility is at 98, March is at 79, April is at 63; compared to its 26-week average of 40.

National Bank of Greece (NBG) is off $0.10 to $1.58. Overall option implied volatility of 105 compares to its 26-week average of 80.

Microsoft (MSFT) is up $0,22 to $47.40 in the premarket into the expected release of Q2 results today after the market close. January weekly call option implied volatility is at 34, February is at 23, March is at 20; compared to its 26-week average of 20.

VIX methodology for Apple (VXAPL) @ 35.91, compared to its 50-day moving average of 30.56

Options expected to be active at CBOE:  OCN MSFT PG UTX STX TXN NSC COH T

CBOE EuroCurrency Volatility Index (EVZ) @ 11.62; compared to 50-day MA of 9.82

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 7.04 into FOMC meeting www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 57.62, compared to its 50-day moving average of 46.37, WTI Crude oil trades near $45 cboe.com/OVX

More

Next Week in Weeklys – 1/26 – 1/30

I have been putting these posts together for a couple of years now.  Since starting this project, I am pretty certain this is the biggest earnings week for stocks with short dated options.  There are about 70 companies that have Weeklys available reporting their earnings this week.  For those new to all this the table represents the biggest up move (Max), biggest price drop (Min), average move (Abs Avg) and what the stock did in reaction to earnings last quarter.  The historical numbers are based on three years of history and in cases where there is less than three years to work with (FB & BABA this week) I italicize the line.

Weeklys Corrected

 

 

The Week in VIX – 1/20 – 1/23

The S&P 500 was strong and VIX was weak last week. We returned to contango in VIX world as the S&P 500 was up 1.6% for the week. This despite having a tough Friday. Note the February future is at a pretty nice premium to the spot index. This may be a function of the people of Greece going to the polls this weekend, a two day Fed meeting, and a slew of economic numbers coming out next week.

VIX Curve

Near the top of my weekend ‘must read’ list is Steven Sears’ Striking Price column in Barron’s. This weekend’s column discusses a topic that is always on my mind and what I write of at this very moment – VIX. Buzz Gregory at Goldman Sachs is calling for an average of 16.00 for VIX in 2015. For some perspective so far this year VIX is averaging 16.66 and going all the way back to 1990 the long term average daily close for VIX is 19.94 (or 20.00 for the VIX tourists that only speak of VIX when the market is under pressure).

VIX averaging around 16 does not bode well for stocks in 2015 or 2016 for that matter. The chart below is one of my favorites showing the rolling 1-year, 5-year, and 10-year average close for VIX from 2000 through 2014.

Long Term VIX Averages

Note VIX dipped for a couple of years (2005 and 2006 where it averaged 12.81) before 2007 where it averaged 17.54. The past two years appear to be somewhat of a repeat of those two years with VIX averaging in the low 14’s. If Buzz is correct, and he’s a sharp guy so there’s no reason to doubt him, then this may be the beginning of a couple of years of elevated VIX levels. Why should even the VIX tourists care? For VIX to average higher levels we will also need to see the S&P 500 under pressure.

The Week in Volatility Indexes and ETPs – 1/20 – 1/23

Last week was another roller coaster ride for the equity market and subsequently the volatility markets. The VXST – VIX – VXV – VXMT volatility curve shifted back into contango and shook off a mild market drop on Friday to stay that way. With VIX having a 16 handle, I am beginning to wonder if traders are reaching an exhaustion point from reacting to dramatic down days in stock prices.

VXST VIX VXV VXMT

More

Weekly Market Commentary 1.23.15

The market continues to be volatile, with $SPX bouncing from support at 1990 to resistance at 2065 swiftly in the past four days.  Outside of that range, there is further support at 1975 (the October lows) and resistance at 2090 (the all-time highs).  As a result, the $SPX chart remains neutral at this time.
LM 1 23spx

Equity-only put-call ratios turned bullish in early January, and the standard ratio remains on a buy signal (barely) at this time, even though the 21-day moving average has curled upward over the past few days.  On the other hand, the weighted put-call ratio is rolling over to a sell signal.

Market breadth has been erratic, but both of the breadth indicators
that we follow are on buy signals now.

Volatility indices have generally been declining, which is bullish.
There was a rising trend in $VIX , but Thursday’s action broke
that downtrend line.
LM 1 23 15 vix

In summary, the market is volatile within a trading range.  This is
a neutral outlook, until $SPX can break out in one direction or the other.

The Weekly Options News Roundup – 1/23/2015

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

Building on the Momentum
By any measure, 2014 was a successful year for CBOE, as the exchange experienced record trading volume, expanded its product line, broadened access to its marketplace and continued to enhance its educational efforts.  CBOE looks to build on this momentum in 2015.

“CBOE Reports Record Trading Volume, New FX Volatility Indexes” – Kira Brecht, Options City Blog
http://bit.ly/1AYLlEw

Buy Write, Buy Right
Last week, CBOE released a groundbreaking new study — “Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs.”  The study analyzed SEC-regulated investment companies and closed-end funds that focus on use of exchange-listed options for portfolio management.

“Options-Based Funds Multiply” – Markets Media
http://bit.ly/1CZqaEQ

All Quiet on the VIXstern Front
Now that the shock waves from the Swiss franc have subsided, the VIX has retreated to below 16 today.

“S&P 500 Volatility Streak Longest Since ’12 as 1% Moves Multiply” – The Business Times
http://bit.ly/1zDyRXK

“Growing Risk Aversion Unmatched by Volatility: Chart of the Day”– David Wilson, Bloomberg
http://bloom.bg/1CuwbLG

Giving Back to the Community
For the past 16 years, CBOE has proudly partnered with Working in the Schools (WITS), an organization that promotes literacy and the love of reading by providing one-on-one tutoring and mentoring.  Each week, CBOE staff volunteer their time to tutor Chicago Public School students.

“Nonprofit Program Works to Improve CPS Students’ Reading Skills” – Bryce Gray, Chicago Sun-Times
http://bit.ly/1yMxGnr

Round of Applause
Each year, The Options Industry Council bestows the prestigious Sullivan Award to an individual in recognition of the impact they’ve made on the options industry.   This year’s recipient is Professor Robert Whaley, a key contributor to the development of the CBOE Volatility Index.

“The Options Industry Council Announces Robert Whaley to Receive 2015 Sullivan Award” – More

AAPL Earnings Play

I am looking at an Iron Condor as a potential trade to play AAPL earnings next week.

Trade:

Sell 1 January 120 Call and Buy 1 January 123 Call.

Sell 1 January 104 Put and Buy 1 January 101 Put.

This is the January 30 Expiration. The credit I am looking for is around $60 per every one contract Iron Condor I do (excludes commission).

Analysis: The credit for this Iron Condor is $60 and the Risk or Margin is $240 per every one contract I do. The yield is about 25% excluding commissions if I collect the entire credit. This is a one week trade. The Expiration Breakeven points are around 120 ½ on the upside and around 103 ½ on the downside. This gives me about 9 points or close to 8% protection on the downside and 8 points or about 7% protection on the upside. The last two earnings for AAPL, the stock didn’t move that much percentage wise.

This is a speculative trade because of the big potential gap that happens with earnings. We won’t be able to adjust the trade until the gap is over with, that is why I consider this a speculative trade. I choose my size by looking at the risk of the trade. If I like this trade and am willing to risk about $500, I might do this trade Two contracts. On this type of a speculative earnings trade, I make the assumption I could potentially lose my entire risk capital. In this case, my risk is about $240 per every one contract Iron Condor I do. I like this trade, but also respect the potential risk, and therefore I am very conscious of how much capital I put into this trade.

Thanks, dan@sheridanmentoring.com

CBOE Mid-Day Update 1.23.15

Volatility as an asset class

Honeywell (HON) is recently up $3.58 to $102.96 on the diversified company sees short cycle improvement and long cycle momentum. February call option implied volatility is at 16, March is at 14, June is at 15; compared to its 26-week average of 19.

General Electric (GE) is recently up 47c to $24.74 on backing FY15 EPS $1.70-$1.80, consensus $1.76. January weekly call option implied volatility is at 16, February and March is at 12; compared to its 26-week average of 17.

McDonald’s (MCD) is recently down $1.09 to $89.76 after reporting Q4 EPS $1.13, compared to consensus $1.22. January weekly call option implied volatility is at 18, February is at 17, March and June at 15; compared to its 26-week average of 18.

UPS (UPS) is recently down $10.49 to $103.81 after warning on FY14, FY15 earnings.  January weekly call option implied volatility is at 22, February is at 20, April is at 17; compared to its 26-week average of 15.

CBOE Crude Oil Volatility Index (OVX) down 0.9% to $55.86, WTI trades near $46.20 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 1.5% to 27.60. cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA C AA MCD TWTR NFLX AMZN

Options with increasing volume @ CBOE: FXCM GDP UPS FDX HIG DWA CE TSM RYAM NOC SNE TKMR LF STT

CBOE Volatility Index (VIX) down 1.5% to 16.16, high 17.09, low 15.98, February 14, 15, 16 and 17 puts are active on total volume of 554K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 1c to 31.29.
More

Blogging Options: CBOE Morning Update 1.23.15

US Stocks and overseas markets flat to higher as investors weigh effect of European QE.  Euro approaches 112.  Death of King Abdullah puts little volatility in Oil markets as country will keep same policies.  GE flat after earnings.  F to take $800m currency charge.  New Home Sales and Leading Indicators later this morning.  Volatility as an asset class

Starbucks (SBUX) is up $4.14 to $86.88 in the premarket after reporting better than expected Q1 EPS 80c and guidance.  January weekly call option implied volatility is at 78, February is at 24, April is at 20; compared to its 26-week average of 23.

Intuitive Surgical (ISRG) is down $5.38 to $520 after reporting Q4 EPS $4.92, compared to consensus $4.38. January weekly call option implied volatility is at 113, February is at 35, March is at 29, April is at 27, July is at 25; compared to its 26-week average 30.

Skyworks (SWKS) is down 33c to $79 in the premarket after the producer of analog semiconductors reported better than expected results and guidance. January weekly call option implied volatility is at 163, February is at 45, March is at 40; compared to its 26-week average of 34.

VIX methodology for Apple (VXAPL) @ 35.67, compared to its 50-day moving average of 30.29

Options expected to be active at CBOE:  GE HON KSU VZ SBUX SWKS ETFC KLAC ISRG

CBOE Equity Options Volume; calls 1,121,261, puts 649,877, total 1,771,138 cboe.com
CBOE Total Put/Call Ratio 0.98 cboe.com

CBOE EuroCurrency Volatility Index (EVZ) @ 11.62; compared to 50-day MA of 9.76

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.59 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 56.40, compared to its 50-day moving average of 45.83, WTI Crude oil trades above $47 cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 139.13, compares to its 50-day moving average of 130.43 SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

More

Weekly Weekly’s for 1.22.15

Traders are jumping into weekly options to trade upcoming earnings. I’m Angela Miles covering weekly options expiring this Friday and next Friday.


Starbucks (SBUX) turns in earnings after the close. The straddle at the 81 strike is pricing in about a 3% move up or down. Last year, the market suggested a 5% move off of earnings. There more upside calls than downside puts trading in the early going with an emphasis on the 82 strike call strike.

Friday will be a major day for earnings news. GE reports tomorrow. And, for now, there are more puts than calls on the move. As GE trades $24, puts are active at the 22.5 strike and calls at the 24 and 25 lines. The 24 straddle is predicting around a 3% move by Friday’s expiration.

McDonald’s also reports results tomorrow and despite negative calls by analysts that business is slowing at its restaurant chains, calls are active in the Weeklys. The stock is trading $90 and calls are active at the 92 and 92.5 strikes (some of that may be a spread) along with puts at 89. The straddle prices in a 2.2% move. It’s tough to tell but, there is a chance traders will short MCD and buy calls to cover for an upside surprise. Just a thought.

Next Tuesday Apple and Yahoo report earnings…

Apple is trading today at $110 with 110 and 112 calls in demand for this Friday’s expiration. The straddle for this week at 110 prices at $1.80 and next week, the earning week, the 110 straddle prices in at $650. Quick reminder, a straddle is the simultaneous purchase of a put and a call

Yahoo has some bullish call buyers going into earnings on Tuesday. The stock is trading $48 and traders are already building positions in the 51 strike.  The straddle next week at the 48 strike suggests a $4.30 move.

Amazon has been active this week even though earning are not due until next Thursday. As AMZN trades $305, calls are active at 300 to 310 along with put players at 290 into Friday’s expiration and next week 310 calls continue to be in motion with puts down to 270 getting action. The straddle at $305 suggests AMZN could see a $24 swing up or down following earnings.

I want to give a quick mention to Facebook, which popped up on the most active list. There’s a demand for 78 call contracts as FB trades $77.

And, as the market reacts to the latest stimulus decision by the ECB, hedgers are stepping into weekly SPX put options expiring this Friday at the 2,000 strike (with the 1,915 strike showing some activity as well). At the same time a bulk of SPX calls are trading at the 2,030, 2,050 and 2,080 lines.

That’s it for now. Follow me on Twitter @AngieMiles.

CBOE Mid-Day Update 1.22.15

Volatility as an asset class

United Continental (UAL) is recently up $2.37 to $71.54 on the airliner sees generating ‘far better’ results in 2015. February call option implied volatility is at 45, March is at 43; compared to its 26-week average of 44.

Southwest (LUV) is recently up $2.55 to $44.36 on seeing Q1 passenger revenue to grow in line with expected 6% increase. February call option implied volatility is at 34, March is at 33, June at 34; compared to its 26-week average of 31.

Alaska Air (ALK) is recently up $1.76 to $66.61 on passenger revenue grew by 8% in Q4 compared to last year and raised its quarterly dividend by 60% to 20c. February call option implied volatility is at 27, March is at 30, July at 29; compared to its 26-week average of 31.

CBOE Crude Oil Volatility Index (OVX) up 4.3% to $57.48, WTI trades near $46.50 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 3.5% to 29.13. cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA C VZ KMI TWTR NFLX AMZN

Options with increasing volume @ CBOE: FXCM R INFI BRCD FFIV VFC ABEV SNDK

CBOE Volatility Index (VIX) down 8.3% to 17.28, high 19.23, low 16.73, February 25 calls and February 16 puts are active on total volume of 196K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 1.33 to 32.15.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 15% to 17.33; compared to its 50-day moving average of 15.42 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 60c to 263.15 compared to its 50-day moving average of 262.36 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up 5.52 to 900 after the ECB announced the purchase of EUR 60B a month of assets.

Blogging Options: CBOE Morning Update 1.22.15

US stocks with premarket euphoria but “sell the news” give back gains.  ECB announced $60B (Euro) Bond purchase per month for next ~20 months.  Euro down 1.25% vs the USD, now at 1.147. All Euro currencies lower except Swiss which is unchanged.   Weekly Jobless Claims above 300K again. VZ off 2% on earnings.  VIX lower. Volatility as an asset class

eBay (EBAY) is up $1.82 to $55.20 following Q4 results and guidance. January weekly call option implied volatility is at 69, February is at 28, April is at 24; compared to its 26-week average of 27.

American Express (AXP) is down $3.47 to $84.20 after the card company reported a Q4 revenue increase of 6.6% from a year earlier and would cut 4,000 jobs. January weekly call option implied volatility is at 37, February is at 27, March is at 20; compared to its 26-week average of 21.

F5 Networks (FFIV) is down $15.95 to $110 after the networking company on less than expected guidance. January weekly call option implied volatility is at 87, February is at 36, March is at 30; compared to its 26-week average of 28.

VIX methodology for Apple (VXAPL) @ 38.07, compared to its 50-day moving average of 30.02

Options expected to be active at CBOE:  EBAY SNDK XLNX UAL VZ ALK

CBOE Equity Options Volume; calls 865.632, puts 519.089, total 1,384,721 cboe.com
CBOE Total Put/Call Ratio 1.07 cboe.com

CBOE EuroCurrency Volatility Index (EVZ) @ 13.64; compared to 50-day MA of 9.69

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.91 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 55.09, compared to its 50-day moving average of 45.30, WTI Crude oil trades above $47. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 134.30, compares to its 50-day moving average of 130.18 SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

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Lack of Liquidity Affects Most Markets

We have become accustomed to low volume, low volatility markets.  On certain days you can just feel the intensity and flow potential from the start.  Markets gap up and hit morning highs, rest and then run hard to finish the day — and all the bulls rejoice.  A runaway gap down and follow through has everyone stumped and waiting for a snapback rally, which may not occur, bids disappear and prices run hard to finish the days on their lows.  This has been the mantra so far in 2015 and we just have to get used to it.  Sentiment, mostly bullish with the support of the Fed has started to crack a bit.  Perhaps stocks are not the only game in town, as bonds continue to attract dollars.

BL 1 19 15

So that brings us to a discussion about liquidity, a lack thereof.  I mostly trade in the equity option markets, and I have found a disturbing trend.  Even the most liquid names with multiple market makers are not interested in providing a fair market.  Often times we see very wide bid/ask spreads, often nobody on the other side of the trade unless you take a horrible price. It’s frustrating when it feels we are getting ripped off.  The game of markets is tough enough trying to get on the right side of the trade, but the ‘games played’ make it that much more difficult.

Take Biomarin for example.  This is an upstart biotech firm that is near all-time highs, has had decent stock volume and fair open interest.  Certain strikes have good open interest and enough activity where the bid/ask should be reasonably close.  This being January, many stocks have enormous liquidity due to the expiration of LEAP options.  The Jan 100 BMRN call this week, just barely out of the money was sporting a bid/ask spread of .35 x 1.20.  This is preposterous for some egregious market maker.  If you’re not going make an honest market, then don’t be in the issue.

The options market is not the only one affected by a lack of liquidity.  The futures market, where we see big SPX contracts trade along with e-minis, one of the most liquid of them all – often show wide bid/ask spreads as well and tumbling prices at certain points of the day (see my ‘dirty bombs’ chart below for a recent example).  Where we have heard algorithmic and high frequency traders who claim to provide liquidity, they suddenly disappear when the balance is tipped.  I’m quite surprised there have not been more wide-scale flash crashes due to the ‘games’ that are played, and I suspect there have been instances where an event of this magnitude was very close.

BL ovx 010615

Commodities are a different beast than options or futures, but we see some of the same problems.  The drop in crude oil over the past seven months has been simply amazing.  We have seen oil volatility ($OVX) rise sharply, nearly 200% from September 2014.  The oil decline has clearly been one-sided, certainly helped by the continued supply from OPEC nations.  Yet, in futures contracts there have been few ‘true’ bids to balance the market, something not unexpected when a stock/ commodity is in free fall.  I certainly doubt the price of crude will head straight to zero, there will be a fair price to bring buyers to market, but that may be far off.  From a chart perspective any attempt at buying since the break in the low 80’s has been trying to catch a falling knife.

As investors there is a trust that there will be someone on the other side of the trade to provide liquidity, even in the most dire situations.  During the 2008/09 financial crisis we saw central banks intervene, stepping up to provide the needed liquidity to keep markets in motion.  But there are limitations and moral hazard issues there.  Fairness. liquidity and market-making should come from the public markets or the trust and belief in our system will be in doubt.

CBOE Mid-Day Update 1.21.15

Volatility as an asset class

UnitedHealth (UNH) is recently up $2.55 to $108.19 as Q4 results top expectations on revenue growth.  January weekly call option implied volatility is at 29, February is at 20, June is at 20; compared to its 26-week average of 22.

Apple (AAPL) is recently up $1.86 to $110.58 into its expected release Q1 results next week. January weekly call option implied volatility is at 35, February is at 34, March is at 31; compared to its 26-week average of 26.

Amazon.com January weekly 300 and 305 calls are active on total volume of 101K contracts at the CBOE. January weekly call option implied volatility is at 45, February is at 47, March is at 35; compared to its 26-week average of 34.

CBOE Crude Oil Volatility Index (OVX) down 5.2% to $54.99, WTI trades near $46.39 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 6.9% to 30.72. cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL C TSLA MGM ABX TWTR GILD NFLX AMZN SIRI

Options with increasing volume @ CBOE: MW ABX CVX MGM AMD EBAY HUN YHOO FXCM EWI ADXS NVS AXLL NTRS EGO DBC ARLP

CBOE Volatility Index (VIX) down 4.8% to 18.93, high 21.28, low 18.64, February 20, 24, 25 and 30 calls active on total volume of 351K cboe.com/VIX

The final VIX index settlement level on expiration Wednesdays is disseminated under the symbol VRO. VRO closed at 20.95.

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 1.15 to 33.97.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 5.2% to 20.80; compared to its 50-day moving average of 15.31 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 60c to 262.24 compared to its 50-day moving average of 262.35 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up 4.80 to 896.44 into expected European Central Bank economic stimulus announcement.

Block Trade – Yesterday’s Buyer of VIX Jan 20 Calls

Yesterday as the trading day got started I heard a shout to my right (which is the direction of the VIX pit) as a big trade came into the VIX arena. It turns out all the hubbub was about a buyer of 80,000 VIX Jan 20 Calls who paid 0.75 for 8,370 and 0.80 for 71,630 of those options. Being the day before January VIX settlement this trade was a bit of a surprise, but also got a lot of attention. Later in the day, with VIX higher, a (maybe the same?) buyer returned purchasing about 70,000 of the VIX Jan 20 Calls. This time they paid 1.05 and 1.10 for those options. The net result of these two orders was a purchase of close to 150,000 VIX Jan 20 Calls at an average price of about 0.93. I put together a 5 minute chart of VIX from yesterday and highlighted where the index was when these two orders were executed.

VIX Chart Fixed

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Blogging Options: CBOE Morning Update 1.21.15

State of The Union with no surprises last night.  US Housing in the news this morning with Dec. Starts rising 4% but Permits dropping 1.9%. Overseas markets mixed with NIKKEI off 0.5%, FTSE up 0.6% and Shanghai higher by 4%.  10-Year 1.78%.  Average option volume yesterday with~15 m contracts traded.  VIX & SPX showed 640 K & 893 K respectively.  VIX Jan settlement this morning.  Waiting for ECB tomorrow.  Volatility as an asset class:

IBM (IBM) is down $4.04 to $152.90 in the premarket on lower than expected guidance. IBM January weekly call option implied volatility is at 53, February is at 25, April is at 22; compared to its 26-week average of 20.

Netflix (NFLX) is up $59.20 to $408 on better than expected Q4 results, outlook and adding more users than expected.  January weekly call option implied volatility is at 96, February is at 55, March is at 47; compared to its 26-week average of 37.

Cree (CREE) is up $1.70 to $34.04 in the premarket on better than expected Q4 results and guidance. January call option implied volatility is at 134, February is at 61, June is at 49; compared to its 26-week average of 42

VIX methodology for Apple (VXAPL) @ 38.01, compared to its 50-day moving average of 29.71

Options expected to be active at CBOE:  NFLX CREE IBM UNH GLD EBAY SNDK

CBOE Equity Options Volume; calls 942,491, puts 578,626, total 1,521,017 cboe.com

CBOE EuroCurrency Volatility Index (EVZ) @ 13.78; compared to 50-day MA of 9.60

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 7.24 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 57.99, compared to its 50-day moving average of 44.80, WTI Crude oil trades above $46.50. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 123.63, compares to its 50-day moving average of 130. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

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Volatility Remains A Concern – Weekly Market Outlook

After five straight days of losses for the market, even Friday’s big gain wasn’t enough to leave the market higher for the week.  That makes the third consecutive week of lost ground for stocks, though there are some hints that the bulls are sensing there’s something of a floor materializing near last week’s lows (which were pretty well aligned with the previous week’s lows).

Don’t misunderstand that observation – the bulls still have a ton of work to do if they want to convincingly put the market back on a bullish track.  In fact, the indices are still on the bearish side of the key short-term moving averages.  Friday’s bounce, however, took shape at the best and most likely rebound levels the market could have used in that capacity.

We’ll tell the story using charts below.  First, let’s paint a bigger picture with a closer look at last week’s key economic news.

Economic Data

It was a pretty busy week last week on the economic front, and most of the data was a little discouraging.  Let’s just work through the big ones, in order of appearance.

On Wednesday we learned retail sales weren’t all that hot for December.  Retail consumption slipped 0.9%, and retail spending not counting automobiles fell 1.0%.

Retail Sales, Period-Over-Period Change Chart

PH 11815-retail-sales

Source: Thomson Reuters Eikon

The numbers were a little misleading, in that the total retail sales figure includes gasoline sales, and gas prices have been plunging with the price of oil of late… especially last month.  In fact, total purchases outside of gasoline were basically flat.  That, however, IS the concern.  Most have theorized cheaper gasoline prices would mean those savings would be spent on other types of goods.  They weren’t.  At least not yet.

Inflation continues to slide lower too, stemming mostly from slack demand rather than oversupply. On a wholesale basis – producer price inflation – prices fell 0.3% overall and only grew 0.3% not counting energy and goods.  Consumer price inflation was negative overall as well, falling 0.4%.  On a core (less food and energy) basis, consumer inflation was flat.

Finally, Industrial Production and Capacity Utilization both slipped a little last month.  Production fell 0.1% in December, according to the Federal Reserve’s figures, while capacity utilization (of factory output potential) moved from 79.9% to 79.7%.  We’ve discussed previously that these economic indicators have tended to correlate with stock market performance.

Interestingly, the consumer is still feeling good even though businesses may have a little reason to be worried.  January’s final reading on the Michigan Sentiment Index came in at 98.2, up from December’s  93.6.  That’s the strongest reading in a decade. 

Economic Calendar

PH 11815-econ-data

Source: Briefing.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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NFLX Earnings Trade Idea

Netflix, Inc. [Nasdaq: NFLX, $342, up $4.66] is scheduled to release its fourth quarter earnings report today following the close of the market session. Consensus analyst estimates are forecasting earnings per share of $0.45 on overall revenues of $1.48 billion. The same quarter one year prior (Q4 2013) saw EPS of $0.66 on $1.18 billion in revenue.

NFLX shares are off by a modest 0.8% in 2015, but the stock has been trading in a bearish pattern since last September with sideways price action since March. The stock has traded in a 52-week range of $299.50-$489.29, with most of the bullish momentum occurring in the first quarter of 2013.

With Amazon’s new content seeming to gain popularity with viewers, it seems inevitable Netflix will suffer some decline in viewership. While the company looks poised to post another quarter of improved EPS, traders may shrug this off again (last quarter the stock fell nearly 20% following a report that included improved EPS numbers). The stock has fallen 2 of the past 4 quarters, and 4 of the past 8, with an average move of 16%.

This week’s NFLX Jan Weekly 337.5 Straddle is trading $35.70-$36.90, or implying a below-average move of around 10.7% Given the historical movement we’ve seen, this could offer an opportunity for weekly straddle buyers.

My Trade:

Buy this week’s NFLX Jan Weekly 310 – 300 Put Spread for ~ $2.40 (excludes transaction costs)

Risk: $240 Per 1 Lot    Reward: Up to $760 Per 1 Lot      Break-even (at expiration): $307.60

Greeks of this Trade:

Delta: Short

Gamma: Long

Theta: Short

Vega: Long

As always, I never will look to buy a spread that pays less than 3:1 on my risk capital.

 

Blogging Options: CBOE Mid-Day Update 1.20.15

Markets turn South on earnings and oil.  Gold higher.  Volatility as an asset class

Johnson & Johnson (JNJ) is  down $3.47 to $100.56 after announcing less than expected Q4 sales results. January weekly call option implied volatility is at 29, February is at 18, April is at 16; compared to its 26-week average of 15.

Baker Hughes (BHI) is flat at $56.54 after reporting Q4 adj. EPS $1.44, compared to consensus $1.07. February call option implied volatility is at 26, March is at 31; compared to its 26-week average of 35.

SPDR Euro STOXX 50 ETF (FEZ) is up $0.21 to $36.32 on hopes for central bank economic stimulus actions. Overall option implied volatility of 24 compares to its 26-week average of 17.

CBOE Crude Oil Volatility Index (OVX) up 3.6% to $58.48, WTI trades near $48 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 1.6% to 33.16. cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL C TSLA MGM ABX TWTR GILD NFLX BAC VIX

Options with increasing volume @ CBOE: JAH SONS TSEM GFI SPPI PGNX GRA ADXS

CBOE Volatility Index (VIX) down 1.9% to 20.48, high 21.37, low 19.78, January 20, 21, 22 and 23 calls active on total volume ofover 600 K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is up 45c to 35.93.

CBOE S&P 500 Short-Term Volatility Index (VXST) is up 1.7% to 24.14; compared to its 50-day moving average of 15.02 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 60c to 260.65 compared to its 50-day moving average of 262.34 cboe.com/micro/bxd/

S&P 100 Options (OEX) is down 4.90 to 884.90 into expected European Central Bank economic stimulus.

Blogging Options: CBOE Morning Update 1.20.15

Mixed signals overnight but US Stock futures in the green.  The IMF is expecting 3.5% and 3.7% world growth in 2015 and 2016, both 0.3% lower than the previous estimate. China released several economic numbers in the last 48 hours, overall fairly soft.  US Treasury with record revenues in 2014, but President will propose new higher taxes to help the “middle class” in tonight’s State of the Union address, Congress will not go along with most of his suggestions.   I’ll watch the Chicago BlackHawks.  Volatility as an asset class:

Delta Air Lines (DAL) is up $1.16 to $47. in the premarket after reporting Q4 results and seeing double-digit earnings growth in 2015. January weekly call option implied volatility is at 51, February is at 43, March is at 41; compared to its 26-week average of 37.

Morgan Stanley (MS) is down $0.85 to $33.24 after reporting less than expected Q4 results. January weekly call option implied volatility is at 47, February is at 33, April is at 28, July is at 27; compared to its 26-week average of 26.

Halliburton (HAL) is up $0.79 to $39.92 in the premarket after reporting Q4 EPS $1.19 ex-items, consensus $1.10. January weekly call option implied volatility is at 54, February is at 43, March is at 40; compared to its 26-week average of 35.

VIX methodology for Apple (VXAPL) @ 41.81, compared to its 50-day Moving Average of 29.39

Options expected to be active at CBOE:  IBM DAL BHI HAL MS EDU IBM FXCM AAPL NFLX

CBOE Equity Options Volume; calls 1,610.252, puts 1,095,682 total 2,705.934 cboe.com

CBOE EuroCurrency Volatility Index (EVZ) @ 14.55; compared to 50-day MA of 9.52

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 7.43 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 56.44, compared to its 50-day moving average of 44.27, WTI Crude oil trades above $47.50. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 131.39, compares to its 50-day moving average of 130.44. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

CBOE S&P 500 BuyWrite Index (BXM) at 1065.89 compared to its 10-day moving average of 1069.07 cboe.com/bxm

CBOE DJIA BuyWrite Index (BXD) at 261.25 compared to its 50-day moving average of 262.38 cboe.com/micro/bxd/

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Explaining VIX to a 10 Year Old

This weekend, as I drove my oldest daughter to one of her many activities, she asked if she could ask me a question. I braced myself for something that may be more appropriate for her mother to answer. However, I was surprised when she uttered the words, “Dad, what’s VIX?”

Here’s a summary of my attempt to explain VIX to a 10 year old –

Let’s say the amount of money you have in the bank goes up and down with the markets, like those numbers I watch on TV in the morning. When the number goes up you would be happy and when the number goes down you would be worried.

Now if you are worried about losing money there is a way you can pay a small amount to protect from losing a large amount of money.   When the market is moving higher very few people are worried about losing money so not many people are willing to pay that small amount. When the market is moving lower and more people are willing to pay for the protection against losing more money.

When more people want to pay for that protection the cost of that protection will move higher and when fewer people are willing to pay for that protection the cost will move lower. In a very complex way VIX measures how much demand there is for that protection – when people are more worried about the market VIX moves up and when people are less concerned about the market, and their money, VIX moves lower.

She looked at me, maybe she got it and maybe she didn’t, and said, “Dad can we go see the Paddington movie tomorrow?”

Last Week in VIX – 1/12 – 1/16

If the January VIX futures could speak they probably would say something like, “I told you so”. Of course the contracts can’t speak, but the point behind this is a week ago the January contract closed at a pretty substantial premium to VIX relative to recent history. A week later both the January contract and spot VIX are higher. Remember VIX futures are priced based on a risk premium associated with being short volatility or the anticipation that VIX make move up in the near term.   A wide spread doesn’t always mean VIX is going to move higher, but the Monday morning quarterback in me sees it now.

VIX Curve

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Last Week in Volatility Indexes and ETPs – 1/12 – 1/16

Despite Friday’s rally, the S&P 500 was down four of five days and gave up about 1.25% last week. At the worst point the S&P 500 was down over 3% on the week and then of course it shook off the dip and rallied to end the week. You can’t keep a good market down nor does it appear can the bears keep this market down either. All four of the S&P 500 oriented volatility indexes were higher for the week. And the curve became slightly inverted.

VXST - VIX - VXV - VXMT

VXST is higher than the three other indexes even in front of a three day weekend. For those new to VXST, the index is more or less a nine day version of VIX with those nine days representing calendar days. An extra day off like we have this Monday places a bit of a headwind in front of VXST which will recover some of that value on Tuesday morning. Of course the stock market action will dictate just how much of that value is recovered. Something that stood out to me on the term structure diagram above was where VIX is relative to VXV. The slight discount may be partially attributed to the impact of a three day weekend, but regardless of the circumstances VXV higher than VIX is a bit unusual when VIX is up almost 20% on the week.

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The Weekly Options News Roundup – 1/16/2015

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

“CBOE is a Products Company”
Building off of a successful 2014, CBOE looks to continue expanding its volatility and index product lines in the coming year.  CBOE has tapped into the interest rate and foreign exchange spaces with new volatility indexes, while it recently announced a tie-up with MSCI Indexes, adding new products that provide global exposure.

“Livin’ the High Life:  CBOE Posts Solid 2014, Looks to Global Growth in 2015” – Sarah Rudolph, John Lothian News
http://bit.ly/1AomklQ

“CBOE Expands Index Options, Volatility Suite” – Steve Marlin, Markets Media
http://bit.ly/1KQz7pK

“Volatility Futures Planned For U.S. Listed MSCI Options” – Daniel O’Leary, EQDerivatives
http://bit.ly/1E7YgaO

New White Paper on Fund Use of Options
On Tuesday, CBOE released a groundbreaking new study — “Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs.”  The study analyzed SEC-regulated investment companies and closed-end funds that focus on use of exchange-listed options for portfolio management.  Executive summary: use of options-based funds is on the rise.

“Can Options-Based Funds Compete?” – Jim Kharouf, John Lothian News
http://bit.ly/14J0alk

“Equity Option Funds Outperform S&P with Lower Risk: CBOE” – Daniel O’Leary, EQDerivatives
http://bit.ly/1wgTOAk

Closing Kick
After a lull in volume during the month of November, December roared back to life with robust volume, providing a finishing kick to the year.  2014 goes down as the second highest trading volume all-time.

“Listed Options Volume Up 20 Percent at 355 Million Contracts in December” – John D’Antona Jr.
http://bit.ly/1yrVPxI

“Options Liquidity Matrix” – Tabb Forum
http://bit.ly/1IIlMh4

Playing Interest Rate Volatility
“People aren’t going to insure their portfolios unless they feel that there is legitimate risk out there.  So we need some help from Janet Yellen.”

“A Market Whose Time Has Come?  Treasury Vol Futures Set for Hikes” – Beth Shah, Global Capital Review 2014/Outlook 2015
http://bit.ly/1G8Mkua

2015 Showing Early Signs of Volatility to Come
2015 is off to a volatile start, with the VIX Index spiking during the first two weeks of the new year.  This market has traders wondering if “volatile volatility” will be the new normal.

“The Year of a Volatile VIX?” – Steven M. Sears, Barron’s
http://on.barrons.com/1BDXov9

“Traders Prepare for Stock Volatility” – Saumya Vaishampayan, The Wall Street Journal
http://on.wsj.com/1E7iEIU

“Fear Gauge Spikes, Amid Talk of ‘Old Normal’ for Stock Market” – Kristen Scholer, The Wall Street Journal
http://on.wsj.com/1G8E8Kp

“As VIX Flares, Europe Likely to Conduct Symphony of Volatility” – Chris Dieterich, Barron’s
http://on.barrons.com/1ys2b02

Seal Of Approval
CBOE recently enhanced its VIX Index methodology to include SPX Weeklys into the VIX Index calculation, allowing the VIX Index “spot” values to be calculated with S&P 500 Index option series that more precisely match the 30-day target timeframe for expected volatility that the VIX Index is intended to represent.

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CBOE Mid-Day Update 1.16.15

Volatility as an asset class

PNC Financial (PNC) is recently up $1.49 to $83.90 after reporting Q4 EPS $1.84, compared to consensus $1.74. February call option implied volatility is at 22, May is at 19; compared to its 26-week average of 18.

Comerica (CMA) is recently up 51c to $41.74 after reporting Q4 EPS 80c, compared to consensus 77c. February call option implied volatility is at 30, April is at 28; compared to its 26-week average of 22.

SunTrust (STI) is recently up $1.33 to $38.04 after reporting Q4 adjusted EPS 88c, compared to consensus 78c. February call option implied volatility is at 24, April is at 22; compared to its 26-week average of 20.

CBOE Crude Oil Volatility Index (OVX) up 0.7% to $58.07, WTI trades near $48 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 2.5% to 34.19. cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA C AMZN TWTR BAC CLF PBR ABX VLO VZ FB

Options with increasing volume @ CBOE: MDCO RY IBKR TROW PX CROX PXLW LYG HAIN FXF

CBOE Volatility Index (VIX) up 1.6% to 22.74, high 23.43, low 21.83, January 21 & 22
calls, January 18, 19 & 21 puts active on total volume of 296K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently up 40c to 36.52.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 1.7% to 24.14; compared to its 50-day moving average of 15.02 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) at 259.37 compared to its 50-day moving average of 262.41 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up 3.48 to 881.82 as U.S. consumer prices posted the largest

Weekly Market Commentary 1.16.15

The stock market has experienced huge moves so far this year, far greater than have been seen since the fall of 2011.  There has been a lot of back forth action, but the bears seem to be gradually getting the upper hand.   Yet, the indicators are mixed and it could be that the Standard & Poors 500 Index ($SPX) is just in a wide and volatile trading range.

$SPX has established support near 1990.  Below there, the next support level is at roughly 1975, and if that support is violated, then the $SPX chart would take on a distinctly more bearish appearance.

LM 1 16 15 spx

Equity-only put-call ratios turned bullish a week ago and remain
on buy signals at this time.

Market breadth has not been as weak as one might have expected, but that is mostly due to the counter-trend intraday rallies that keep springing up (but failing to hold).  Even so, both of the breadth indicators that we watch are on sell signals, and only one of them is in oversold territory.

CBOE volatility indices ($VXST, $VIX, $VXV, and $VXMT) have been rising of late.  The red line on the $VIX chart shows that there is an intermediate-term uptrend building in $VIX, and that is bearish. A $VIX close above last week’s high at 22.90 would be a very negative sign.

LM 1 16 15 vix

In summary, each day’s action seems to have pushed more of the
indicators towards a bearish stance.  However, as long as $SPX closes above support at 1990, and the put-call ratios remain on buy signals, the bulls can still pull things together.  As a result, the indicators are mixed, and the outlook is neutral, but volatile.

Blogging Options: CBOE Morning Update 1.16.15

December CPI off 0.4% (consensus -0.3%.  Energy contributed -4% to this drop).  X-Food & Energy rose 1.6% (+1.75 expected).   Industrial production fell 0.1% in December.  Markets still weighing Swiss bank move with US futures lower.  A trader tells us that Implied Volatility on the Swiss Franc going into yesterday’s session was under 2%!  The perils of being short Vol!  Option Expiration this afternoon, bond traders with early hours today. Markets closed Monday, details in a post two days ago. Volatility as an asset class:

Intel (INTC) is down $0.08 to $36.11 in the premarket on less than expected guidance. January call option implied volatility is at 67, February is at 30, April is at 27; compared to its 26-week average of 23.

Goldman Sachs (GS) is off $2.79 to $175.70 after reporting Q4 EPS $4.38, compared to consensus $4.32. January call option implied volatility is at 37, February is at 25, April is at 23, July is at 22; compared to its 26-week average of 21.

Schlumberger (SLB) is up $0.42 to $77.05 in the premarket after reporting Q4 adjusted EPS $1.50, compared to consensus $1.46. The oil service company will cut approximately 9,000 jobs. January call option implied volatility is at 70, February is at 41, May is at 33; compared to its 26-week average of 20.

Options expected to be active at CBOE:  INTC SLB AMZN CMA STI GS PNC COF FXCM BP

CBOE Equity Options Volume; calls 1,236.347, puts 893,380, total 2,129,727 cboe.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 7.66 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 57.77, compared to its 50-day moving average of 43.30, WTI Crude oil trades above $47. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 120.77, compares to its 50-day moving average of 129.89.

SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

CBOE S&P 500 BuyWrite Index (BXM) at 1054.92 compared to its 10-day moving average of 1070.73 cboe.com/bxm

CBOE DJIA BuyWrite Index (BXD) at 259.37 compared to its 50-day moving average of 262.41 cboe.com/micro/bxd/

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Block Trade – Deep OTM RUT Put Spread from 1/14

I know this is a bit dated, but looking at Wednesday’s block trades something stood out to me in the Russell 2000 Index (RUT) option arena. A large (over 20,000 contracts) block trade went off in the RUT Jan 23rd 1060 and RUT Jan 23rd 1070 Puts. The trade was a far out of the money bull put spread with the RUT Jan 23rd 1070 Puts being sold for 1.15 and the RUT Jan 23rd 1060 Puts being purchased for 1.00 and a net credit of 0.15. As will all vertical credit spreads the maximum profit for this trade is the 0.15 taken in when the trade was initiated. The potential loss is 9.85 if the Russell 2000 drops to 1060 or lower by next Friday. This is shown in the payoff diagram below which also highlights where the Russell 2000 closed on Wednesday (1177).

RUT Payoff

This is a big dollar risk for a little dollar reward, but a lot has to go wrong for this trade to end up down 9.85 at expiration. Specifically the break-even level (1069.85) is over 9% lower than where the RUT closed yesterday. And almost a 10% drop would be needed (in a very short period of time) for the loss to max out at 9.85. The price chart shows RUT price action through Wednesday along with blank space to represent the remaining six (including today) trading days remaining until expiration next Friday.

RUT Daily Fixed

 

 

CBOE Mid-Day Update 1.15.15

Volatility as an asset class

Citi (C) is recently down $1.24 to $47.83 on the money center sees FY15 revenue growth for Citicorp in low to mid-single digit percentage.  January weekly call option implied volatility is at 31, February is at 27, March is at 26; compared to its 26-week average of 22.

Lennar (LEN) is recently down $3.40 to $42.37 on the home builder says it’s still in early stages of ‘protracted, slow growth’ housing recovery. February call option implied volatility is at 39, May is at 33; compared to its 26-week average of 30.

CurrencyShares Swiss Franc Trust (FXF) is recently up $12.85 to $108.60 January calla option implied volatility is at 47, February is at 29, March is at 20; compared to its 26-week average of 9 according to Track Data, suggesting large price movement after the Swiss Central bank unexpectedly ends its minimum exchange rate versus the shared currency.

CBOE Crude Oil Volatility Index (OVX) up 3.8% to $55.19, WTI trades near $48 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 0.3% to 35.41.
cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA C GILD AMZN TWTR BAC CLF ABX X FB

Options with increasing volume @ CBOE: OSUR HAS PX GFI DLTR GDOT EGO ERY GWW

CBOE Volatility Index (VIX) up 4.3% to 22.40, high 23.012, low 20.86, Jan 22 calls & 18 puts active on total volume of 212K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 1c to 35.13.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 12.6% to 23.91; compared to its 50-day moving average of 14.84 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 73c to 260.26 compared to its 50-day moving average of 262.43 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down 5.62 to 881.74 as Treasury yields trend lower on weak economic data.

Blogging Options: CBOE Morning Update 1.15.15

Swiss National Bank unattached from the Euro and European stock & Currency markets are wild this morning.  Unclear what the impact on US markets will be, talking heads on business channels may be talking their position – the more outraged they are the shorter the Swiss they may be.  Weekly claims made a surprising jump to 316K, highest level in seven months.   Wholesale Prices dropped 0.3%, but the Core Rate (less Food & Energy) jumped 0.3%.  Oil prices continue yesterday’s rally, helping stock futures. VIX Futures active in extended session this morning.  Volatility as an asset class:

Bank of America (BAC) is down $0.40 to $15.64 in the premarket after a Q4 revenue miss. January call option implied volatility is at 39, February and March is at 27; compared to its 26-week average of 24.

Best Buy (BBY) is off $3.84 to $36.06 after its CEO says holiday period growth rate was lower than previous quarters. January call option volatility is at 110, February is at 50, March is at 47; compared to its 26-week average of 37.

CurrencyShares Swiss Franc Trust (FXF) is up $15.70 to $111.45 in the premarket after the Swiss Central bank unexpectedly ends its minimum exchange rate versus the shared currency. Overall option implied volatility of 10 compares to its 26-week average of 9.

Options expected to be active at CBOE:  C BAC BLK AAPL BBRY BBY VIX

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Next Week in Weeklys – 1/20 – 1/23

Next week is a holiday shortened week as noted in the blog that appears just before this one.  Despite it being a short week, there’s plenty of companies with short dated options reporting earnings next week.  Things get started on Tuesday morning with numbers from Baker Hughes (BHI) and Halliburton (HAL) which should be interesting since the oil market has been in the news lately.  The week finishes up with McDonalds (MCD) and General Electric (GE) reporting before the open Friday morning.

As a reminder the table below is based on the last 12 quarters or 3 years of reporting history.  Max and min are the biggest one day gain and losses in reaction to earnings over this time period.  Abs avg is the average move (higher or lower) off earnings and Last Q is how the stock reacted to earnings three months ago.

Weeklys

Martin Luther King Jr. Trading Schedule

It seems as if we just got back to a full work schedule, and we have a long weekend coming up.

This Friday, Jan. 16th is Expiration Friday with regular trading hours for all products at CBOE, C2 and CFE.   On Monday January 19th, CBOE and C2 are closed for business, so there will be no Stock, ETF or Index option trading on that date.  Regular trading will resume Tuesday morning.

On Sunday evening Jan. 18th,  CFE opens its extended trading session at 5:00pm CST for VIX (VX) and VXT Futures and will close at 10:30am Monday.  Extended hours trading begins again with regular hours starting Monday evening, opening at 5:00pm and closing at 8:30am Tuesday morning.  Monday evening’s session will have regular hours.  Trades in both the Sunday and Monday extended sessions will be submitted for clearing on the Business Day of Tuesday, January 20, 2015. Trading will be closed for all CFE products other than VIX futures on Monday, January 19, 2015.

To recap, regular trading hours on Expiration Friday 1/16 on everything.  No option trading Monday, Jan. 19th at CBOE or C2.  Abbreviated trading in extended hours sessions at CFE Sunday night and Monday night for VIX (all trades clear in Tuesday session).  Have a good Martin Luther King Jr. Day.

New Study – Funds That Use Options (Part 3 on Related Benchmarks & SPX Options)

A groundbreaking new study — “Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs” authored by Keith Black and Edward Szado — analyzed SEC-regulated investment companies that focus on use of exchange-listed options for portfolio management (options-based funds). This is my Part 3 Blog on the study.

The first part of the study presented an analysis of Options-Based Funds over the past 15 years, while the second part focused on the performance of options-based benchmark indexes since mid-1988.

BENCHMARK INDEXES SINCE MID-1988. The study found that the CBOE S&P 500 PutWrite Index (PUT) and the CBOE S&P 500 2% OTM BuyWrite Index (BXY) both produced higher returns and lower volatility than the S&P 500 and S&P GSCI indexes during the period from mid-1988 through the end of 2014.  A key source of strong risk-adjusted returns for select index-option-writing strategies has been the fact that index options usually have been richly priced. 3 007-CumulativeGr-BXY

3 008-AnnualizedRet-BXY

3 009-StandDevia-PUT

 

INDEX OPTION PREMIUMS. A chart in the study shows the average gross monthly premiums for the BXM Index. Please note that while these gross amounts are positive values, a buy-write strategy can have negative net returns if the value of the stocks held declines.

3 010-Premium-BXM

GROWTH IN NOTIONAL VALUE. Institutional investors often inquire about the notional capacity of markets in financial instruments. The estimates for notional value of average daily volume in SPX options rose from $13 billion in 2000 to more than $170 billion in 2014. Some investors do use a delta-weighting adjustment to develop a more conservative estimate of notional value of options trading, and the bid-offer spreads for many instruments can widen in time of high anxiety. 3 011-Notional-SPX

Upcoming RMC Conference. The Black / Szado study will be included in one of the many presentations at the 31st annual CBOE Risk Management Conference (RMC) on March 4 – 6, 2015, at the Park Hyatt Aviara in Carlsbad, CA. www.cboermc.com.

MORE INFORMATION. For more information on the new study, and testimonials and videos by fund managers, please visit www.cboe.com/funds.

CBOE Mid-Day Update 1.14.15

Volatility as an asset class

JPMorgan (JPM) is down $2.54 to $56.29 after reporting Q4 EPS $1.19, consensus $1.31. January call option implied volatility is at 29, February is at 24, April is at 23, June is at 22; compared to its 26-week average of 19.

Wells Fargo (WFC) is off 79c to $51.06 after reporting in line Q4 EPS of $1.02.  January call option implied volatility is at 23, February and April is at 20; compared to its 26-week average of 18.

General Motors (GM), down 3% after giving 2015 guidance, saying it is on track to meet previously announced 2016 financial targets. January weekly call option implied volatility is at 30, February is at 29; compared to its 26-week average of 26.

CBOE Crude Oil Volatility Index (OVX) down 4.1% to $51.57, WTI trades near $45 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 4.1% to 36.21. cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA C GILD AMZN TWTR BAC AA C LEN PBR TWTR X

Options with increasing volume @ CBOE: OCN AVP NBIX NPSP CONN ARNA PIR APOL GME LULU BBBY BBY

CBOE Volatility Index (VIX) up 8.2% to 22.25, high 23.07, low 21.54, Jan 21 calls & 18 puts active on total volume of 461K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently up 1.41 to 35.81.
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Blogging Options: CBOE Morning Update 1.14.15

JP Morgan off over $1 on missing top and bottom line estimates.  Overseas news started stocks lower with Italian Premier resigning, the Euro falling to a multi-year low and copper prices collapsing.  US December Retail Sales, estimated to benefit with falling oil prices, fell 0.9% (sharpest drop in 2 1/2 years) X-Autos and Oil Sales fell 0.4%.  10-year trades 1.79%.   GPRO, hammered yesterday, stabilizes above $50 after AAPL enters remote camera market. ~32 K VIX Futures trade in early session.  Stock futures sharply lower.  Volatility as an asset class:

Tesla (TSLA) is down $17.14 to $187.12 in the premarket after Elon Musk said China sales fell significantly in Q4. January call option implied volatility is at 55, February is at 47, March is at 43; compared to its 26-week average of 46.

CSX (CSX) is up 20c to $33.75 after reporting holiday SSS and providing guidance for the Q4. January call option implied volatility is at 51, February is at 31, May is at 27; compared to its 26-week average of 24.

GameStop (GME) is up $3.53 to $36.30 in the premarket after reporting holiday SSS and providing guidance for the Q4 and fiscal 2014.  January call option implied volatility is at 119, February is at 58, April is at 48; compared to it 26-week average of 47.

Options expected to be active at CBOE:  TSLA JPM WFC CSX GME ZIOP OCN

CBOE Equity Options Volume; calls 1,346,444, puts 883,389, total 2,229,833 cboe.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.67 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 53.78, compared to its 50-day moving average of 42.83, WTI Crude oil trades below $45. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 122.20, compares to its 50-day moving average of 129.81.

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New Study – Funds That Use Options (Part 2 on Lower Volatility)

A new study — “Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs” — analyzed SEC-regulated investment companies that focus on use of exchange-listed options for portfolio management (options-based funds).

I still speak with novice investors who think that all options strategies are risky, but the study found that the Options-Based Funds overall have had less volatility than some key benchmark indexes over a 15-year time period.

OPTIONS-BASED FUNDS OVER 15 YEARS. The study analyzed the equal-weighted performance of a subset of the options-based funds — those that focus on use of U.S. stock index options and/or equity options, and during the 15-year period from 2000 through 2014, found that these funds had lower volatility and a lower maximum drawdown than the S&P 500 and S&P GSCI indexes.003-StandDevia-OpBFds

 

004-MaxDrawdown

005-RollingStandDev

 

CONFERENCE. The study will be included in one of many presentations at the 31st annual CBOE Risk Management Conference (RMC) on March 4 – 6, 2015, at the Park Hyatt Aviara in Carlsbad, CA. www.cboermc.com.

MORE INFORMATION. For more information on the new study, and testimonials and videos by fund managers, please visit www.cboe.com/funds.

Wall of Worry is up High in 2015

We love market skeptics, as they will take any particular piece of news and spin it negatively.  Don’t get me wrong, when there is ‘bad’ stuff happening we must take notice of it and respond accordingly.  But, is there anyone out there who is not spooked after the first week of trading the new year?  Yes we had a couple of strong days midweek but the indices are decidedly negative.

A Wall of Worry is up, and as a contrarian thinker this is where I want to be involved, too many skeptics and the markets can rise.   There are so many uncertainties out there, but that rally we saw was likely caused by a little certainty, where a Fed Governor stated the Fed should not raise rates for at least a year.  Time for an exhale.

We found out this past Friday that wasn’t enough to carry markets away from the edge.  While volume was on the light side the events (terror attack in France, other threats) around the world were enough to cause a modest panic.  The jobs report was pretty strong but wage growth retracted, the one element many were looking for continued gains from November.

Yet, we saw buyers of protection from the start and then the selling waves happened, but on lower turnover than we saw the last couple of days.  There are many things to worry about but will they be enough to disrupt the stock market and the economy?

The catastrophic drop in crude oil is one worry on many minds.  Crude has fallen from a recent high of 106 a barrel in June to the current level of 48 as oil volatility soared, an amazing 54% decline over seven months.  There are many uncertainties as to how this will shape the economy this year – horrid earnings for oil/energy related companies but a positive for the consumer, a net positive for more discretionary income.

That one is a given, but when it will hit the economy is the uncertainty.  Future Fed Policy continues to confound everyone though they have been very consistent in their language - watch the data (and yes, that includes watching the impact of this drop in crude).

How about this strong dollar?  Why are people concerned about a very strong currency?  Relative to other economies around the world the US is growing its GDP at a healthy clip with little impact from inflation.  Larry Kudlow of CNBC reminds us often that ‘king dollar is good for all‘.  A strong currency is a result of solid economic growth, something we will see be a huge benefit to everyone.

The dollar is considered the world’s reserve currency, something that was questioned not long ago.  Many felt the Fed was diluting the currency with their QE program, but that has ended now.   That turned out to be a temporary situation, and now the rest of the world continues global easing of monetary policy.  What is the new excuse?   The dollar strength can now be attributed to strong economic growth – which I suspect will eventually spread around the globe.   Barring any shocks, growth should continue at a solid pace in 2015.

Can the equity and bond markets continue their recent surges?  The last two years brought double digit returns and that completely surprised everyone.  Overall, volatility has declined since Jan 2012 as stocks became disconnected from the overall market.  This is still a great environment for a stock-picker, but we must be willing and able to play both sides of the market.

These are just a few of the worries out there, and in a world of fast moving information and trading, if you are slow afoot you are bound to be left behind or hurt.  Be flexible and willing to change as the winds blow in different directions.  There is opportunity out there, just look for it and act upon it – while the Wall of Worry is still high.

Bob Lang, Senior Market Strategist and trades various option trading newsletter Explosive Options. Check out the updated site and the Explosive Options Pro Chat Room. 

New Study – Funds That Use Options – Growth (Part 1)

A new study — “Highlights of Performance Analysis of Options-Based Equity Mutual Funds, CEFs, and ETFs” — analyzed SEC-regulated investment companies that focus on use of exchange-listed options for portfolio management (options-based funds). Key highlights of the study are summarized below, and for more analysis please visit www.cboe.com/funds.

CO-AUTHORS of the CBOE-commissioned study on behalf of INGARM are Keith Black, Ph.D., CAIA, CFA, Managing Director of CAIA (Chartered Alternative Investment Analyst Association) and Edward Szado, Ph.D., CFA, Assistant Professor of Finance, Providence College.

GROWTH IN NUMBER OF FUNDS. The study found that the number of options-based funds grew from ten in 2000 to 119 in 2014, and it presents a first-ever publicly available list of names and ticker symbols for those options-based funds.

001-Number of Funds

 

 

 

 

OPTIONS-BASED FUNDS OVER 15 YEARS. The study analyzed the equal-weighted performance of a subset of the options-based funds — those that focus on use of U.S. stock index options and/or equity options, and during the 15-year period from 2000 through 2014, found that these funds had similar returns as the S&P 500 and higher returns than the MSCI EAFE Index;

002-Cumulative Growth OpBFds

DISTRIBUTION YIELD

The average annual distribution yield for Options-Based Funds was more than 5% in each of the last nine years. While this distribution yield does not guarantee a positive performance by the funds, the distribution yield feature may appeal to investors who are discouraged by low interest rates for traditional fixed income products.

006-DistributionYield

CONFERENCE. The study will be included in one of many presentations at the 31st annual CBOE Risk Management Conference (RMC) on March 4 – 6, 2015, at the Park Hyatt Aviara in Carlsbad, CA. www.cboermc.com.

MORE INFORMATION. For more information on the new study, and testimonials and videos by fund managers, please visit www.cboe.com/funds.

 

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation at www.theocc.com. The information in this paper is provided for general education and information purposes only. No statement within this paper should be construed as a recommendation to buy or sell a security or to provide investment advice. The BXM, BXY, CLL and PUT indices (the “Indexes”) are designed to represent proposed hypothetical options strategies. The actual performance of investment vehicles such as mutual funds or managed accounts can have significant differences from the performance of the Indexes. Investors attempting to replicate the Indexes should discuss with their advisors possible timing and liquidity issues. Like many passive benchmarks, the Indexes do not take into account significant factors such as transaction costs and taxes. Transaction costs and taxes for strategies such as the Indexes could be significantly higher than transaction costs for a passive strategy of buying-and-holding stocks. Investors should consult their tax advisor as to how taxes affect the outcome of contemplated options transactions. Past performance does not guarantee future results. This document contains index performance data based on back-testing, i.e., calculations of how the index might have performed prior to launch. Backtested performance information is purely hypothetical and is provided in this paper solely for informational purposes. Back-tested performance does not represent actual performance and should not be interpreted as an indication of actual performance. It is not possible to invest directly in an index. CBOE calculates and disseminates the Indexes. Supporting documentation for any claims, comparisons, statistics or other technical data in this paper is available from CBOE upon request. The methodologies of the Indexes are the property of Chicago Board Options Exchange, Incorporated (CBOE). CBOE®, Chicago Board Options Exchange®, CBOE Volatility Index® and VIX® are registered trademarks and BXM, BXY, BuyWrite, CLL, PUT, PutWrite and SPX are service marks of CBOE. S&P® and S&P 500®are registered trademarks of Standard and Poor’s Financial Services, LLC and are licensed for use by CBOE. Financial products based on S&P indices are not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of investing in such products. All other trademarks and service marks are the property of their respective owners. The Indexes and all other information provided by CBOE and its affiliates and their respective directors, officers, employees, agents, representatives and third party providers of information (the “Parties”) in connection with the Indexes (collectively “Data”) are presented “as is” and without representations or warranties of any kind. The Parties shall not be liable for loss or damage, direct, indirect or consequential, arising from any use of the Data or action taken in reliance upon the Data. Redistribution, reproduction and/or photocopying in whole or in part are prohibited without the written permission of CBOE.

 

CBOE Mid-Day Update 1.13.15

Volatility as an asset class

Costco (COST) is recently up 62c to $143.17 after Goldman Sachs downgraded citing the recent valuation expansion and its belief the retailer’s earnings momentum is close to peaking.  January call option implied volatility is at 17, February is at 16, July is at 15; compared to its 26-week average of 16.

Monster Beverage (MNST) is recently up $3.97 to $115.93 after Stifel raised its price target on the stock and Wells Fargo downgraded the shares to Market Perform from Outperform.  January call option implied volatility is at 49, February is at 34, March is at 36; compared to its 26-week average of 30.

Hewlett-Packard (HPQ) is recently up 55c to $40.47 after research firm Gartner estimated that worldwide PC shipments had risen 1% last quarter. January call option implied volatility is at 26, February is at 29, March is at 25; compared to its 26-week average of 26.

CBOE Crude Oil Volatility Index (OVX) down 0.7% to $52.74, WTI trades near $45 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 3.1% to 32.86.
cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA C GILD AMZN TWTR BAC

Options with increasing volume @ CBOE: JNJ OCN AVP AMAT CELG ELX TUP XLV STAR ALTR HLSS OCR PHH WBAI CS

CBOE Volatility Index (VIX) down 3.9% to 18.83, high 18.84, low 17.65, Jan 21 calls & 17 puts active on total volume of 192K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 1.01 to 32.78.
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Blogging Options: CBOE Morning Update 1.13.15

Stocks look stronger across the board, Crude down, US Dollar higher.  Growing optimism on Q1 Earnings after Alcoa beat last night.  VIX looks down one point.  Volatility as an asset class

Alcoa (AA) is down $0.10 to $16.30 in the premarket after beating Wall Street estimates on both the top and bottom line.  January call option implied volatility is at 59, February is at 39, April is at 34, July is at 33; compared to its 26-week average of 32.

Best Buy (BBY) is up $0.40 to $39.49 after being upgraded to Buy from Neutral at Goldman Sachs saying a pick-up in advanced TV sales and good sector fundamentals should drive better than expected Q4 results. January call option volatility is at 110, February is at 50, March is at 47; compared to its 26-week average of 37.

Amazon.com (AMZN) is up $7.42 to $298.83 in the premarket after an upgrade to Buy from Neutral at Citigroup saying the risk/reward on shares is attractive below $300. Citi believes holiday data points look good for Amazon’s Q4 results and that the retailer’s gross margins will rise in 2015, reversing 2014’s downward trend. Overall option implied volatility of 37 compares to its 26-week average of 32.

Options expected to be active at CBOE:  AA AMZN BBY COST DPZ GM CSX

CBOE Equity Options Volume; calls 982,561, puts 672,618, total 1,655,179 cboe.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.74 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 53.13, compared to its 50-day moving average of 42.36, WTI Crude oil trades below $45. cboe.com/OVX

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List of Speakers for CBOE Risk Management Conference (RMC) March 4 – 6 in California

Now in its 31st year, the annual CBOE Risk Management Conference (RMC) is an educational forum dedicated to exploring the latest products, trading strategies and tactics used to manage risk exposure and enhance yields.

Below is the list of distinguished speakers expected to present at the RMC March 4 – 6, 2015, at the Park Hyatt Aviara, Carlsbad, CA.

  • Arie Aboulafia, Senior Portfolio Manager, Capstone Investment Advisors, LLC
  • Brandon Bates, Portfolio Manager, BlackRock
  • Benjamin Bowler, Co-Head of Global Equity Derivatives Research, BofA Merrill Lynch
  • David Burchmore, Portfolio Manager, Ontario Teachers’ Pension Plan
  • Vijoy Paul Chattergy, Chief Investment Officer, Employees’ Retirement System of the State of Hawai’i (HIERS)
  • Andrew Claeys, CFA, Director of Trading, Analytic Investors
  • Dean Curnutt, CEO, Macro Risk Advisors
  • Bruno Dupire, Head of Quantitative Research, Bloomberg
  • Mike Edleson, Chief Risk Officer, The University of Chicago
  • Benn Eifert, Ph.D., Portfolio Manager, Mariner Investment Group
  • Rocky Fishman, CFA, Equity Derivatives Strategy, Deutsche Bank Securities Inc.
  • David Goerz, EVP, Investment Strategy &  Risk Management, Alberta Investment Management Corp.
  • Jason Goldberg, Portfolio Manager, PIMCO
  • Krag “Buzz” Gregory, Equity Derivatives Strategist, Goldman Sachs
  • Søren Grooss, Portfolio Manager, PKA
  • Samuel Kadziela, Director of Education, Chicago Trading Company, LLC
  • Zachary Karabel, President, River Twice Research; Contributing Columnist to Reuters, The Atlantic, Slate, The Washington Post, Time & The Wall Street Journal
  • Kambiz Kazemi, Portfolio Manager, Picton Mahoney Asset Management
  • Marko Kolanovic, Global Head of Quantitative and Derivatives Strategy, J.P. Morgan
  • Ken Kwalik, Vice President, Goldman Option Advisory Services
  • Boris Lerner, Head of US Quantitative and Derivatives Strategy, Morgan Stanley
  • Berlinda Liu, Director of Index Research and Design, S&P Dow Jones Indices
  • Defina Maluki, Portfolio Manager, Barclays Wealth and Investment Management
  • Andy Nybo, Principal, Head of Derivatives, TABB Group
  • Yoshiki Obayashi, Managing Director, Applied Academics, LLC
  • Donald Pierce, CFA, Chief Investment Officer, San Bernardino County Employees’ Retirement Association
  • Edward L. Provost, President & Chief Operating Officer, CBOE Holdings, Inc.
  • Amna Qaiser, Portfolio Manager, Goldman Sachs Asset Management
  • Olivier Sarfati, Head of US Trading Strategies, Citigroup
  • William Speth, Vice President, Research and Product Development, CBOE
  • Edward Szado, Assistant Professor of Finance, Providence College
  • Basil Williams, Co-Chief Investment Officer, Mariner Investment Group
  • Christine Williamson, Senior Reporter, Pensions & Investments
  • Mahsa Zeinali, Chief Operating Officer, Rosen Capital Advisors

For more information on the agenda, registration, and travel, please visit www.cboermc.com.

 

Yields Continue To Fall Despite Looming Fed – Weekly Market Outlook

Stocks were on pace to close last week out with a gain, thanks to Wednesdays and Thursday’s big rebound.  But, solid news on the employment front sent stocks lower on Friday, and into the red for the week.  Still, the bulls were just strong enough to hold all the major indices above a key line in the sand, maintaining hope that stocks may find their way out of this lull and renew the bigger uptrend soon.

We’ll examine exactly how the bulls are hanging on to hope below, after a deeper inspection of last week’s key economic figures.

Economic Data

Last week was chock-full of economic announcements, though there’s no denying Friday’s employment snapshot took center-stage.  It was, broadly speaking, good.  The unemployment rate fell from 5.8% to 5.6% for December, and 252,000 new jobs were created.  Both were better than expected. It’s also worth noting it wasn’t fortuitous math that pushed the unemployment rate down.  More people now have jobs than did a month ago, and fewer people are unemployed.

Employment Trends Chart

PH 11115-employment

Source: Thomson Reuters Eikon

While the overall employment trend is pointed in a positive direction, note that hourly earnings actually fell a bit last month, suggesting a little lingering slack in the labor market.  In other words, the employment situation may not be quite as heroic as the headlines suggested.  Still, progress is progress.

Last month’s Federal Reserve meeting minutes were released on Wednesday, though it didn’t turn out to be an eventful unveiling.  The gist was (and this is a quote from those minutes), “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”  Most economists interpreted it as message that interest rates won’t be pushed higher at least until April.

Economic Calendar

PH 11115-econ-data

Source:  Briefing.com

The coming week is going to be a busy one, with December’s inflation, retail sales, and industrial productivity in the lineup. Between those three market-moving data nuggets in addition to the beginning of earnings season – not to mention the market itself being on the bubble – this week could turn out to be a rather wild ride.

 

 

 

 

 

 

Stock Market Index Analysis More

CBOE Mid-Day Update 1.12.15

Volatility as an asset class

Auto manufacturer’s option implied volatility is mixed as the North American International Auto Show begins in Detroit.

General Motors Co. (GM) over all option implied volatility of 27 compares to its 26-week average of 26.

Toyota Motor Corp. (TM) over all option implied volatility of 20 compares to its 26-week average of 19.

Tesla (TSLA) over all option implied volatility of 43 compares to its 26-week average of 46.

Ford (F) over all option implied volatility of 27 compares to its 26-week average of 25.

Honda Motor Co (HMC) over all option implied volatility of 25 compares to its 26-week average of 21.

Fiat Chrysler Automobiles NV (FCAU) over all option implied volatility of 46 compares to its 6-week average of 44.

CBOE Crude Oil Volatility Index (OVX) up 6.6% to $53.36, WTI trades near $48 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 6.7% to 32.01.
cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA NQ C GILD AMZN TWTR BAC

Options with increasing volume @ CBOE: SIRI FRO VLO JOE NLS SNSS NPSP MWV FMI TKMR

CBOE Volatility Index (VIX) up 11.4% to 19.55, high 20.44, low 18.02, Jan 19 calls & 18 puts active on total volume of 121K cboe.com/VIX
More

Blogging Options: CBOE Morning Update 1.12.15

US stocks higher, oil lower by 3%  in early trade, a repeat of what we’ve seen for the last several weeks.  Alcoa starts off the quarterly earnings reports after the close, Jolts report tomorrow could be an interesting read. If you’re not a believer in Social Media, over 750 K tweets in 15 minutes after Dez Bryant catch/non-catch in Dallas / Green Bay game yesterday.  Volatility as an asset class

NPS Pharmaceuticals (NPSP) is up $3.57 to $45.48 in the premarket on Shire (SHPG) acquiring for $46 per share or $5.2B. January call option implied volatility is at 80, February is at 72, May is at 54; compared to its 26-week average of 64.

MWI Veterinary Supply (MWIV) is up $13.75 to $189.40  on AmerisourceBergen (ABC) acquiring for $190 per share, representing a $2.5B fully diluted equity value.  Overall option implied volatility of 30 compares to its 26-week average of 31.

Tiffany (TIF) is down $9.95 to $93.50 in the premarket after cutting its FY14 net EPS view to $4.15-$4.20 from $4.20-$4.30.  January call option implied volatility is at 55, February is at 30, May is at 28; compared to its 26-week average of 26.

Options expected to be active at CBOE:  SHPG NPSP AA WFC JPM CCL TKMR TIF HAL TKMR

CBOE Equity Options Volume; calls 1,023,253, puts 654,819, total 1,678,072 cboe.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.38 www.cboe.com/vxtyn
CBOE Crude Oil Volatility Index (OVX) at 50.07, compared to its 50-day moving average of 41.88, WTI Crude oil trades near $48. cboe.com/OVX

More

Last Week in Volatility Indexes and ETPs – 1/5 – 1/9

When we have volatile weeks like last week I will alter the various term structure of volatility charts included in these blogs. The first graphic is an example of this where I added Tuesday’s closing levels for VXST, VIX, VXV, and VXMT to the typical week over week curve. Something that really stands out to me on this graphic is the shape of the Tuesday close. There is no inversion with VXST moving to a premium relative to VIX and the levels at the far end of the curve (VXV and VXMT) are at a slight premium to near term volatility. Stated more plainly despite elevated volatility the shape remains normal which can also be interpreted as displaying minimal panic.

VXST - VIX - VXV - VXMT  More

Last Week in VIX – 1/5 – 1/9

This past week was one of those where the week over week change in the VIX term structure does no justice whatsoever to the price action. The S&P 500 dropped 0.65% from Friday to Friday. However, at the worst point the S&P 500 was down 3.2% and at the highest point the S&P 500 was up 0.30% from the previous week’s closing price. In response to the rollercoaster of a week I’ve added a third curve to the graphic below. The purple and inverted line shows the term structure for the VIX futures market on the close Tuesday. Adding this third line gives traders a bit more perspective on how tough things were in the markets last week.

VIX Curves

More

The Weekly Options News Roundup – 1/9/2015

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

2014: A Banner Year  
Options trading in 2014 reached a new all-new high as industry volume rose 4% in 2014 from 2013.

“Bull Market Hedging Was Boon for Exchange Volume in ’14: Options” – Sofia Horta e Costa and Inyoung Hwang, Bloomberg
http://bloom.bg/1BIRisY

CBOE Holdings Reports Record Trading Volume in 2014 – CBOE Press Release
http://bit.ly/1A0JUVC

Was Volatility Really “Low” in 2014?
On the surface, it might have seemed like a relatively quiet year for the VIX Index.  But was it?  Bill Luby of VIX and More takes a closer look.  You might be surprised.

“2014 Had Third Highest Number of 20% VIX Spikes” – Bill Luby, VIX and More
http://bit.ly/1tTidBz

VIX Leaps into the New Year
New year, new volatility?  The lull in volatility around the holidays has given way to concerns that we may be in for an increase in volatility in 2015.

“Days of Market Vertigo Giving VIX Calls Air of Prescience” – Callie Bost and Michelle F. Davis, Bloomberg
http://bloom.bg/1AB05OR

“How To Hedge Your Bets in 2015” – Stephen J. Solaka, Barron’s
http://on.barrons.com/1AQHYU2

“VIX Calls Look Wise as Market Starts Year Off Bumpy” – Bloomberg News
http://bit.ly/1AQZEyE

 

 

CBOE Mid-Day Update 1.9.14

Volatility as an asset class

President Obama announced that he would ask Congress to provide free community college tuition for all Americans who are “willing to work for it”. Publicly traded education companies in the space have flat option implied volatility.

American Public Education (APEI) overall option implied volatility of 32 compares to its 26-week average of 34.

Apollo Education (APOL) overall option implied volatility of 35 compares to its 26-week average of 36.

Bridgepoint Education (BPI) overall option implied volatility of 38 compares to its 26-week average of 39.

Career Education (CECO) overall option implied volatility of 62 compares to its 26-week average of 63.

DeVry (DV) overall option implied volatility of 35 compares to its 26-week average of 36.

Grand Canyon (LOPE) overall option implied volatility of 31 compares to its 26-week average of 32.

ITT Educational (ESI) overall option implied volatility of 103 compares to its 26-week average of 111.

Strayer (STRA) Overall option implied volatility of 44 compares to its 26-week average of 43.

CBOE Crude Oil Volatility Index (OVX) up 2.3% to $52.15, WTI trades near $49 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 1.2% to 30.30. cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA C GILD AMZN TWTR BAC

Options with increasing volume @ CBOE: SAN AA NUAN IBM JOY

CBOE Volatility Index (VIX) is recently up 9c to 17.10; January 21 calls and 17 puts are active on total volume of 170K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently up 48c to 31.25
More

Weekly Market Commentary 1.9.15

The market has been on a rather wild ride for over a month now.  With
the action of the last two days, our indicators have swung back to a
bullish status, for the most part.

The fact that $SPX has now risen back above its 20-day moving
average and has closed above 2060 is positive.  A second day’s close
above 2060 would be confirmation of the recovery in the $SPX chart.

1 9 15 LM spx
Equity-only put-call have rolled over to buy signals.

Market breadth was not very supportive of the December rally, and the breadth
oscillators quickly moved to sell signals in late December.  However, things
have now improved, and both breadth oscillators are back on buy signals.

Volatility indices rose sharply when the market fell at the beginning of the year,
but the rally has now produced a $VIX spike peak buy signal. Also, with $VIX
closing below 18, that is another short-term bullish sign.

1 9 15 LM vix

In summary, all of the indicators have moved to a positive state
($SPX a little bit less so than the others), plus there are system buy
signals from $VIX “spike peak” and from “oscillator differential.”

Blogging Options: CBOE Morning Update 1.9.15

NFP for December climbed to 252K (240K to 244K expected), Jobless rate fell from 5.8% to 5.6% (5.7% expected).  November jobs revised higher.  The negative side of the report was the Participation Rate fell to a 37-year low (451K dropped out last month), and Average Wages dropped a surprising 0.2%. Volatility as an asset class

Bed Bath and Beyond (BBBY) is down $3.55 to $75.90 in the premarket on Q3 profit falling 5%. January weekly call option implied volatility is at 126, January is at 54, February is at 35, May is at 25; compared to its 26-week average of 24.

Macy’s (M) is lower by $1.73 to $66.08  after announcing November and December comparable sales rose 2.7% and plans to close 14 of its stores and book charges of up to $110M. Overall option implied volatility of 26 compares to its 26-week average of 25.

Container Store (TCS) is off $2.21 to $19 in the premarket after reporting Q4 SSS rose 2.7% quarter to date over same period last year. Overall option implied volatility of 96 is above its 26-week average of 45.

Options expected to be active at CBOE:  BBBY M SBUX YELP INFY GMCR TCS

CBOE Equity Options Volume; calls 1,215,395, puts 655,615, total 1,871,010 cboe.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.38 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 50.96, compared to its 50-day moving average of 41.48, WTI Crude oil trades near $49. cboe.com/OVX

CBOE VIX methodology iShares Trust FTSE China 25 Index Fund (VXFXI) closed at 25.57, compared to its 50-day moving average of 25.21

CBOE S&P 500 Skew Index (SKEW) at 124.77, compares to its 50-day moving average of 129.97.
More

Weekly Weekly’s Option Report 1.8.15


Oil, earnings and stocks with hot options action are all coming your way.  I’m Angela Miles covering Weeklys set to expire tomorrow. Next Friday is a traditional options expiration.

Let’s get rolling with oil. Oil futures are trading below $50 per barrel this week.

In weekly options for BP there are traders taking at-the-money positions at the 36 strike as the stock trades $36. Options contracts are considered expensive with an implied volatility of 44, the average implied vol during the past few months is 29.

Earnings after the close are coming from Bed, Bath & Beyond (BBBY), and traders appear to be preparing for a rude awakening. The stock is trading $78 and traders are bracing for a potential downward move. Put strikes are active at 71, 71.5, 73, 74, and 75. Implied volatility is high at 135. The straddle at 78 suggests a move up or down of $5.00. It will be interesting to see if there is more of put pile on today or if call buyers emerge.

Alcoa is active this week in the Weeklys ahead of earnings Monday. As AA trades $15 weekly calls are active at the 15 and 16 strike.

Onto other big movers this week….

Arena (ARNA) gained 76% yesterday on positive data on its autoimmune treatment as well as hopes for what’s in the pipeline. Today shares trade $5.30 and in weekly options 6 calls are moving along with puts in the 5 and 5.5 strikes.

That leads me to biotech Gilead Sciences which has traders on their toes this week. GILD is back above $100 and call buying is brisk with much of the action in the 100 and 101 strikes. There are a few put players at the 99 strike.

Herbalife had a 4% rally yesterday (and again today) despite recent comments from activist investor Bill Ackman that the company will implode. Herbalife execs suggests Ackman’s put options are expiring next week and that’s behind his negative comments. As HLF trades $32 puts are in play in the Weeklys expiring Friday at 27, 28 and 29.

A quick check on Apple into Friday’s expiration. Apple traders are extra busy today as more than 266,000 contracts have already traded today. As AAPL trades $110+, calls are in focus at 109 up to 112. Puts are light compared to calls, there is some action including the 108 put strike. Mostly calls today.

The S&P (SPX) is rallying strongly into the jobs report Friday, but there are traders seeking protection in the 1,975 and 2,000 strike weekly puts. On the other side, there are call players at the 2,050 and 2,070 strikes.

That’s it for now. I’m Angela Miles.

Blogging Options: CBOE Mid-Day Update 1.8.15

Stocks headed higher at the opening and haven’t looked back.  Option volume busy mid-day, as CBOE & C2 trade over 3.1mm of 11.1 million contracts.  SPX trades over 560K and VIX options with 270K.  VIX futures show 100K+ trading.  Volatility as an asset class:

Proshares UltraShort  20 Year Treasury ETF (TBT) is up $1.12 to $43.71 as rates pullback from a recent rise on continued expectations global central banks will continue its stimulus program. Overall option implied volatility of 32 compares to its 26-week average of 24.

IShares Barclay 20+ YR Treasury ETF (TLT) is down $1.70 to $129.68. Overall option implied volatility of 16 compares to its 26-week average of 12.

ProShares UltraShort Lehman 7-10 Yr ETF (PST) is up 20c to $24.12. Over all option implied volatility of 14 compares to its 26-week average of 12.

ProShares Short 20+ Year Treasury ETF (TBF) up 31c to $24.44. Overall option implied volatility of 15 compares to its 26-week average of 14.

SPDR Lehman High Yield Bond (JNK) is recently up 31c to $38.75. Overall option implied volatility of 11 compares to its 26-week average of 8.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) down 4% to 6.36; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) down 4.8% to $50.67, WTI trades near $59 cboe.com/OVX

More

Blogging Options: CBOE Morning Update 1.8.15

Comments by (voting) FED member Charlie Evans overnight about delaying rate increases has shares sharply higher.  Weekly Jobless claims dropped slightly but missed expectations.  Health Care sector up, Biogen preliminary trials have stock in wide range pre opening, looks lower.   10-year at 2%.  -6 on way to train this morning.  Volatility as an asset class

Costco (COST) is up 68c to $145 in the premarket after reporting December SSS rose 3%. Overall option implied volatility of 19 compares to its 26-week average of 17.

Apollo Education (APOL) is down $2.86 to $29 after lowering its FY15 revenue outlook. January call option implied volatility is at 79, February is at 46, May is at 38; compared to its 26-week average of 37.

Constellation Brands (STZ) is up $2.95 to $106 in the premarket after the spirits producer raised and reaffirmed FY15 views.  January call option implied volatility is at 34, February is at 24, April is at 23; compared to its 26-week average of 24.

Options expected to be active at CBOE: COST SIG PCLN XOM CVX HLF AA

CBOE Equity Options Volume; calls 949,054, puts 690,637, total 1,639,691 cboe.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.37, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 53.25, compared to its 50-day moving average of 41.11, WTI Crude oil trades near $49. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 123.56, compares to its 50-day moving average of 129.95. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

CBOE S&P 500 BuyWrite Index (BXM) at 1070.86 compared to its 10-day moving average of 1078.56 cboe.com/bxm

CBOE DJIA BuyWrite Index (BXD) at 262.93 compared to its 50-day moving average of 262.26 cboe.com/micro/bxd/

‏CBOE Nasdaq-100 Volatility Index (VXN) at 20.16; compared to its 50-day moving average of 16.86.

CBOE 3-Month Volatility Index (VXV) at 20.07, compared to its 50-day moving average of 17.37 cboe.com/VXV

CBOE S&P 500 Short-Term Volatility Index (VXST) at 17.59, compared to its 10-day moving average of 15.31 VXST is a market-based gauge of expectations of 9-day stks.co/r0CS2

Velocity Share VIX Short Term ETN (VIIX) at 44.47; compared to its 10-day moving average of 41.29.

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 1.29 to 31.58.

CBOE Volatility Index (VIX) at 19.29, compared to its 50-day moving average of 15.30 cboe.com/VIX

SPDR S&P 500 ETF Trust (SPY) is recently up 1.59 to $203.90 as WTI crude trades above $48 a barrel and European banks rally the most in three years on Central Bank optimism.

Calls with increasing volume at CBOE:
SPY 2/20/2015 215 85K contracts
VXX 2/20/2015 52 14K
XHB 3/20/2015 35 14K
IWM 1/17/2015 115 10K

Next Week in Weeklys – 1/12 – 1/16

Alcoa reports Monday (1/12) after the close. Despite AA having been removed from the Dow Jones Industrial Average many market observers consider AA’s report to be the beginning of earnings season. Personally I think things get going when all the big financials report which begins Wednesday with JP Morgan Chase (JPM) and Wells Fargo (WFC). The three year history for stocks with short dated options available appear in the table below –

Weeklys COrrected

I came across an interesting use of short dated options earlier this week. On Tuesday, with DuPont (DD) trading around 71.10 there was a buyer of over 26,000 DD Jan 23rd 72.00 Calls at 1.06 who sold the same number of DD Jan 16th 74.50 Calls at 0.16 which results in a net cost of 0.90. The goal here is DD not trading over 74.50 on Jan 16th and the stock at levels much higher than 72.90 by Jan 23rd.   What has me scratching my head a little is the expiration dates chosen. When I first saw this trade I assumed that DD reported between January 16th and January 23rd.   Checking the investor relations site it turns out the earnings release for DD is scheduled for January 27th.

CBOE Mid-Day Update 1.7.15

Volatility as an asset class

The ‘Majors’ option implied volatilities has increased as WTI Crude Oil futures trends below $48

Exxon Mobil (XOM) overall option implied volatility of 25 compares to its 26-week average of 18.

BP (BP) overall option implied volatility of 31 compares to its 26-week average of 18.

ConocoPhillips (COP) overall option implied volatility of 36 compares to its 26-week average of 20.

Chevron (CVX) overall option implied volatility of 33 compares to its 26-week average of 18.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) down 3% to 6.63; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) down 4.6% to $53.87, WTI below $48 cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 2.6% to 32.44.
cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL MU TSLA GILD AMZN TWTR NFLX BAC

Options with increasing volume @ CBOE: LEN VLO CNAT AUXL FXB HZNP BIG INFN LEN SONC RDN ONNN

CBOE Volatility Index (VIX) is recently down 80c to 20.34; January 15, 16, 17 and 18 puts are active on total volume of 161K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 44c to 33.51

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 7.5% to 19; compared to its 10-day moving average of 15.45 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 1.25 to 261.17 compared to its 50-day moving average of 262.23 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up 4.82 to 888.76 after five sessions of losses.

Blogging Options: CBOE Morning Update 1.7.15

ADP Employment beat this morning (added 241K jobs, 230K expected) and stocks reacted well.  Five-Day losing streak looks like it should end today.  Overseas markets moving higher.   Oil erased early losses and have moved to the upside,  WTI up 1%.   Gold off, FED minutes later today.  Option volume yesterday was very good, with CBOE & C2 doing 5.87mm of 19mm contracts.  300K VIX Futures change hands yesterday.  Volatility as an asset class:

Micron (MU) is down $0.91 to $31.95 in the premarket after reporting Q1 adjusted EPS 97c, compared to consensus 92c.  January weekly call option implied volatility is at 96, January is at 64, February is at 45, April is at 42; compared to its 26-week average of 37.

J.C. Penney (JCP) is up $1.34 to $7.90 after reporting better than expected holiday same-store sales and guided to the high-end of its prior Q4 SSS view. Overall option implied volatility of 68 compares to its 26-week average of 58.

Sonic (SONC) is up $2.01 to $29.10 in the premarket after reporting better than expected Q1 EPS on a SSS increase of 8.5%. January call option implied volatility is at 44, March is at 37, June is at 26; compared to its 26-week average of 33.

Options expected to be active at CBOE: MU AXP UNH SVU MON JCP

CBOE Equity Options Volume; Call 1,298,604, Puts 770,872, Total 2,069,476 cboe.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.84, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 56.64, compared to its 50-day moving average of 40.67, WTI Crude oil trades below $48. cboe.com/OVX

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Blogging Options: CBOE Mid-Day Update 1.6.15

Markets turned lower mid-morning on continued weakness in oil prices.  DJIA off 175 points, S&P 500 (SPX) at ~1998, 10 points below 75-day Moving Average.  Option volume at mid-day was 11 mm contracts, SPX traded 600 K +, VIX Futures volume ~166 K.  10-year moves below 2%, NDX off 1.5%.  JPM off 3%,  AXP lower by 2.5%. Volatility as an asset class:

Options: Technology stocks option implied volatility has increased as stocks sell off into International CES opening

Nvidia (NVDA) overall option implied volatility of 31 is near its 26-week average of 30.

Garmin (GRMN) overall option implied volatility of 31 compares to its 26-week average of 27.

Intel (INTC) overall option implied volatility of 29 is at its 26-week average.

Cisco (CSCO) overall option implied volatility of 23 compares to its 26-week average of 20.

Microsoft (MSFT) overall option implied volatility of 23 is above its 26-week average of 21.

SanDisk (SNDK) overall option implied volatility of 37 compares to its 26-week average of 30.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) up 7% to 6.67; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

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Back to the Future: Play Oil with USO ETF Options

Crude oil’s precipitous drop from it’s June highs has yet to show signs of abetting, with U.S. Oil benchmark West Texas Intermediate (WTI) down over 3% again today following Monday’s downside move.

Now trading below $50, oil has moved to a new five and half year low, a move estimated to save the average American over $1400 annually and bolster consumer discretionary spending.

Continued strength in the USD and OPEC’s refusal to cut production would lead me to believe oil has room to move to $45 or even lower.

Saudi Arabia became engaged in a price war in the oil markets in 1985 leading the price of the commodity to collapse. Similar to today, leading up to that point the US had been fighting to break out of Recession and high unemployment. The collapse of oil prices is credited by some as having helped end the recession of the early 1980s.

Some equity options traders I know have been looking to play oil by shorting domestic oil companies, as fracking operations become significantly less viable under $70/barrel, and completely unprofitable below $40/barrel.

I prefer to trade the United States Oil ETF (NYSE: USO, $18.30), as it tracks the underlying commodity relatively well on a percentage basis. USO equity options are also require significantly less capital than the futures.

The USO Feb 18.5 Straddle is trading $2.65, implying a move of this amount in either direction by February expiration ($15.85 to the downside, $21.15 to the upside).

My trade: Buy the USO Feb 17-16 Put Spread for $0.27

Risk: $27 per 1 Lot

Reward: $73 per 1 Lot        Break-even stock price at expiration: $16.73

I like this trade because it gives me plenty of time (45 days to expiration), protecting me from a potential trap or near-term short covering. It also pays nearly 3:1 on my risk capital.

Fed Policy: 2015 May Be EXACTLY Where Ben Bernanke Wanted to Be

It’s really hard to pinpoint a proper timeline for Fed Policy.  In a perfect world and situation, the Committee would prefer to sit in the background and not have an influence.  But after the 2008 global financial collapse, that could not be done easily.  The dilemma created from the financial crisis was a major puzzle:  go deep with an aggressive policy or wait and see how things would shake out.  The latter was a mistake made in the 1930’s that helped extend the Great Depression.   When they started on their journey of healing the financial markets from a very steep decline and potential depression, the Fed was committed to do whatever was necessary to steer clear of a disastrous outcome.  The World was watching and waiting to follow.

At first, the idea was to be decisive with a time line.  However, the deepness of the crisis required extended time, and their language in statements and minutes eventually became ‘accommodation will end at some point’.  Of course, their eyes have always been on the data (and the Fed has TOLD us this), and that has been pretty good of late, and actually throughout 2014.

The Fed’s dual mandate of price stability and achieving full employment took quite a bit longer to accomplish after the dismantling of both during the 2008 financial crisis.  Chairman Ben Bernanke, a student of history (namely an expert of the previous Depression Era, circa 1930’s) was the architect behind current policy – keeping rates low for as long as needed, buying bonds to achieve the goal and allow the job market time to repair by shoring up confidence in financial markets and thus confidence around the world.

Who really knew how much stimulus was needed or for how long.  The Fed embarked on QE not once, not twice but THREE times – not putting a time limit on the last effort.  Many have argued the policy was unusual, excessive and unnecessary – but I would prefer to be where we are at today (recent 5% GDP growth) than where we might have been without some divine Fed intervention.

But as we ended 2014 the sun set on QE and that portion of Fed Policy is history.  However, we still have extraordinarily low rates and the big talk for 2015 is not if but when those rates will start to rise.  Normally, the Fed gets hawkish when inflation expectations have risen higher than they would like.  Today that is not the case (inflation is low, perhaps even too low).  Admittedly, extreme policy accommodation is probably not needed and could be quite harmful if in place for too long.  The Fed is aware of the dangers here and continues to calibrate as necessary without setting off alarm bells to markets.  The entire World is STILL watching and will pivot off Fed Policy.

So, in 2015 we have some ideal conditions that MAY allow the Fed to start retreating from excessive policy accommodation to a more normalized environment, but that will likely be a longer process than usual (maybe 2-3 years out).  Given the damage inflicted the Fed will use EXTREME CAUTION AND CARE and all the time necessary to be sure they are not hurting the recovery as they start raising rates.  But with good growth in GDP, lower commodity prices, solid improvement in the jobs market (with more needed) and other key areas healing the table is set for the economy and markets to decouple from the Fed – at last.  And that will be a great moment – mission accomplished.

Bob Lang, Senior Market Strategist and trades various option trading newsletter Explosive Options. Check out the updated site and the Explosive Options Pro Chat Room!

Blogging Options: CBOE Morning Update 1.6.15

US stock futures up fractionally this morning.  10-year ticked below 2%, and WTI was off 2.01% to $49.05.  17.6 million options trade yesterday, with SPX at 1.17mm and VIX near 500K.  SPY showed 3.275mm contracts change hands. VIX closed 19.92 yesterday, could be interesting watch this week.  Good article from Russell Rhoads on VIX activity yesterday – scroll down to the previous article. Volatility as an asset :

Options: Technology stocks option implied volatility is mixed into International CES (Consumer Electronics Show) opening in Las Vegas.

GoPro (GPRO) overall option implied volatility of 58 compares to its 26-week average of 56.

Ambarella (AMBA) overall option implied volatility of 61 compares to its 26-week average of 53.

HP (HPQ) overall option implied volatility of 27 compares to its 26-week average of 25.

BlackBerry (BBRY) overall option implied volatility of 50 compares to its 26-week average of 52.

Sony (SNE) overall option implied volatility of 34 compares to its 26-week average of 28.

Google (GOOG) overall option implied volatility of 26 compares to its 26-week average of 22.

Options expected to be active at CBOE: XOOM AOL STZ MU BBBY CMC XOM CVX

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.23, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 57.67, compared to its 50-day moving average of 40.18, WTI Crude oil trades below $50. cboe.com/OVX

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This Week in Weeklys – 1/5 – 1/9

Better late than never – there are five stocks reporting this week with short dated options available for trading.  As always the data below is based on the last 12 quarters.  Max is the largest move to the upside, min is the biggest stock drop, Abs Avg is the average move (higher or lower) off earnings, and Last Q is what the stock price change was in reaction to earnings last quarter.

Weeklys Earninbgs

Was Today’s VIX Action Indicating Panic?

While most people were watching the markets today I was running from meeting to meeting and only had a couple of chances to check out what was going on in the markets. Usually on days like this we can hear extra volume (not numerical, but audible) at The Options Institute as our offices are just above both the VIX and S&P 500 pits. I do not recall one time today hearing any outburst of activity from the floor. Once the day was over and I had a moment to check on the markets I was honestly surprised to see VIX close under 20.00 today.

With the S&P 500 down 1.86% on the day VIX was up less than 12% for the day and was never up more than 20% on the day. Also, it appears that the high for the day in VIX was put in about 12:30 eastern time while the low for the S&P 500 came about an hour before the close. A late day new low in the S&P 500 did not add any fuel to the fire as far as VIX was concerned. A five minute chart showing the S&P 500 and VIX price action today appears below.

VIX - SPX 5 Min 01052015

One final assessment of today’s sell off comes by looking at how orderly the day was, there was not a moment of panic where several low levels were taken out. Conversely, VIX didn’t rocket up on panic buying of SPX option contracts. Today’s stock market sell-off can be called dramatic, but when checking in on VIX it would be a stretch to say there was any panic in the midst of today’s action.

Another January Swoon In Store? – Weekly Market Outlook

Barring a big move on Monday, the end of 2014 and the beginning of 2015 isn’t going to be the beneficiary of a so-called Santa Claus rally.  The S&P 500 (SPX) (SPY) is now down 1.1% since the Christmas break, versus the average 1.8% gain we usually see during this period of the year.

That, however, isn’t the only market worry at this point.  More alarming is how much the last three months of 2014 looks like the last three months of 2013, which served as the basis for a rather bearish January of 2014 (the market lost about 5% last January before recovering).

We’ll compare and contrast the two timeframes in question below, along with our unbiased look at what’s going right and going wrong with stocks at this time.  The first thing we want to take care, however, is a review of last week’s key economic figures.

Economic Data

There wasn’t a great deal of data in the lineup for last week, but a couple of items merit a closer look.

One of them is the Case-Shilller Index through October.  It says home prices were up 4.5% as of the latest look, on a year-over-year basis.  We’re still nowhere near back to 2006’s peak prices, and it would be a stretch to say home prices are heating up again after 2014’s lull.  October’s advance was a glimmer of hope, though, possibly rekindling an uptrend.

The Chicago Purchasing Manager’s Index (PMI) and the ISM Index both remained in positive territory – above 50 – though both of them also peeled back from November’s levels in December.

Economic Calendar

PH 1415-econ-data
Source:  Briefing.com

The coming week is going to be much busier on the economic front, though the bulk of this week’s focus is going to be on December’s employment numbers.

There’s no denying the overall trend is getting better in terms of employment; our chart of all the relevant data through November verifies it. The pros expect more of the same kind of progress for December when the numbers are released on Thursday.

With all of that being said, don’t forget the minutes from the Federal Reserve’s most recent meeting will be posted on Wednesday. That could move the market as well.

Stock Market Index Analysis

The market may have managed to bounce back to a breakeven after Friday’s fairly deep intraday dip, but it may be a little too soon to bet the farm on a near-term rebound.  A decent amount of damage was done last week, and the indices are still just one bad day away from breaking under some pretty important support levels.

As the daily chart of S&P 500 below illustrates, the index went into selling mode on Tuesday, unable to hang on to its gains achieved as a result of the mid-December bounce.  It’s the second time in just a little over a month the market has been unable to hold up under the weight of its own rallies.  Both peaks materialized right around the 2084 area.

S&P 500 & VIX – Daily Chart

Charts created with TradeStation

PH 1415-sp500-daily

Other red flags include a PercentR indicator that’s fallen below 80 (although this could be considered a possible bullish ‘re-test’ on that indicator), a MACD indicator that could dole out a bearish MACD divergence early this week, and a CBOE Volatility Index (VIX) (VXX) that’s acting like it wants to push up and off its 20-day moving average line.

Nevertheless, the S&P 500 is on the bullish side of the most important short-term directional indicator… the 20-day moving average line (blue) at 2052.9.  The index moved below it briefly on Friday, but as was noted above, the bulls pushed back above the 20-day line when push came to shove near Friday’s close.

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CBOE Mid-Day Update 1.5.14

Volatility as an asset class

iPath S&P GSCI Crude Oil Total Return (OIL) is recently down 60c to $11.61 as WTI crude oil trades below $51.  January call option implied volatility is at 67, February is at 62; compared to its 26-week average of 27.

Energy Select Sector SPDR (XLE) is recently down $3.39 to $76.14. January weekly call option implied volatility is at 41, January is 34, March is at 32; compared to its 26-week average of 21.

ProShares Ultra DJ-UBS Crude Oil (UCO) is recently down 86c to $9.05 Overall option implied volatility of 90 compares to its 26-week average of 54.

United States Oil Fund (USO) is recently down 82c to $19.07. Overall option implied volatility of 47 compares to its 26-week average of 24.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) up 11.2% to 6.24; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 10.4% to 32.90, WTI trades below $51 cboe.com/micro/VIXETF/VXXLE/

CBOE Interest Rate 5-year T Note (FVX) down 2.9% to $15.71 as bonds trend to record highs.

CBOE Crude Oil Volatility Index (OVX) up 8.9% to $59.06, WTI below $51 cboe.com/OVX

Active options at CBOE: AAPL TSLA GILD AMZN TWTR NFLX BAC TWTR AA

Options with increasing volume @ CBOE: HNR STNG QIWI CNAT NUAN

CBOE Volatility Index (VIX) is recently up 2.60 to 20.47; January 25, 30 and 32 calls are active on total volume of 289K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently up 1.86 to 32.84.
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Blogging Options: CBOE Morning Update 1.5.15

Parking lot full this morning, everyone getting back to work – and on time.  Asian stocks lower, shares in Europe off 1%+.  DAX leading shares down in Europe with bad economic news. Oil traded with a $50 handle this morning and the dollar (CAD & AUS tied to resources, Swiss tied to Euro) at a 6 year high. -1 degree on way in this morning.  VIX Futures active in pre-market session, up ~2.5%. SPY off 1.25.  Volatility as an asset class:

Cempra (CEMP) is up $6.11 to $29 in the premarket after announcing positive topline results from a global, pivotal Phase 3 clinical trial of solithromycin oral capsules, Solitaire-Oral, in the treatment of patients with community acquired bacterial pneumonia. Overall option implied volatility of 98 compares to its 26-week average of 97.

Ford (F) is down 15c to $15.21 in the premarket after being downgraded to Neutral from Buy at Citigroup. Citigroup said the risk/reward looks balanced following the recent move higher in the stock. Citi keeps a $17 price target for Ford shares.  Overall option implied volatility of 26 compares to its 26-week average of 24.

General Motors (GM) is down 9c to $34.75 in the premarket after Citigroup recommended buying shares into 2015 and keeps a $48 price target for the name.  Overall option implied volatility of 26 compares to its 26-week average of 25.

Options expected to be active at CBOE: F GM NVDA SBUX MU BBBY CMC

CBOE S&P 500 PutWrite Index (PUT) at 1457, 29-day moving average is 1440.95 www.cboe.com/PUT

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.61, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 54.25, compared to its 50-day moving average of 39.64, WTI Crude oil trades near $52. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 128.66, compares to its 50-day moving average of 130.04.
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A Final Look at VIX in 2014

In 2014 VIX managed to reach the highest levels seen in over two years.  This happened despite a fairly bullish year for the S&P 500 with the index achieving a record high more than fifty times.  also, as seen below most of the VIX action occurred in the 3rd quarter after a fairly quiet summer.

VIX SPX

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The Weekly Options News Roundup – 1/2/2015

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

New Year, New Options?
It’s January, the time when investors eagerly search for clues to help forecast the markets (and volatility!) for the new year.  So, what’s the outlook for 2015?  Some industry observers weigh in.

“Outlook 2015: Options for the Long Haul” – Steve Sosnick, Barron’s
http://on.barrons.com/177ThvN

“Predicting the ‘Real’ Turn in Volatility” – Adam Warner, Schaeffer’s Investment Research
http://bit.ly/13NeAAG

“Santa Rally Often Hangs Over To New Year’s – This Year, Too? – JJ Kinahan, Forbes
http://onforb.es/1xfscRt

“A Cheap Bet on a Rising Stock Market in 2015” – Scott H. Fullman, Barron’s
http://on.barrons.com/1vRM5JJ

Is a Correction Looming? 
CBOE SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 (SPX) options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence.  SKEW values have recently neared all-time highs.

“The CBOE Skew Index Reaches Levels That Say A Correction May Be Coming” – Bob Lang, Investing.com
http://bit.ly/1vCx8Kt

“CBOE SKEW Index – Highest Levels in 2014 Show Demand for Downside Protection with SPX Puts” – Matt Moran, CBOE Options Hub

http://www.cboeoptionshub.com/2014/12/30/cboe-skew-index-highest-levels-2014-show-demand-downside-protection-spx-puts/

Volatility Indexes in 2014
Russell Rhoads, CBOE’s “Mr. VIX,” spent his New Year’s Day analyzing the performance of CBOE’s volatility indexes in 2014.  You can read his blogs on emerging markets, Brazilian, Nasdaq-100, More

Blogging Options: CBOE Mid-Day Update 1.2.15

ISM for December (55.5% versus 58.7% in Nov, 4th straight drop and lowest since June ’13), disappointed traders and investors this morning, turning a firm opening into a light-volume sell off.  Construction Spending fell as well.  10-Year yield dropped to 2.12% after printing 2.102%. Oil and Grains off over 1%. GE, NKE & DIS lower, IBM, V & CELG higher.  Volatility as an asset class:

S&P 500 Top Best Performers of 2014 have mixed option implied volatility

Mallinckrodt (MNK) overall option implied volatility of 38 compares to its 26-week average of 35.

Delta Air Lines (DAL) overall option implied volatility of 37 compares to its 26-week average of 36.

Keurig Green Mountain (GMCR) overall option implied volatility of 32 compares to its 26-week average of 33.

Royal Caribbean (RCL) overall option implied volatility of 32 compares to its 26-week average of 33.

Kroger (KR) overall option implied volatility of 20 compares to its 26-week average of 21.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) up 5.98% to 5.67; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 3.2% to 30.10, WTI trades near $54 cboe.com/micro/VIXETF/VXXLE/

CBOE Interest Rate 5-year T Note (FVX) down 2.9% to $16.04 as bonds trend to record highs.

CBOE Crude Oil Volatility Index (OVX) up 0.5% to $50.51 cboe.com/OVX

Active options at CBOE: AAPL TSLA TWTR GILD AMZN TWTR NFLX BAC TWTR VIX SPX

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