The Weekly Options News Roundup – 8/29/2014

Your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

Financial Leaders Unite
Leaders in the financial industry from LaSalle Street to Wall Street have joined together answering the call of the Ice-Bucket Challenge, raising money for ALS Research. CBOE CEO Ed Tilly accepted the challenge issued to him, and accompanied by the CBOE community, raised money for this great cause.

“CBOE’s Ed Tilly Takes ALS Ice-Bucket Challenge” – Ed Tilly, CBOE Options Hub
http://bit.ly/1AUy5Tz

 VIX: Good For All Occasions
Volatility remained subdued in contrast to stocks, which reached new all-time highs this week.  The CBOE Volatility Index, and VIX options and futures, are very useful tools, even in times of low volatility.

“Our Trade Suggestions, Updated” – Jim Strugger, Barron’s
http://on.barrons.com/1leR9rY

“Short Sellers Boost Bets Against VIX as Volatility Fades”- Callie Bost, Bloomberg
http://bloom.bg/1veCXTp

“When’s The Right Time To Buy Options?” – Brad Zigler, Wealth Management.com
http://bit.ly/1AOcRXB

“VIX Jump on Ukraine Invasion May Portend Volatility Rise Ahead” – Steven Sears, Barron’s
http://on.barrons.com/VSJuDU

VIDEO: “Enriching your understanding of VIX and volatility”- Russell Rhoads, CBOE
http://www.cboe.com/VIXms/ArchivedWebinars.aspx

A Valuable Combination
CBOE Holdings offers innovative products that create value for customers and shareholders alike.  “The options exchange’s stock should benefit further from a revival in volatility in the fall and beyond.”

“Options on CBOE Shares Offer Play on a VIX Pop” – Steven M. Sears, Barron’s
http://on.barrons.com/1AUlP5y

Options Education = Options Expansion
The use of options by investors has steadily grown over the last several years, with ongoing industry educational efforts cited as one of the main factors.  According to a recently published study by the Options Industry Council,  registered investment advisors, in particular, are expanding their use of options.

“RIAS Expand Options Usage” – Markets Media
http://bit.ly/1spsKi2

“New Study Shows Advisors’ Use of Options Increased 13% Since 2011
http://bit.ly/1n4kEII

Erin go bragh!
The 3rd annual CBOE Risk Management Conference Europe kicks off next Wednesday in Dublin.  Keep up to date on all the happenings at the conference through the live blogs and tweets (#CBOERMC) at www.cboermceurope.com.

 

CBOE Mid-Day Update 8.29.14

Volatility as an asset class

Tesla Motors (TSLA) is recently up $6.90 to $270.66 as shares trade at a record high on signing an agreement with China Unicom (CHU) to construct 400 charging points in 120 cities at the China’s company’s outlets, according to Bloomberg, citing comments from Tesla spokeswoman Peggy Yang. September weekly call option implied volatility is at 27, September is at 29, December is at 36; compared to its 26-week average of 50.

Facebook (FB) is recently up 80c to $74.65.  September weekly call option implied volatility is at 21, September is at 25, October is at 26, December is at 30; compared to its 26-week average of 40 according to Track Data, suggesting decreasing price movement.

Twitter (TWTR) is recently down 7c to 49.67 on 160K contracts at the CBOE.  September weekly call option implied volatility is at 40, September is at 41, November is at 48; compared to its 26-week average of 50.

Actives at CBOE:  AAPL TSLA C TWTR NFLX BAC AMZN C

Stocks with increasing volume @ CBOE: OXY HD RSH UTHR IRF

CBOE DJIA BuyWrite Index (BXD) down 5c to 269.84, compared to its 50-day moving average of 268.12 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 11c to 12.16. VIX September 16 and 21 calls are active on 128K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 0.9% to 28.16

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 5.2% to 10.37; compared to its 10-day moving average of 11. stks.co/r0CS2
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Weekly Market Commentary 8.29.14

$SPX broke out to new all-time intraday and closing highs this
week.  New all-time closing highs were made on 4 of 5 consecutive
days, which confirmed the move, so the $SPX chart is bullish once again.   lm 8 29 spx

Equity-only put-call ratios have finally rolled over to buy signals. To the naked eye, they rolled over more than a week ago, but to the computer, the confirmed buy signals only arrived a couple of days ago.

Market breadth has remained positive, and the breadth indicators thus continue to remain on buy signals.

Volatility indices ($VXST, $VIX, and $VXV) have remained subdued for the most part this week.  As long as that is the case, stocks can continue to rise.  As long as $VIX remains below 14, we view it as being bullish for stocks.

lm 8 29 vix
In summary, all of the intermediate-term indicators are bullish,
and thus so is our outlook.

Blogging Options: CBOE Morning Update 8.29.14

July Income rose 0.2% and Spending fell 0.1% (+0.3 and +0.2 expected).  Savings rate grew slightly. Two more reports later this morning and then long weekend begins. Train empty on way in. Bonds close early today. Volatility as an asset class

Splunk (SPLK) is up $2.91 to $48.20 in the premarket after reporting better than expected Q2 EPS of $0.01 on revenue of $101.5 million versus the consensus estimate of $93.93 million. The data-software company sees Q3 2014 revenue of $105M-107M, versus the consensus of $104M. August weekly call option implied volatility is at 158, September is at 69, October is at 66, November is at 56; compared to its 26-week average of 52.

Fred’s, Inc. (FRED) is indicated lower after regional retailer reporting less than expected Q2 EPS results of on revenue of $491M versus the consensus estimate of $488M. Overall option implied volatility of 42 is above its 26-week average of 35.

Big Lots (BIG) is down $0.65 to $46.55 in the premarket after reporting Q2 results and a $250M share repurchase program. September call option implied volatility is at 50, October is at 38, January is at 32; compared to its 26-week average of 34.

Options expected to be active @ CBOE:  BIG SPLK FRED AZN CONN

CBOE SKEW INDEX (SKEW) at 137.94, compared to its 50-day MA of 134.08. 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 1104.72 compared to its 10-day moving average of 1101.81 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) at 269.89 compared to its 50-day moving average of 268.08 cboe.com/micro/bxd/
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Next Week in Weeklys – 9/1/2014

I’m not sure if there are any new names on the Weeklys list as I wrote this a week before you are reading it.  CBOE is holding the annual European version of our Risk Management Conference so my access to the data needed to produce this blog is a bit limited.  If you want to check the current list of Weeklys check out www.cboe.com/weeklys

The combination of a holiday week and where we are on the calendar resulted in a pretty light earnings calendar for next week.  Here are the stocks with short dated options available reporting next week -

Weeklys  09012014

Weekly Weekly’s for 8.28.14


As we inch closer to the long Labor Day Holiday weekend, I’m mostly focused on weekly’s with options expiration for this Friday. I have a feeling many traders will be using this strategy with the weeklys for a quick turnaround play before taking off for the weekend. It’s going to be very interesting to see where some of the more active stocks of the week land Friday…

Salesforce (CRM) is among them. The weekly 57 strike puts popped up earlier this morning with 2,7000 contract trading as that stock trades around $58.

Gilead Sciences is another popular stock. Options players have been all over this one buying calls and many traders were happily on the right side of the trade as the stock rallied to a 52-week high above $108 this week. Today there seems to be a change of pace with puts trading at the 104 strike into this week’s expiration and 106 puts for next week (Sept.5 expiration). GILD is trading around $107.

Another stunning stock this week has been Amazon. I know some traders may be looking to short AMZN through the options as the stock trends higher. Puts are active in multiple strikes going down to the 314 strike,along with 322 and 335 strikes. There are some call buyers at the 342 strike.

Yahoo (YHOO) has plenty of options action this week, some of that may have been related to traders building positions into the Alibaba IPO expected next month. Alibaba reported an earnings surge this week. Yahoo shares are trading not far off from a 52-week high. The options paper is on the light side, but still something I like to track. Calls are active at 38 and there is light paper in the calls in the September 40 weekly call strike.

In the traditional options traders are building positions in the 38 and 39 call strikes. Traders may even be playing the Weekly’s off the traditional options.

Tesla is another one that has moved up with the market today the stock is relatively flat around $263. TSLA calls active at 265 and puts at 260 strikes.

GT Advanced Technologies bounced higher this week as reports suggest the company’s sapphire glass could be used in the iPhone 6 that might be unveiled (possibly) September 9th. There are call buyers at the 18 strike as the stock trades around $17.

Action is also picking up in the Emerging Markets Index EEM this week, today it’s tamer with 600 of the 45 put contracts trading for this week’s expiration and 44.5 puts for next week’s expiration.

Checking SPX, the S&P 500 made it over the 2,000 mark this week but today trader are reaching for downside put protection down to the 1,940 put line, also activity in the 1975 puts. The weekly call buyers still persisting at the 2,000 strike. I’m Angela Miles. I’ll see you next time.. Twitter: AngieMiles

CBOE Mid-Day Update 8.28.14

Volatility as an asset class

Market-Vector Russia ETF Trust (RSX) is recently down 73c to $24.39 as the Ukraine conflict worsens. September weekly call option implied volatility is at 27, September and October is at 28, November is at 26; compared to its 26-week average of 25.

GoPro (GPRO) is recently $2.22 to $47.73, near a record high of $49.90.  September weekly call option implied volatility is at 47, September is at 40, October is at 36, January is at 32; compared to its 8-week average of 56.

Dollar General (DG) is recently up 93c to $64.63 after the retailer reported its sales rose less than expected. September weekly call option implied volatility is at 29, September and October is at 27, January is at 24; compared to its 26-week average of 32.

Active calls @ CBOE; AAPL 8/29/14 102, 103, Oct 101.43 & Nov 110

Active puts @ CBOE; AAPL 8/29/14 102, Sep 104 & Nov 110

Actives at CBOE:  AAPL TSLA GILD C TWTR NFLX PBR BAC AMZN C

Stocks with increasing volume @ CBOE: WLT CLF RSH SIG

CBOE DJIA BuyWrite Index (BXD) down 23c to 269.91, compared to its 50-day moving average of 268.09 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 33c to 12.31. VIX September 14, 16 and 25 calls are active on 131K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 0.8% to 28.06
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Blogging Options: CBOE Morning Update 8.28.14

Traders are hearing Russian troops have entered Ukraine – or haven’t, depending on whether you are hearing Ukranian, NATO or Russian comments.  On the economic front Weekly Jobless Claims remained under 300k, unchanged from last week.  Q2 GDP first revision showed the economy grew 4.2% (original estimate +4.0%, higher than the 3.9% to 4.0% estimates), Commodities higher.  Volatility as an asset class:

Abercrombie & Fitch (ANF) is down $2.41 to $41.59 in the premarket after the teen retailer reported Q2 sales decreased more than expected. August weekly call option implied volatility is at 100, September is at 49, October is at 45, December is at 38; compared to its 26-week average of 45.

Williams-Sonoma (WSM) is off $8.29 to $66.60 after the high end home retailer forecast a less than expected outlook. September call option implied volatility is at 30, October is at 25, November is at 24; compared to its 26-week average of 25.

Guess (GES) is down $1.99 to $23.65 in the premarket after the apparel retailer lowered its outlook for the year. September call option implied volatility is at 45, October is at 35, December is at 32; above its 26-week average of 30.

Options expected to be active @ CBOE:  TKMR FEYE WSM WDAY SPLK YNDX RSX JCP ANF

CBOE SKEW INDEX (SKEW) at 135.41, compared to its 50-day MA of 133.92. 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 1105.43 compared to its 10-day moving average of 1100.78 cboe.com/BXM

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Expiration Friday – At Last

Expiration Friday.

Since the beginning of time (OK, the last 40 years we’ve had listed options), options expired on the Saturday following the 3rd Friday of the month.  Why Saturday?

Let’s take a walk to the way-back machine with Mr Peabody.   I was a floor trader at the CBOE and I am trading front-month options on the Friday of expiration.   My trading cards would have to be delivered to my clearing firm and key-punched (yes they were youngsters).  There would be a first pass Friday night where clerks would have unmatched trades (My acronym was KNY, a trader or broker selling me 5 calls might have written or his/her keypuncher might have inserted KMY).  The second pass early Saturday morning was where the problems were discovered – I was trying to buy puts and a broker was selling calls.  I thought I paid $2 and the other trader was selling at $2 1/4 ($2.25 for those into decimals). Traders would come to the CBOE in Chicago’s Loop Saturday morning and resolve “out-trades”, if any, in the expiring options.   The final resolution would be sent to the Options Clearing Corp (OCC) and cleared later Saturday morning, hence Saturday settlement.

Today the majority of our market makers are trading from computers somewhere in the world, and traders still on the trading floor use hand-held computers.  Everything is computerized.  Traders don’t have to do anything on Saturday (except what they are told by their spouse).

Weekly’s options now expire on Friday’s, but a few regular (3rd Friday) options are still Saturday settlement.  So why can’t Friday expiration options expire on Friday?  They will very soon.

The CBOE, other exchanges and the OCC are moving to a Friday expiration date for new series expiring after February 1, 2015, pending regulatory approval.  LEAPS will also be listed with a Friday expiration date.  When new Regular expiration (3rd Friday) options are listed, the new regular options listed have Friday as expiration.

What does this mean to you or me as investors using options?  Not much.  The only thing I want to keep an eye on is how my broker counts the number of days until expiration.  Is November expiration 62 days away or using Saturday, 63 days away?  I should know that, but don’t.

Additional information regarding the standard monthly option
expiration date move from Saturday to Friday can be found in:

CBOE Regulatory Circular RG12-135.

So in the very near future, a few straggling months with Saturday being shown as expiration will be gone, and Expiration Friday will be Expiration Friday.  mk

Buying and Selling Waves

This market does not make life easy, does it? What we would all prefer is some predictability about the action and a few reliable patterns that show us exactly where markets are going (more on that later).

It seems impossible to establish a rhythm to our trading/investing. We are unable to find the flow as markets go up and down. We often find ourselves facing north when we should be looking south, and vice versa. Unfortunately, our time frame as traders is often not the time frame of the markets, and that inevitably leads to frustration and disappointment. The market will do its thing, and we have to be ready to move.

From the previous highs in early July, the SPX 500 dropped about 80 handles (nearly 50 in about two days), and then it rallied up about 90 handles. All of that action occurred in about a month. If that doesn’t make your head spin out of control, then I don’t know what will! Could you have correctly been on both sides of the trade with your options trading strategies? The selling wave was sharp and swift, and volatility spiked as fear ran rampant., How does one react to that kind of speed?

Just two weeks ago, markets appeared headed for the danger zone – the SPX 500 was testing the 100 MA and closing in on the 200 MA (a long-standing bullish support area for institutional investors), and the 50 MA had just turned lower. The Dow Industrial’s tested that 200 MA and looked ready to break it. After all, it had been many months since price had met the average. The Russell 2K had already been flirting under the 200 MA for awhile and could not seem to get the ship righted after a steep drop from recent highs in early July.

Despite these signals and very oversold conditions, the markets came back with ferocity. The SPX 500 hit new all-time highs and was knocking on the door of 2K for the very first time. In fact, the SPX futures have rallied a stunning 100 handles in that time, a breathtaking 5.5% move up without much in the way of resistance. Along the way, a large group of stocks established strong price leadership and solid breadth, which was lacking during the last move to new highs in May and early July.

All of this illustrates that being in sync with the markets is nearly impossible on a regular basis. Just a small rumor of an attack in the Russia/Ukraine conflict can send stock futures into a tailspin. Who can prepare for that? We can always buy protection via index puts or going long on some volatility, but that won’t pay off on a regular basis, and in fact it has only worked well a couple of times this year.

Paying attention to signals, indicators, patterns and trends can help us become better aware of these waves, allowing us to position accordingly. For instance, say the McClellan Oscillator drops to extreme lows, there is a very high put/call ratio, the VIX spikes and sentiment polls turning bearish – the time is right to be a contrarian. If we don’t, the boat will tip over, as too many people are leaning heavily to one side of the boat.

This was exactly the case around August 7 and 8, when a slingshot move occurred that most did not expect. Now we have the opposite condition, with too many bullish people and indicators showing extreme conditions. In a bull market like this one, we can expect a quick correction.  Want to know how to prepare? Lighten up on your longs, and get ready for the next wave.

CBOE Mid-Day Update 8.27.14

Volatility as an asset class

Chico’s FAS (CHS) is recently down 57c to 15.45 after the woman’s seasonal merchandise reported a Q2 profit decline of 31% on promotions. September call option implied volatility of is at 27, October is at 26, January is at 27; compared to its 26-week average of 33.

Express (EXPR) is recently up $1.79 to $16.38 after the retailer reported Q2 earnings and guidance come in higher than analysts predicted. September call option implied volatility is at 37, October is at 35, January is at 34; compared to its 26-week average of 44.

August 27Michaels (MIK) is recently up $1.33 to $16.43 after the arts and crafts retailer reported Q2 results above analysts’ consensus estimates. September call option implied volatility is at 38, October is at 33, December is at 32; compared to its eight-week average of 33.

Actives at CBOE:  AAPL TSLA GILD C TWTR NFLX PBR BAC AMZN

Stocks with increasing volume @ CBOE: RSH WFM VALE RIO BKW ARUN SWHC INFN

CBOE DJIA BuyWrite Index (BXD) up 10c to 269.94, compared to its 50-day moving average of 268.04 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 13c to 11.76. VIX September 15 and 17 calls are active on 124K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 0.6% to 27.80

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 1.4% to 10; compared to its 10-day moving average of 11.20. stks.co/r0CS2
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Biggest Past One-Day Moves – VXST Up 81.8%; GVZ Up 61.7%

Investors who explore volatility and diversification strategies often are looking for instruments that provide a lot of “bang-for-the-buck,” and they may ask – if most items in my portfolio are falling, are there any products with negative correlations that can experience sharp jumps in uncertain times?

The charts below show nine volatility indexes and their biggest one-day up moves (in %) since April 2011.  CBOE Futures Exchange (CFE) offers futures on all of the indexes, (except that futures on the VXTYN Index have not yet been officially announced or launched), and CBOE offers options on most of the indexes below.

The  CBOE Short-Term Volatility Index (VXST) rose 81.8% on Apr. 15, 2013, the CBOE Gold ETF Volatility Index (GVZ) rose 61.7% on April 15, 2013, and the VXEZW, VXEEM, VIX, and RVX indexes all rose by more than 35% on August 8, 2011 (after the downgrading of US Treasury debt).  mm 1

Biggest Past One-Day Moves – VXST Up 81.8%; GVZ Up 61.7%

mm 3

Please note that the futures on volatility indexes often do not move as sharply as the spot volatility indexes.  To learn more about futures and options on volatility indexes, please visit www.cboe.com/volatility.

Blogging Options: CBOE Morning Update 8.27.14

Markets overseas fairly quiet and down fractionally.  Ukraine situation causing flight to safety with US & German Treasuries.  Record highs but light-holiday volume.  10K VIX futures in early session, pretty average volume.  Jackie Robinson West parade in Chicago today, good weather & big crowds expected.  Volatility as an asset class

Tiffany (TIF) is up $2.23 to $103 in the premarket after reporting Q2 EPS 96c, compared to consensus 85c as worldwide net sales increased 7% and comparable store sales increased 3% largely due to growth in the Americas and Asia-Pacific. September call option implied volatility is at 31, October is at 23, November Is at 21, January is at 23; compared to its 26-week average of 23.

Aruba Networks (ARUN) is higher by $1.63 to $21.86 after the network solutions provider for the mobile enterprise reported a Q4 quarterly loss and announcing a 3.7% workforce reduction. September call option implied volatility is at 55, October is at 48, January is at 45; compared to its 26-week average of 47.

Smith & Wesson (SWHC) is down $1.54 to $11.56 in the premarket after the firearm company reports Q1 results, and lowering guidance. September call option implied volatility is at 37, December is at 34; compared to its 26-week average of 37.

Options expected to be active @ CBOE:  TIVO SWHC ARUN BOBE ADI TIF CHS MIK EXPR WDAY SPLK

CBOE S&P 500 BuyWrite Index (BXM) at 1104.78 compared to its 10-day moving average of 1099.21 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) at 269.88 compared to its 50-day moving average of 268 cboe.com/micro/bxd/

‏CBOE Nasdaq-100 Volatility Index (VXN) at 12.34; compared to its 50-day moving average of 13.66.

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Are You Making These Common Financial Mistakes by LaTisha Styles

 

The social media team at CBOE is proud to welcome a new contributor.  I met LaTisha Styles when visiting Kennesaw State University a few years ago.  She is one of the brightest and most articulate students I have had the pleasure of meeting while traveling on behalf of CBOE.  In 2010 LaTisha started YoungFinances.com and has been posting videos that offer financial advice to the newest generation of investors – Russell Rhoads

 

It’s easy to try to coast through your twenties. College comes and goes and you start a new career. In the meantime, you ignore your finances because you think, hey, I don’t have to think about that yet.

But ignoring your personal finances can be detrimental to your personal success. Here are four common mistakes that millennials make and what you can do to take control.

Mistake #1 Missing Out on the Free 401k Employer Match

If your employer offers a 401k match, take advantage of it. Whenever there’s free money, take advantage.

Mistake #2 Stalling Student Loan Payments

Don’t wait too long to pay your student loans! Set up a budget that includes student loan payments and triple your payment if you can. The quicker you can pay those suckers off, the faster you can save for a house or just enjoy a debt free life.

Mistake #3 Ignoring Credit Card Debt

Speaking of debt… Yeah, it’s not going to pay itself off. Don’t make the mistake of thinking everyone has credit card debt. Many Americans use credit but it’s important to get into the habit of paying your cards off in full each month.

Mistake #4 Emotional Spending

And finally, stop spending because you feel like it. Each purchase that you make should have a purpose.

Correct these mistakes and you will be well on your way to becoming a financial success!

 

Labor Day Holiday Trading Schedule

Labor Day is next Monday, this summer went fast.  The following is the trading schedule for Chicago Board Options Exchange® (CBOE®), C2 Options ExchangeSM (C2SM) and CBOE Futures ExchangeSM (CFE®) in observance of the upcoming Labor Day holiday:

Friday:  Regular trading hours for everything.

MondayCBOE & C2 Closed.

CFE:   All products closed with the exception of CBOE Volatility Index® (VIX® Index) futures and VIX TAS, which will be available for trading from 5:00 p.m. Sunday to 10:30 a.m. Monday, Chicago time

TuesdayCBOE & C2 regular trading hours.

CFE:   CBOE Volatility Index® (VIX® Index) futures and VIX TAS will be available for trading from 5:00 p.m. Monday to 8:30 a.m. Tuesday, Chicago time.  Trading for all other products will resume at 8:30 a.m., Chicago time.

So the bottom line is, we’re closed on Labor Day, but CFE will have the Sunday night and Monday night extended hours open for VIX and VIX TAS.   Have a good Labor day Holiday weekend.

CBOE Mid-Day Update 8.26.14

Volatility as an asset class

Ann Inc.  (ANN) is recently up $2.29 to $42.28 after hiring a bank to explore strategic alternatives, Reuters says. September call option implied volatility is at 35, December is at 32; compared to its 26-week average of 34.

Alcoa (AA) is recently up 14c to $16.62 as aluminum trades at a 18-month high. September weekly call option implied volatility is at 20, September is at 21, October is at 22, November and January is at 25; compared to its 26-week average of 28.

_MG_0821Actives at CBOE:  AAPL TSLA GILD C TWTR NFLX PBR BAC AMZN

Stocks with increasing volume @ CBOE: TLM CODE LNG DOW JNS SM

CBOE DJIA BuyWrite Index (BXD) up 21c to 269.99, compared to its 50-day moving average of 268 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 9c to 11.61. VIX September 17 and 20 calls are active on 232K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 1.2% to 27.74

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 4% to 10; compared to its 10-day moving average of 11.45. stks.co/r0CS2

CBOE DJIA Volatility Index (VXD) down 1.7% to 10.65; compared to its 10-day moving average of 11.35.

CBOE Nasdaq-100 Volatility Index (VXN) up 0.3% to 12.47; compared to its 50-day moving average of 13.66.

S&P 100 Options (OEX) recently is recently up $1.96 to 889.16 as orders for long lasting U.S. durable goods posted their largest gain on record in July.

Blogging Options: CBOE Morning Update 8.26.14

The Durable Goods report is considered a volatile number, and the July report just released didn’t disappoint.  Durable Goods spiked higher by 22.6% (helped by a jump of 318% in non-defense aircraft), X-Aircraft Durables dropped 0.8%, a big miss.  Stock futures didn’t budge, up slightly before the opening.  Option volume yesterday a little light as long-weekend approaches.  KITE Pharma up $4.40 as one of its cancer drugs is getting good reviews in clinical trials.  Warren Buffet providing financing to Burger King seems to like Tim Horton coffee more than a loud talking head on a major business channel.  Volatility as an asset class:

Best Buy (BBY) is down $1.11 to $30.89 in the premarket on a Q2 profit that was higher than expected, but its sales fell short and executives remained cautious for the 2nd half. August weekly call option implied volatility is at 96, September is at 46, October is at 40, December is at 36; compared to its 26-week average of 37.

DSW (DSW) is up $3.20 to $31.57 in the premarket after the shoe retailer reported Q2 adjusted EPS 37c, consensus 32c on better than expected revenue $587.1M. Overall option implied volatility of 40 is above its 26-week average of 35.

Regis (RGS) closed at $14.75 into the leader in the haircare industry reporting Q4 revenue of $483.9M, compared to consensus $477.50M. Overall option implied volatility of 29 is at its 26-week average.

Options expected to be active @ CBOE: CVLT CLF YHOO TIVO WDAY BBY DSW

CBOE SKEW INDEX (SKEW) at 135.41, compared to its 50-day MA of 133.69. 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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CBOE’s Ed Tilly Takes ALS Ice-Bucket Challenge

I’m a little wet and the water was cold, but I was thrilled to participate in the ALS Ice-Bucket Challenge this afternoon. I’ve challenged three others to do the same – Steve Sears of Barron’s, Rich Repetto of Sandler O’Neill, and market commentator Jon Najarian.

As of this morning, the ALS Association has raised $79.7 million, all in the last four weeks. The ALS Association raised $2.5 million during the same period last year, and only $64 million in all of 2013. I am also pleased that our CBOE team has contributed to this very worthy cause.

Amyotrophic Lateral Sclerosis (ALS), often referred to as “Lou Gehrig’s Disease,” is a progressive neurodegenerative disease that affects nerve cells in the brain and the spinal cord. Although the cause of ALS is not completely understood, the ALS Association has helped increase the number of scientists working on ALS, advanced new discoveries and treatments, and shed light on the complex factors involved in ALS.

Your generous donation of any amount will help this effort.

To donate on-line with a credit card, go to the following link: Online Donation Form

To mail in a donation, click on the following link for the contribution form: Mail-in Donation Form

Or mail to:
The ALS Association
Gift Processing Center
PO Box 6051
Albert Lea, MN 56007

Ed Tilly
CEO, CBOE

Extended Trading Hours Volume at Record High So Far This Month

CBOE will host the 3rd Annual Risk Management Conference Europe on September 3 – 5 at the beautiful Powerscourt Hotel in Ireland.  I anticipate that one of the main topics at the conference will be – how can investors manage risk around the clock, especially during non-US trading hours?

CBOE has positive developments to report regarding management of risk around the clock.  In 2010 CBOE Futures Exchange (CFE) began offering futures on the CBOE Volatility Index® (VIX®) during select limited Extended Trading Hours (ETH). Beginning in June 2014, VIX futures trading hours were expanded to nearly 24 hours a day, five days a week. For VIX futures, the Extended Trading Hours (ETH) run from the start of the new trading day at 3:30 PM, until 8:30 AM Chicago time the following day, and the regular trading hours run from 8:30 AM until 3:15 PM Chicago time.

In addition, CBOE plans to launch Extended Trading Hours for options on both the S&P 500® and the VIX indexes in late October 2014, contingent upon completion of systems enhancements and SEC approval.

RECORD HIGH ETH VOLUME SO FAR THIS MONTH

So far in the month of August (through August 22), the average daily volume for VIX futures during ETH was 24,556 contracts, the highest number when compared to previous full calendar months.

11VIX-ETH Aug 22

Worldwide geopolitical tensions could have impacted the fact that average daily volume for VIX futures during ETH has risen each of the past 3 months.  The table below provides a breakdown of VIX futures average daily volume this month during different daily time periods.  When speaking with European investors next week, I plan to note that the average daily volume for VIX futures during the time period from 2:00 AM to 8:30 AM has been more than 17,000 so far in August.

12VIX-ETH Aug 22 Table

To learn more about strategies to manage risk around the clock, please visit www.cboe.com/VIX and www.cboe.com/ETH.

CBOE Mid-Day Update 8.25.14

Volatility as an asset class

VIX methodology for IBM (VXIBM) up $1.21 to 14.79; below its 50-day moving average of 18.04. cboe.com/VXIBM

VIX methodology for Goldman Sachs (VXGS) up 50c to 18.15; below its 50-day moving average of 18.87. cboe.com/VXGS cboe

VIX methodology for Apple (VXAPL) up 89c to 25.24; below its 50-day moving average of 25.20. cboe.com/VXAPL

VIX methodology for Amazon (VXAZN) up 40c to at 23.37; below its 50-day moving average of 30.67. cboe.com/VXAZN

VIX methodology for Google (VXGOG) up 89c to 18.70; below its 50-day moving average of 22.75 cboe.com/VXGOG

Actives at CBOE:  AAPL TSLA GILD C TWTR NFLX PBR BAC

Stocks with increasing volume @ CBOE: X ITMN

CBOE DJIA BuyWrite Index (BXD) up 36c to 269.78, compared to its 50-day moving average of 267.96 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 12c to 11.35. VIX September 14 and 20 calls are active on 242K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 0.9% to 27.46
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Weekly Market Outlook 8.25.14

Will Last Week’s Breakout Stick? – Weekly Market Outlook

The market may have gotten last week started with a bang, breaking past some key resistance levels.  Stocks didn’t end the week with quite as much zeal, however.  Maybe it was just some pre-weekend precautionary selling.  Or, maybe the rally is already out of gas.  We’ll talk about the most likely possibility in a moment, after a run-down of last week’s and this week’s economic numbers.

Economic Data

Although there wasn’t a ton of economic data last week, what we got was important stuff, particularly on the real estate front.  That party started on Tuesday with July’s housing starts and building permits.  Both were up, topping estimates.  We saw starts reach an annual pace of 1.093 million, versus June’s pace of 945,000.  Permits hit an annualized rate of 1.052 million, which compares favorably to June’s 973,000.

On Thursday the National Association of Realtors released July’s pace of existing home sales.  They were up to 5.15 million – the highest reading since September of last year. All in all it was an encouraging batch of data, though we’re only about halfway through the real estate roundup for last month.  The rest of the key real estate and construction numbers are due this week. See the calendar below.  Regardless, we’re seeing renewed strength from the real estate market overall.

The only other major data we got was July’s inflation rate.  You can put away any fears that the Fed’s easy-money policy is giving rise to rampant inflation.  As of last month, the annual inflation rate slipped to 1.99%, from June’s 2.07%.

Of course, though it didn’t correlate with any specific data release, the Federal Reserve was the centerpiece of an economic symposium at Jackson Hole, Wyoming, this past weekend,  On the first day of the conference Janet Yellen explained that although the nation’s overall employment situation offered some bright points, by and large it saw still more of a liability.  Ergo, it wasn’t going to be the basis for a rate hike anytime soon.  That message soothed Thursday’s worries of an interest rate increase sneaking up on us sooner than anticipated.

Inflation Trends Chart
82414-inflation

Source:  Bureau of Labor Statistics

Economic Calendar
82414-econ-data

Source:  Briefing.com

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Blogging Options: CBOE Morning Update 8.25.14

Overseas markets mixed to higher – DAX up ~1%.  10-year dips below 2.4%, oil higher, metals flat.  Busy day Friday as CBOE trades ~6.6mm of 23.5mm options trading.  SPX traded over 1mm contracts, VIX with 868K and VIX Futures showed ~365k contracts traded.  Parade in Chicago Wednesday for Jackie Robinson Jr. US Championship Little League team.  CBOE’s Ed Tilly accepts ALS Ice bucket Challenge this afternoon.  Details on how to donate and join the  fight on ALS will be posted here later tonight.  Volatility as an asset class

Tim Hortons (THI) is up $9.66 to $72.50 in the premarket on confirming talks regarding potential strategic transaction with Burger King (BKW). Overall option implied volatility of 19 is below its 26-week average of 22.

InterMune (ITMN) is up $19.42 to $73.23 in the premarket after announcing Roche (RHHBY) will acquire the bio-tech firm for a share price of $74.00 per share in an all-cash transaction. Overall option implied volatility of 67 is near its 26-week average of 68.

Options expected to be active @ CBOE: ITMN THI BKW BG TIVO WDAY SPX

CBOE SKEW INDEX (SKEW) at 135.10, compared to its 50-day MA of 133.54. 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 1102.48 compared to its 10-day moving average of 1094.93 cboe.com/BXM

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Three Gray Swans – Week of August 25 – 29

Here are three things worth watching next week that could influence the financial markets in the US.

Tuesday Before the Open – Durable Goods Orders

The number to watch is the July Durable Goods Orders excluding transportation orders which is expected to rise around 0.6%.   Boeing experienced a large number of aircraft orders which will skew the number including transportation to the upside. This is why there is a number reported to exclude the transportation sector, so we can have a number worth comparing to previous the previous month that makes sense.

Thursday Before the Open – Second reporting of GDP for the Second Quarter

The more accurate estimate of GDP for the second quarter will be reported. The first estimate was 4.0% for the second quarter. The consensus number is that it will be remain unchanged at 4.0%, but there are some forecasts for a slight drop.

Friday Before the Open – Personal Income and Spending

There are a few components to this report and my focus is going to be on the PCE read on inflation which is expected to rise only 0.1%. I believe the eventual rise in interest rates will come in conjunction with concerns regarding inflation. That gives numbers like this a little more importance than they have had in the past few years.

This Week in VIX – 8/22/2014

VIX finished the week down almost 13% at 11.47. This closing price was only 0.17 higher than the 2014 low of 11.30. Do keep in mind that the 11.30 deserves some sort of asterisk as it came Thursday before the 3 ½ day Independence Day holiday. If the S&P 500 moves up this coming week we could easily see VIX with a 10 handle for the first time since before the 2008 crisis.

VIX PA

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This Week in Gold and Oil Volatility – 8/22/2014

The SPDR Gold Shares ETF (GLD – 123.19) dropped about 2% last week, but stayed in the mid-120’s range that we have become accustomed to, although at the lower end of the range. GVZ moved up a tad, but with a 13 handle the direction does not mean as much as the level. The level of GVZ indicates traders are not worried about a break down or break out in the price of gold over the next few weeks.

GVZ PA

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This Week in VXST – 8/22/2014

The S&P 500 made new highs and VXST ran for cover almost hitting the single digits this past week dropping 24%. VXST takes a cue from what the S&P 500 is doing, but also has a forward looking component as well. There is very little in the form of known unknowns in the next week so VXST is reflecting this as well.

VXST PA

I’m surprised to see the September 10th contract at a discount to the September 3rd since the 10th is the first expiration after the August employment report which is due out on the 5th.   Out of interest, I’ll be keeping an eye on that pricing relationship over the next week.

VXST Table

This Week in Russell 2000 and Nasdaq-100 Volatility – 8/22/2014

The NASDAQ-100 closed at a 2014 high rising 1.64% last week. VXN was already at a pretty depressed level, but continued to drift lower based on the strength of the underlying market. VXN also reacts in anticipation of earnings announcements, but with there being a lull in the earnings calendar there was nothing anticipatory to speak of with respect to VXN.

VXN PA

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This Week in CBOE Strategy Indexes – 8/22/2014

The S&P 500 did what has been expected and rebounded to new highs after experiencing a very short term dip. The three strategy indexes rebounded as well, but did what they do in a strong bull move which is slightly underperform.

Strat Charts

With almost a 2% gain last week the total return for the S&P 500 outperformed the strategy indexes. As of the previous Friday PUT had beaten the S&P 500 for 2014, but gave up that lead.

Strat Table

The Weekly Options News Roundup – 8/22/2014

Your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

VIX: Broader Not Broken
In this week’s Striking Price column in Barron’s, Steve Sears highlights a recent study by Goldman Sachs suggesting that “VIX is not really broken but that investors no longer understand entirely what motivates the fear gauge.”

“A New Vision of VIX” – Steven M. Sears, Barron’s
http://on.barrons.com/1pHp7Fl

“12 Key Stats Re: VIX Index” – Matt Moran, CBOE Options Hub
http://bit.ly/1tlAYbI

VIX vs VIX
Over the past week or so, VIX cash has been drifting lower while VIX futures have held firm.  CBOE’s very own “Mr. VIX,” Russell Rhoads, takes a closer look at contango and backwardation.

“Quantifying VIX Contango and Backwardation” – Russell Rhoads, CBOE Options Hub
http://bit.ly/1sasm6L

VIDEO: “Volatility 411” – Dan Deming, CBOE TV
http://bit.ly/1v5For7

Options – Protection Before the Storm
There has been wide speculation about the direction the Fed will take when it comes to raising interest rates.  Yet this uncertainty, coupled with continued geo-political matters around the globe, has not caused a pronounced spike in volatility.  As a result, options continue to be an efficient way to protect a portfolio.

“Jana Bought $4 Billion of Protection as Volatility Waned” – Miles Weiss, Bloomberg
http://bloom.bg/VDbBXI

CBOE Mid-Day Update 8.22.14

Volatility as an asset class

Green Mountain Coffee (GMCR) is recently up $16.58 to 134.34 on a Kraft Foods (KRFT) licensing agreement.  September call option implied volatility is at 32, December is at 35; compared to its 26-week average of 48.

Foot Locker (FL) is recently up $1.58 to $54.15 on Q2 profit increasing 39%.  September call option implied volatility is at 16, October is at 18 and January is at 19; compared to its 26-week average of 26.

Ross Stores (ROST) is recently up $4.93 to $74.18 after the off price retailer announced better than expected results and outlook. September call option implied volatility is at 20, November 18, January is at 16; compared to its 26-week average of 21.

Actives at CBOE:  AAPL GILD CRM  ABC TSLA TWTR NFLX PBR AMZN

Stocks with increasing volume @ CBOE: TIF ANF

CBOE DJIA BuyWrite Index (BXD) up 3c to 269.44, compared to its 50-day moving average of 267.92 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 30c to 12.06. VIX September 17 and 29 calls are active on 126K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 0.5% to 27.94
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Weekly Market Commentary 8.22.14

The rally that began on August 8th has extended quickly and strongly to take $SPX to new intraday and closing all-time highs.  When it crossed over resistance at 1960, the $SPX chart improved from “bearish” to “neutral.”  If another all-time closing high is registered today, that will officially make the $SPX chart “bullish.”
LM spx

Equity-only put-call ratios are in one of those in-between states.
Consider the two charts in Figures 2 and 3.  You can see that they have curled over in the last three or four days.  That is apparently a buy signal — at least to the naked eye.  However, the computer programs that analyze these charts continue to rate them as “bearish.”
LM 2 pc21

Market breadth has been quite positive.  As a result,
both breadth oscillators are on buy signals, and they are in overbought territory.
LM 3 pc21_w

Volatility indices dropped to very low levels.  At
these levels, volatility is benign, and stocks can rise.
LM 4 vix

In summary, all of the indicators have swiftly swung back to
“bullish” except for the put-call ratios.  A consecutive close at new
highs will make the intermediate-term outlook bullish once again.

Blogging Options: CBOE Morning Update 8.22.14

Once Ms Yellen speaks we can get on with the summer doldrums.  Russia and Ukraine sabre rattling again giving a soft tone to stock futures.  Volatility as an asset classGameStop Corp. (GME) is up $2.75 to $43.24 in the preopen after reporting Q2 EPS of $0.22, $0.04 better than the analyst estimate of $0.18. Revenue for the quarter came in at $1.73 billion versus the consensus estimate of $1.64 billion. August weekly call option implied volatility is at 163, September is at 47, January is at 40; compared to it 26-week average of 43.

Salesforce.com (CRM) is higher by $1.00 to $56.71 in the preopen after raising its forecast for the year. August weekly call option implied volatility is at 169, September is at 36, October and November is at 35; compared to its 26-week average of 36.

Aeropostale (ARO) is off $0.30 to $3.61 in the premarket after reporting Q2 EPS of ($0.46), $0.13 better than the analyst estimate of ($0.59). Revenue for the quarter came in at $396.2 million versus the consensus estimate of $392.61 million. September call option implied volatility is at 93, October is at 75, January is at 85; compared to its 26-week average of 58.

Options expected to be active @ CBOE: GME ARO CRM INTU TFM MRVL ROST BRCD

CBOE SKEW INDEX (SKEW) at 135.75, compared to its 50-day MA of 133.40. 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 Interest Rate 5 Year Note (FVX) @ 16.27 into Janet Yellen’s Humphrey speech

CBOE S&P 500 BuyWrite Index (BXM) at 1101.68 compared to its 10-day moving average of 1085.56 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) at 269.41 compared to its 50-day moving average of 267.88 cboe.com/micro/bxd/

‏CBOE Nasdaq-100 Volatility Index (VXN) at 12.50; compared to its 50-day moving average of 13.74.
CBOE S&P 500 Short-Term Volatility Index (VXST) at 10.94, compared to its 50-day moving average of 12.38.
VXST is a market-based gauge of expectations of 9-day stks.co/r0CS2

iPath S&P 500 VIX Short-Term Futures (VXX) is recently up 6c to 27.87

CBOE Volatility Index (VIX) closed at 11.76, compared to its 10-day moving average of 13.06 and its 50-day moving average of 12.76. cboe.com/VIX

SPDR S&P 500 ETF Trust (SPY) is recently up 31c to $199.27 ahead of Janet Yellen’s on the timing of interest rate policy.

Calls with increasing volume at CBOE:

SPY    8/22/2014  200  27K contracts
AAPL  8/22/2014  101 14K
BAC    9/20/2014   16  12K
VXX  10/18/2014   40  10K
EWZ   9/20/2014   54  10K
IWM     9/5/2014 118  10K

Puts with increasing volume at CBOE:
SPY     8/29/14 199 21K contracts
INTC 10/18/14 33     8K
VXX     9/20/14 30     8K

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Weekly Weekly’s for 8.21.14

Gap, GameStop and Salesforce.com all report earnings after the bell and traders are setting up now in weekly options.
I’m Angela Miles covering Weeklys set to expire this Friday and next Friday.

I’m falling into the Gap to start this report. Some traders are using call spread strategies as an earnings play on GPS. As the stock trades today around $43 there are 43 calls active. The straddle suggests GPS will move 3.5% either up or down.

Gamestop is also very much in play. The stock is trading around $41 and put action is heavy. The most active strikes in put contracts are 37.5, 38 and 41. It’s possible some traders are long the stock and want to purchase puts in the event the stock tumbles on earnings. The straddle is pumped up and predicts a move of around 7%.
Salesforce.com (~$56) could become a force on earnings. The 56 strike straddle suggests a 5.6% move. Last year the straddle priced in around 7%. Out of the money calls are in demand at the 60 strike going into tonight’s earnings. The 49 puts have seen some activity. CRM tends to attract big options trading on earnings.

Next week in earnings its Best Buy on Tuesday and traders are already stepping into to buy calls options contracts in the 29 and 31 lines. A sign they are feeling slightly more bullish than bearish about the retailer.

Among mighty movers this week:

Apple traded to a new high this week. In the options market today traders are still coming for calls. AAPL calls had aggressive action all week. Next week the call buyers persist in the 100 and 101 strikes and 102 strike calls for next week.  Although there are fair among put buyers at the 99 strike for next week as well..

Hewlett Packard is still getting some fallout. HPQ reported a revenue surprise and a profit drop. Calls are active this week and next week in the weeklys at the 35.5 and $36 strikes. HPQ popped up $1 as the tech giant reports better than expected sales of tablets and computers.

Tesla still wants to zoom higher and traders are going along for the ride. TSLA is trading $258 and in the options market, traders are rolling positions from this week’s weeklys into next week to the 260 call strike. There is also some put positioning at the 250 put line.

SPX is generating interesting action in the out of the money calls and puts. There are put players all the way down to 1,900 and call buyers in the 2,000 strike. The wide range could be based on the Fed Head Symposium happening this weekend in Jackson Hole.  Fed Chair Janet Yellen Delivers her speech Friday.

That’s it for now. Thank you for watching. Twitter: AngieMiles

CBOE Mid-Day Update 8.21.14

Volatility as an asset class

Bank of America (BAC) is recently up 39c to $15.91 on paying a $16.65B settlement with DOJ. August 8/27/14 call option implied volatility of 21, September is at 16, October is at 15; compared to its 26-week average of 23.

Auxilium (AUXL) is recently up 63c to $18.40 after announces positive data from Phase 2a study of CCH with cellulite. September call option implied volatility is at 31, December 36; compared to its 26-week average of 44.

Dollar Tree (DLTR) is recently down 79c to $54.27 on lowering FY14 EPS guidance. September call option implied volatility is at 21, January is at 20; compared to its 26-week average of 20.

Active calls at CBOE; AAPL 8/22/14 100 & 100, C Jan 55, HPQ 8/29/14 36

Active puts at CBOE; AAPL 8/22/14 100, RIG Jan 30 & 35, HTZ Jan 27, ABX Sep 18

Actives at CBOE:  AAPL HPQ HTZ TSLA BAC NFLX RIG C

Stocks with increasing volume @ CBOE: RIG CRM MRVL

CBOE DJIA BuyWrite Index (BXD) up 23c to 269.38, compared to its 50-day moving average of 267.88 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 6c to 11.84. VIX August 14 and 15 calls are active on 39K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 1.1% to 28.01

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 3.1% to 11.17; compared to its 10-day moving average of 12.90. stks.co/r0CS2
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Blogging Options: CBOE Morning Update 8.21.14

European shares higher, as are most Asian stocks.  Oil and gold continue slide lower, grain prices increase overnight.  Weekly Jobless Claims fall below 300K to 298K, as expected. Jackson Hole comments will start trickling out today, Ms. Yellen talks tomorrow. Several economic numbers tomorrow at market opening.  Volatility as an asset class

Hewlett-Packard (HPQ) is flat at $35.12 in the preopen on better than expected Q3 revenue. August weekly call option implied volatility is at 99, September is at 28, October is at 27, January is at 24; compared to its 26-week average of 28.

L Brands (LB) is indicated higher in the preopen on inline Q3 and guidance September call option implied volatility is at 22, October is at 20, January is at 21; compared to its 26-week average of 23.

Sears Holdings (SHLD) is down $1.85 to $34.10 in the preopen on a large Q2 loss as revenue and margins decline. August weekly call option implied volatility is at 129, September is at 58, December is at 46, March is at 46; compared to its 26-week average of 55.

Options expected to be active @ CBOE: HPQ SHLD HTZ HRL LB FDO DG

CBOE SKEW INDEX (SKEW) at 135.46, compared to its 50-day MA of 133.22. 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 1101.62 compared to its 10-day moving average of 1089.29 cboe.com/BXM

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CBOE Mid-Day Update 8.20.14

Volatility as an asset class

International Rectifier (IRF) is recently up $12.60 to $39.15 on Infineon Technologies (IFNNY) acquiring for $40 per share in an all-cash transaction valued at approximately $3B. September and October option implied volatility of 17 is below its 26-week average of 34.

Staples (SPLS) is recently down 34c to $11.28 after the office product retailer reported Q2 profit and sales decreased and plans to close underperforming stores. September call option implied volatility is at 23, December is at 26.

Apple (AAPL) is recently up 26c to $100.78. August weekly 100 and 101 calls are active on total volume of 599K contracts at the CBOE. AAPL 8/27/14 call option implied volatility is at cboe18, September and October is at 23; compared to its 26-week average of 25.

VIX methodology for Apple (VXAPL) up 0.6% to 25.26; compared to its 50-day moving average of 25.03.

Actives at CBOE:  AAPL HTZ PBR GILD TSLA TWTR NFLX AMZN

Stocks with increasing volume @ CBOE: IFNNY IRF FL SHLD GPS CRM INTU

CBOE DJIA BuyWrite Index (BXD) up 12c to 268.95, compared to its 50-day moving average of 267.84 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 16c to 12.05. VIX August 14, 15, 17, 20, 22 and 30 calls are active on 444K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 2% to 28.04
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Quantifying VIX Contango and Backwardation

I’m in the process of updating different VIX related charts and statistics for next week’s three day VIX webcast series. I realized it has been a while since I addressed the topic of VIX contango and backwardation.   For those unfamiliar with these terms, a picture is worth a thousand words. The term structure illustration below shows a textbook example of what contango and backwardation are all about.

Contango Fixed

Typically a term structure chart created using VIX futures looks more like the blue contango line above where the futures prices are higher as there are more days left to expiration.  In times of increased VIX the term structure takes on the form that looks a bit more like backwardation where the futures prices are lower than the spot index. The financial engineer in me went to work and I came up with a method of quantifying the shape.

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Blogging Options: CBOE Morning Update 8.20.14

Quiet pre-opening.  Eyes on any comments out of Jackson Hole. August VIX Settlement levels released after the opening today.  Staples and American Eagle shares active, TSLA off $2.75.  Petsmart says it is looking to maximize shareholder value pushes implied volatility higher. Volatility as an asset class:

Hertz (HTZ) is down $4.16 to $27.25 in the premarket on the withdrawal of FY14 financial guidance. Overall option implied volatility of 37 is its 26-week average.

Lowe’s (LOW) is down $1.52 to $50 after lower guidance as Q2 results top expectations. September call option implied volatility is at 22, October is at 20, January is at 19; compared to its 26-week average of 21.

Youku Tudou (YOKU) is down $1.62 to $19.90 in the premarket after the internet television company in the People’s Republic of China reported a weaker than expected Q2 earnings.  August weekly call option implied volatility is at 74, September is at 57, December is at 53; compared to its 26-week average of 60.

Options expected to be active @ CBOE: HTZ LOW FOLD SPLS YOKU PETM

CBOE Volatility Index (VIX) closed at 12.21, compared to its 10-day moving average of 14.01 and its 50-day moving average of 12.65. cboe.com/VIX

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CBOE Mid-Day Update

Volatility as an asset class

SPDR Homebuilder (XHB) is recently up 65c to $31.79 on July Housing starts were 1093K vs 1000K.  September call option implied volatility is at 16, December is at 17; compared to its 26-week average of 20.

TJX (TJX) is recently up $4.62 to $58.55 after reporting better than expected Q2 results and raised in full-year outlook. September call option implied volatility is at 18, October is at 17, January is at 16; compared to its 26-week average of 20 according to Track Data

Aeropostale (ARO) is recently up 75c to $3.98 after announcing that its longtime former CEO, Julian Geiger, would return to the role. September call option implied volatility is at 63, October is at 60, January is at 65; compared to its 26-week average of 58.

VIX methodology for Apple (VXAPL) up 0.4% to 25.35; compared to its 50-day moving average of 24.97 as AAPL trades above $100.

Actives at CBOE:  AAPL GILD TSLA TWTR NFLX PBR AMZN HD

Stocks with increasing volume @ CBOE: JD RFMD NGD ARO AEO

CBOE DJIA BuyWrite Index (BXD) up 39c to 268.86, compared to its 50-day moving average of 267.81 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 34c to 11.98. VIX August 13, 14 calls and 12, 15 put are active on 435K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 1.1% to 27.49

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 8.9% to 11; compared to its 10-day moving average of 14. stks.co/r0CS2

CBOE DJIA Volatility Index (VXD) down 3.7% to 11.05; compared to its 10-day moving average of 13.23.

CBOE Nasdaq-100 Volatility Index (VXN) down 1.6% to 12.65; compared to its 50-day moving average of 13.78.

S&P 100 Options (OEX) recently is recently up $3.50 to 879.18 following the Consumer Price Index report showing that consumer prices rose 0.1% overall in the month of July versus expectations of an increase of 0.1%.

12 Key Stats Re: VIX Index

In the recent August 16 Striking Price column in Barron’s, Steven Sears authored a piece entitled “A New Vision of VIX” that noted –

 “Over the past 21 years, the CBOE Volatility Index, or VIX, has emerged as one of Wall Street’s most watched sentiment indicators. …Krag “Buzz” Gregory, a Goldman strategist, found that U.S. consumer spending, manufacturing, and employment data explain 57% of the variability in VIX levels back to 2000.  …Gregory told clients that the options market is engaged in a tug of war between a strengthening U.S. economy and menacing geopolitical concerns. Against this battle between the constructive and destructive, the VIX has averaged 16.3 in August, versus a year-to-date average of 13.7. …”

The column noted that there are “widespread worries that investors are too complacent or somehow missing the larger picture.” Some observers have questioned whether the CBOE Volatility Index® (VIX®) has been low in light of overseas tensions, while other commenters have noted that the historic volatility of the S&P 500® Index generally has been even lower than the VIX Index throughout most of this year.

We see and hear many comments and questions on the popular VIX Index and related products; here are twelve key stats –

 RECENT STATS re: VIX Index

  •  13.6 – Average daily closing value for VIX in 2014 (year-to-date)
  • 10.4 – Average historic volatility for S&P 500 (SPX) Index in 2014 (YTD, see graph)
  • 12.32 – VIX Index closing value on Aug. 18
  • 17.30 – settlement value for VIX April 2015 futures on Aug. 18

LONG-TERM STATS re: Daily Closing Values of VIX (Jan. 1990 – Aug. 15, 2014)

  •  18.28 – Median daily closing value of VIX
  • 20.03 – Average daily closing value of VIX
  • 80.86 – Highest daily closing value of VIX (on Nov. 20, 2008)
  •   9.31  – Lowest daily closing value of VIX (on Dec. 22, 1993)

VOLUME-RELATED STATS

  • 0.36 – put/call ratio for VIX options in 2014 (through July), with total volume of 25,951,739 VIX put options, and 71,454,856 VIX call options (buyers of VIX call options have the potential to profit if VIX futures prices rise sharply)
  • 640,264 – average daily volume for VIX options this month (through August 15)
  • 292,683 – average daily volume for VIX futures this month (through August 15)
  • 159,498 - average daily volume for VIX futures in 2013 (the highest total for any full calendar year)

MM VIX Aug 18

For those investors who wonder if VIX is “too low” or “too high” relative to their own views of the market, VIX futures and options now offer investable instruments to implement investment strategies. You can visit www.cboe.com/VIX to learn more about investing in VIX futures and options.

The Mental Part of Trading

One of the things option traders and stock traders struggle with is the mental part of the game.  There is NOBODY out there who trades each day that is unaffected by the emotions displayed by the markets.  That is because the market, price action and volume are a sea of emotions displayed on a chart.  We can visibly see moments of fear and greed in the minds of players just by seeing the green and red bars (buys and sells) in price movements.  The parameters do not change.  Think of it as a football field, with fear on one side and greed on the other.  We are all trying to move up/down the field with the minimal amount of emotion, but we are often pulled to one sideline or the other for various reasons.

But to be successful we need to overcome the need to be 100% informed.  Much of what the market presents us with of course is uncertainty.  Nobody can tell the future with 100% accuracy, hence the right side of the chart is a mystery.  We are constantly looking for clues and listening to anyone we deem smarter than us who might make our job a bit easier.  Do we listen to Carl Icahn who says a big correction is coming?   We already KNOW that will happen some day, but do we act when he says it?  Is Icahn the most accurate market timer?  Does it make sense to follow a David Tepper or a George Soros when they say one day ‘do not be too long now’ and then a month later ‘I didn’t really mean that’?

When option trading, I need to study the charts and listen to the market, which will guide me to better results.  While news is important to understand and digest, we have to put it in context and relevance.  More importantly, how is the market reacting to the news at certain moments in time.  Take the first week in August for example.  After getting pasted for about 40 handles lower on HUGE volume Aug 7, there was some news that dropped futures overnight another 10-13 handles.  It appeared the SPX 500 would open under 1900 for the first time since it first crossed it in late May.

But alas, the markets were vastly oversold at that point, sentiment was as bearish as could be, VIX was up nearly 40% in a week and put/call ratios clocked in with more than a 1 reading for a few days.  Basically, conditions that could not last too long as the rubber band was stretched back too far.  As a contrarian looking at trends, I saw that the odds favored a turn up – swift and strong.  Markets were falling on bad and good news, it didn’t really matter, and were pasted in a short 4-6 sessions, if you were long stocks or call options you started questioning yourself, because if this is the ‘end’, who wants to be left holding the bag?   Yet, with the markets so oversold, the news overnight had a negligible effect on the 8th, and rallied sharply (coincidentally, off the 100 ma, which had been a great spot to buy modest 3-4% pullbacks this year – see the chart).

B L spx 081614

Point being – the NEWS was important but understanding the market conditions was MORE important, because just as you might have thought this market would fall apart (everyone one on CNBC seemed to think this way), you would have been badly burned if you played the downside last week.  How would this effect your mindset?  Frustrated?  Your head would have exploded.   I suggest paying attention to the message of the markets, be open-minded to conditions and allow yourself a chance to be successful.  I say it often, option trading is not a game of perfect.  But prepare yourself and your mind for battle and you can more frequently be on the winning side.

Blogging Options: CBOE Morning Update 8.19.14

CPI & Core CPI each rose 0.1% in July, in line with expectations.  Housing starts jumped, thanks to 33% surge in building of rental property.  Permits rose sharply but that data starting to be ignored by traders and investors.  10-year under 2.37%.  Oil & metals flat, Ag’s lower on nice summer weather in growing areas.  Good volume day yesterday, especially in SPX options & Vix Futures.   Volatility as an asset class:

Home Depot (HD) is up $3.06 to $86.65 in the premarket on Q2 results, raised guidance, stock buybacks, and healthy traffic/tickets. August weekly call option implied volatility is at 34, September is at 15, January is at 16; compared to its 26-week average of 18.

Dick’s Sporting (DKS) is up $2.09 to $45.60  on inline Q2 results and backing its outlook for the year. September call option implied volatility is at 32, September is at 35, December is at 30; compared to its 26-week average of 25.

Urban Outfitters (URBN) is up $0.38 to $37.39 in the premarket after retailer reported in-line Q2 EPS. September call option implied volatility is at 30, December is at 27; compared to its 26-week average of 27.

Options expected to be active @ CBOE: QQQ SPY RDEN DKS URBN HD TJX MDT

CBOE SKEW INDEX (SKEW) at 138.46, compared to its 50-day MA of 132.73. 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

Walking A Fine Line Here – Weekly Market Outlook

In retrospect, last week’s bounce wasn’t have been a total surprise.  Most of the market’s major indices were approaching major support levels, as we’ve previously discussed.  Will the momentum continue or will the bearish volatility return?

We’ll look into that, right after a quick look at all of last week’s and this week’s economic numbers.

Economic Data

Last week’s economic news didn’t get us started on the right foot.  The moderate expectations for retail sales growth report ended up being too high.

We didn’t hear any other significant news until Friday, when we got a double dose of announcements.

First we heard about July’s producer price inflation rate.  Although this figure isn’t the more important consumer price inflation data due this week, the PPI data can be something of an omen of what’s to come on the consumer front. It doesn’t appear we have much to worry about, however. As of last month, the annualized producer price inflation rate stands at 1.7%. We may once again want to be more worried about deflation.

Finally – and definitely most importantly – on Friday we heard about the nation’s capacity utilization rate and its industrial productivity.  Both were up in July.  Capacity utilization ramped up from 79.1% to 79.2%, while productivity grew by 0.4%.  As long as these two data sets are rising, the country remains in a state of economic expansion.  That’s good for the long-term market, even if it doesn’t smooth out all the short-term bumps.

Everything else is on the grid.

Economic Calendar

ph 81714-econ-data

Source:  Briefing.com

More

CBOE Mid-Day Update 8.18.14

Volatility as an asset class

Google (GOOG) is recently up $10.65 to $584.20 after acquiring digital photo analysis startup Jetpac. VIX methodology for Google (VXGOG) up 2.1% to 17.25; compared to its 50-day moving average of 23.60.

IBM (IBM) is recently up $2.24 to $189.57 on U.S. regulatory approval of x86 server sale to Lenovo. VIX methodology for IBM (VXIBM) down 3% to 13.52; compared to its 50-day moving average of 18.61.

Apple (AAPL) is recently up $1 to $98.98 on December quarter EPS likely to beat by +10%, _DSC0068says RBC Capital. VIX methodology for Apple (VXAPL) down 3.3% to 25.20; compared to its 50-day moving average of 24.90.

Actives at CBOE:  AAPL GILD TSLA TWTR NFLX PBR AMZN HTZ

Stocks with increasing volume @ CBOE: AFL LCI MOBI TRP TASR AMRN SNSS EGHT CSTM NEU

CBOE DJIA BuyWrite Index (BXD) up 1.48 to 268.34, compared to its 50-day moving average of 267.79 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 73c to 12.42. VIX August 13, 15, 16 and 17 calls are active on 278K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 3.5% to 27.88
More

Blogging Options: CBOE Morning Update 8.18.14

Stocks open higher on lack of news out of Ukraine, SPX up 11 points.  Good volume on Expiration Friday, as as 22.6mm contracts trade.  SPX with ~1.2mm, VIX showed 870K.  VIX futures very active at 345K.  Oil lower, 10-year 2.37%.  Homebuilders showed optimism in recent report but FNMA said sales will slow in last half of year.   Volatility as an asset class:

Tesla Motors (TSLA) is up $1.49 to $263.50 on CEO warns warranty change to have ‘moderately negative’ EPS impact. August weekly call option implied volatility is at 40, September is at 42, December is at 41; compared to its 26-week average of 50.

Kandi Technologies (KNDI) is up 32c to $18.05,  the number of electric cars produced in China jumped ~70% in the first seven months of the year, versus last year, to about 14,000, according to Xinhua. September call option implied volatility is at 73, December is at 72, January is at 74; compared to its 26-week average of 87.

‘Gang of Four’ overall option implied volatility; AAPL 25 AMZN 25 FB 28 GOOG 20.

Options expected to be active @ CBOE:  FDO DG DLTR URBN HD LOW TJX MDT

CBOE SKEW INDEX (SKEW) at 135.42, compared to its 50-day MA of 132.42. 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

Free VIX Webcast Series – Aug 25 – 27

In just over one week The Options Institute at CBOE will be offering three free webcasts discussing different aspects of the CBOE Volatility Index or VIX. On Monday August 25th I’ll start out with the basics of volatility indexes and introducing exactly what VIX is measuring.  In addition we will look at how the index has historically behaved relative to the S&P 500. The following day I will discuss VIX futures and options which are two of the most common methods of gaining exposure to market volatility. Finally on Wednesday we will wrap things up on Wednesday with a discussion of trades that are appropriate for any market outlook.

Here is a more extensive description of each webcast –

Monday 8/25/2014 – Noon – Introduction to VIX – What is VIX? – In this webcast which kicks off three days of VIX education, Russell Rhoads, CFA and Senior Instructor from The Options Institute will introduce the CBOE Volatility Index, commonly known as VIX. Whether you are relative new to option and volatility trading or have been trading VIX futures and options for years and want a refresher on how VIX behaves this webcast will be of benefit to you. Russell will explain how VIX is calculated, the unique pricing relationship that VIX has with the S&P 500® Index, and how broad based index implied volatility behaves differently than other types of market volatility.

Tuesday 8/26/2014 – Noon – Volatility Trading with VIX Futures and Options – In Part 2 of the VIX education series of webcasts Russell Rhoads, CFA from The Options Institute will introduce two of the most common instruments used to gain exposure to expected market volatility. VIX futures will be introduced with a discussion of just how these instruments trade relative to VIX. Following up on VIX futures Russell will introduce and discuss the unique price behavior of VIX options.

Wednesday 8/27/2014 – Noon – Bullish, Bearish, and Neutral Trading with VIX Futures and Options – in the final part of our VIX education series Russell Rhoads, CFA will cover trades that make sense for either a bullish, bearish or neutral outlook for expected market volatility. Russell will show how traders take an outlook and translate it into a trade using VIX futures, VIX options, or even a combination of both.

To attend one, two or even all three of these free webcasts you can register at www.cboe.com/webcasts

Three Gray Swans Week of 8/18 – 8/22

The earnings calendar is light so this week is all about the economy. We get a read on inflation, a look into the mind of the Fed, and then hear from the Fed to finish out the week.

Consumer Price Index – Tuesday Morning Before the Open

An hour before the market opens the Bureau of Labor Statistics will release the Consumer Price Report (CPI). This is a measure on inflation and it is still in a safety zone relative to the Fed taking action to keep prices under control. The expectation is for a rise of 0.1%. A number that comes in significantly higher could have a negative impact on the equity market.

FOMC Minutes from July 30th – Wednesday Afternoon

Two hours before the stock market closes minutes from the two day FOMC meeting that concluded on July 30th. This report will be parsed for any indication of what the voting members are concerned about of focusing on. The next Fed meeting is another two day affair that concludes September 17th and is followed by a press conference by Janet Yellen.

Janet Yellen Jackson Hole Speech – Friday Morning

At 10:00 am New York time Janet Yellen is scheduled to speak at the annual Fed gathering in Jackson Hole. The title of the discussion is “Labor Markets” which has historically been an area of interest for this Fed Chair. The market will be closely focused on any insight into the timing of any changes in Fed policy, but may be a bit disappointed at the lack of useful information from the speech as she will not be fielding any questions on Friday.

This Week in VIX – 8/15/2014

The majority of the price charts I use for these blogs look just like the chart below this week. Trending down from day to day with a little bit of excitement this past Friday. An S&P 500 rebound from the previous week put pressure on volatility along with a fairly tame earnings and economic calendar over the next few weeks. The only market concern on Friday was any potential escalation of global conflict.

VIX PA

There are two trading days remaining until August VIX expiration and the futures went out Friday at only a 0.10 premium relative to the index. The VXN and RVX futures were at a much greater premium which is interesting since VIX usually reacts more to macro situations such as war.

VIX FUT

This coming Wednesday is August VIX expiration as this is one of the four months of the year where volatility futures and option settle the week after standard option expiration. On Thursday VIX closed at 12.42 and the August VIX future closed at 12.95. Someone came in mid-morning Thursday and did a trade that appears to be hoping for a pop before August expiration. They bought 4,800 of the VIX Aug 15 Calls for 0.19 and sold 4,800 of the VIX Aug 16 Calls for 0.11 and a net cost of 0.08. A VIX spike and August settlement at 16.00 or higher would result in a profit of 0.92 for this trade. The payoff diagram below tells the whole story –

VIX PO

This Week in Volatility Indexes and ETPs – 8/15/2014

Volatility came back down to what is considered ‘normal’ levels for 2014, but there was a slight twist. Note that on Friday VXST closed at a slight premium relative to VIX. I was hosting a VIP tour in the last hour of trading on Friday and things were pretty active as the S&P 500 worked back up to about unchanged after a pretty interesting day. I was talking to one of the guys in the SPX Pit and commented, “It feels like no one wants to go home short volatility this weekend.” His response, “Nobody wants any positions over this weekend.” So far the shooting in Ukraine hasn’t increased, but the weekend is still not over.

VXST VIX VXV VXMT Curve

The long oriented exchange traded products took it on the chin last week as the August VIX future dropped 17% and September was down 14%.   The long products are very heavily weighted to September as August futures come off the board this week.

Index and Options Table

Finally we can take a quick look at a bullish VXX option trade that I saw on Thursday. There was a seller of over 24,000 VXX Oct 25 Puts that took in 0.68. VXX finished the week at 28.88 so this trader expects a couple of bullish moves out of VXX over the next couple of months. I do not agree or disagree, but will note that September and October are months that have people a little more on edge based on history.

This Week in VXST – 8/15/2014

VXST was displayed the expected amount of calm over a week where the S&P 500 rose over 1%. The only real excitement came via a little noise on Friday morning. After a bit of a swoon and by the end of the day the S&P 500 was almost unchanged. I guess the time frame for recovery from international events is now down from a day or two and can be measured in hours.

VXST PA

The VXST curve moved in sync with the index and shifted lower. The September 10th contract started trading on Thursday and I was really looking forward to seeing how that contract was priced relative to the other futures. The monthly employment number that always catches the attention of the investment world comes out on September 5th so the relative pricing of the September 10th contract can be an indication of how the market is discounting the risk of a big move around this economic report. It appears from the curve below that traders are more concerned with the last few weeks of summer than what may come from the jobs report.

VXST FUT

This Week in Gold and Oil Volatility – 8/15/2014

The price action for the oil and gold markets, along with their respective volatility indexes is inerrable when the state of the world is taken into consideration. Even a looming shooting war between Russia and Ukraine doesn’t do much for the price of oil, gold, or implied volatility of either markets.

Friday things started to get a bit interesting, but died off as the afternoon approached. Note that GVZ tried to reach for higher levels on the week, but just couldn’t hold on.

GVZ PA

More

This Week in CBOE Strategy Indexes – 8/15/2014

This past Friday was expiration date for old school standard option contracts. Expiration also means it was the day to retire August contracts and roll into September SPX option positions in the various strategy indexes quoted by CBOE. August SPX settlement came in at 1963.31. BXM was short the SPX Aug 1975 Call and BXY was short the SPX Aug 2010 Call both of which expired out of the money. On July 18 the PUT strategy shorted the SPX Aug 1970 Put at 20.4003. This option was 6.69 in the money based on August SPX settlement.

The reference price for determining the options to be sold for the three strategies was determined mid-morning on Friday. This just happened to occur when news of a potential escalation in hostilities in Ukraine was impacting the markets. The reference price was 1951.40 so the PUT strategy sold SPX Sep 1950 Puts at 29.58572, BXM sold SPX Sep 1955 Calls at 21.8101, and BXY sold the out of the money SPX Sep 1995 Call at 4.70.

The charts below show it was a pretty good week for all three strategies as well as the S&P 500 –

STRAT PA

PUT benefitted from the strong week as it was the only strategy that began the week with an option that was deeply in the money. That combined with timely execution of the strategy resulted in PUT having a very strong week and also overtaking the performance of the S&P 500 total return in 2014. BXM and BXY also had a good week, but lost a little ground to buying and holding the S&P 500.

STRAT TABLE

The Weekly Options News Roundup – 8/15/2014

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 the New Tweet
Twitter has become an invaluable tool for investors seeking market insights and near real-time financial data.  The Wall Street Journal tabbed 50 financial Twitter feeds as “must follows” for investors, including @CBOE_Data.

“50 Financial Twitter Feeds You Must Follow” – Katie Martin, Wall Street Journal
http://on.wsj.com/1sYt3mu

VIX Vapo Rub
Although the VIX Index continues to remain below its historical average, The Options Institute’s Russell Rhoads assures us that the VIX is behaving just fine.  In fact, at these current levels, many top investors believe that the VIX can be the vapo rub that soothes your portfolio.

“A Historical Perspective on Current VIX Levels” – Russell Rhoads, CBOE Options Hub
http://bit.ly/1oIZZsZ

“Exclusive: Russell Rhoads on Volatility, VIX Options” – Louis Bedigian, Benzinga
http://bit.ly/1l0pFXk

“Barron’s Market Week iPad Deco: Volatility has returned” – Barron’s
http://on.barrons.com/1ppzjSQ

VIDEO
“Volatility 411” – Michael Palmer, CBOE TV
http://bit.ly/XnmWwB

Go East, Young Man
Since their creation by CBOE forty one years ago, options have experienced spectacular growth here in the U.S. and around the world.  Now, options are headed to the Far East, as China prepares to open their first options markets, possibly as soon as this month.

“Chinese options could launch this month” – William Mitting, FOW
http://bit.ly/1vN3o3E

 

 

CBOE Risk Management Conference – RMC Europe in Three Weeks

CBOE’s Risk Management Conference (RMC) Europe is quickly approaching.  As you know, it will be held at the Powerscourt Hotel, County Wicklow, Ireland (near Enniskerry – 20 minutes outside Dublin), from September 3 – 5, 2014.   That’s in three weeks!  We published the first two day’s agendas earlier this week, here is the Day Three Agenda:

7:15am – 8:00am       Buffet Breakfast

 8:00am – 9:00am      Global Equity Derivatives Trading Themes – dislocations and opportunities for a diverse investor base

Pete Clarke, Global Head of Equity Derivatives Strategy, UBS

9:00am – 9:15am          Session Break

9:15am – 10:30am       You have a choice of Two Tracks

Track One

Cross Asset Volatility  Strategies for Tail Hedging and Alpha Generation  

-          Volatility of non-equity asset classes, including interest rate volatility indexes, VXTYN, MOVE and others

-          Determining optimal hedges for macro portfolios

-          Relative value trading ideas

-          In practice: examples and implementation

Yoshiki Obayashi, Founder, Applied Academics, LLC

Anger Serrat, Partner & Chief Strategist, Capula Investment Managementist

Track Two

Management of Asian and Cliquet Option Exposures for Insurance Companies

-          Design of equity linked insurance products

-          How average rate options and forward starting options are priced and traded

-          Hedging exposures with listed and OTC options

-          Implications of regulations on the design and management of equity-linked insurance products

Pin Chung, Chief Financial Officer and CIO, R&V International Business Services, Ltd.

Rachid Lassoued, head of financial Engineering, Bloomberg

 10:30am – 11:00am   Session Break

11:00am – 12:15pm there are also Two Tracks to choose from

Track One

Structured Products & Their Impact on Markets: What You Need to Know

-          Structured products around the world: who and what

-          How the market is evolving: drivers and outlook

-          A significant impact of the traditionalvol/skew relation

-          The other parameters: Repo and dividends

-          Source of Opportunities

Delphine Leblond-Limpalaer, Equity Derivatives Specialist, Societe Generale

Peter Murphy, Founder, P.M. Murphy, Ltd.

Track Two

Correlation and Dispersion: What They Mean and How to Trade Them

-          The role of correlations and dispersion in asset allocation decision and in measuring opportunity

-          Analyzing Opportunities with alternative correlation measures

-          Selective dispersion: creating an affordable long volatility exposure in an equity

-          Practical examples of how trading strategies are implemented and insights into trading implications

Daniel Danon, Senior VP, Portfolio Management & Structuring, Assenagon Asset management

Tim Edwards, Director of Index Investment Strategy, S&P Dow Jones Indices

 12:15pm              End of Conference Sessions

1:00pm                 Golf Tournament

7:00pm                 Dinner and Networking

There is limited space available at CBOE RMC Europe.  For more information about the full agenda, topics, speakers and registration forms, go to http://www.cboermceurope.com/agenda

We will be reporting from each presentation at Powerscourt with updates, Tweets, Blogs, CBOETV, etc. and will be talking to presenters and attendees.   To follow the conference go to cboermceurope.com.

Go raibh maith agat (thank you).gougane-barra-hotel-332x500

 

 

CBOE Mid-Day Update 8.15.14

Volatility as an asset class

Applied Materials (AMAT) is recently up 94c to $22.09 after the semiconductor equipment maker posted strong Q3 profit, adjusted gross margin, and order growth. August weekly call option implied volatility is at 35, September is at 30, October and January is at 31; compared to its 26-week average of 33.

Nordstrom (JWN) is recently down $2.86 to $65.83 after narrowing FY14 EPS view to $3.80-$3.90 from $3.75-$3.90. September call option implied volatility is at 17, October and January is at 19; compared to its 26-week average of 23.

Autodesk (ADSK) is recently down $3.56 to $52.72 after hitting a fresh lifetime high on raising FY15 revenue growth view to 7%-9%. September call option implied volatility is at 27, October is at 30, January is at 31; compared to its 26-week average of 35.

Actives at CBOE:  AAPL GILD TSLA TWTR NFLX C KMI RSH PBR AMZN OXY KMI

Stocks with increasing volume @ CBOE: UVXY IRWD ACM CECO TCK JAH MNST AVB EDU DAR

CBOE DJIA BuyWrite Index (BXD) at 267.82, compared to its 50-day moving average of 267.79 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 1.89 to 14.31. VIX August 14, 15, 16, 17, 18 and 19 calls are active on 575K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 4.6% to 30.22
More

Weekly Market Commentary 8.15.14

After an ugly day on Thursday, August 7th, followed by a further
decline of 13 $SPX points during the overnight session, stocks have rallied steadily.  Most observers are saying that the correction is over and that the bulls are back in charge.  lm 8 15 spxThat may be true, but the evidence is not completely in favor of the bulls, yet.       For example, this whole week-long rally has only managed to pull $SPX back to its declining 20-day moving average (see Figure 1).  So, the chart of $SPX has not resumed a bullish stance at this time.

Equity-only put-call ratios are also remaining in a bearish mode. As a result, both of these ratios are moving higher, and they remain on sell signals.

Market breadth, which had been rather dismal throughout the month of July has improved considerably in the past two weeks.  As a result, both breadth indicators are on buy signals.

Finally, there is volatility.  The volatility indices ($VXST, $VIX, $VXV) have moved sharply in the past couple of weeks.  Most importantly, $VIX completed a powerful spike peak buy signal as of last Monday.      lm 8 15 vix

In summary, the market is at the crossroads right now.  Two
indicators are positive: breadth and volatility, while two are negative: the $SPX chart and the equity-only put-call ratios.  We remain cautious until  there is more improvment in these indicators.

Blogging Options: CBOE Morning Update 8.15.14

August Option Expiration today.  Empire State Manufacturing with huge miss – 14.69 (not a good number) versus previous reading of 25.6.   July PPI rose 0.1% as energy prices eased (0.4% June), X-Food & Energy up 0.2%.  Gorgeous weather in Chicago, train empty.  More info on CBOE Risk Management Conference Europe later today.  Volatility as an asset class

Monster Beverage (MNST) is up $18.92 to $90.57 in the premarket on Coca-Cola (KO) takes 16.7% stake for $2.15B.  Overall option implied volatility of 30 is below its 26-week average of 34.

J.C. Penney (JCP) is up 22c to $9.96 in the preopen on solid Q2 and outlook/ August call option implied volatility is at 113, September is at 56, November is at 52, January is at 49; compared to its 26-week average of 60.

Options expected to be active @ CBOE:  SINA JCP ADSK MNST AMAT SUNE WB KO MNST SUNE GCI JWN CHTR

CBOE Volatility Index (VIX) closed at 12.42, compared to its 10-day moving average of 15.15 and its 50-day moving average of 12.57. cboe.com/VIX
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CBOE Risk Management Europe – Day Two Agenda

RMC Europe is only three weeks away. RMC’s Day One Agenda was mentioned here yesterday. The following is the tentative Day Two Agenda.
Thursday, 4 September 2014

8:00am          Conference Registration and Buffet Breakfast

9:00am -9:15am        
Edward T. Tilly, Chief Executive Officer, CBOE Holdings, Inc.
Welcome and CBOE Update

9:15am -10:15am
Keynote Speaker: David Hauner, Head of EEMEA Cross-Asset Strategy and Economics, Bank of America Merrill Lynch

Emerging Markets: Attractive Investment or Global Systemic Risk?

10:15am -10:45am        Coffee Break

10:45am -11:45am      
 Volatility Regimes and an Analysis of Where we Were, Where we Are and Where we are Going
     Gerry Fowler, Head of Equity & Derivatives Strategy, Global Equities & Commodity Derivatives, BNP Paribas

11:45am  -1:00pm       Lunch and networking

1:00pm -2:00pm       
Panel on Trends in Institutional Options and Volatility Product Usage
Moderator: Robert McGlinchey, Director and Co-founder, EQDerivatives

Jean-Francois Bacmann, Portfolio Manager and Head of Volatility Strategies, Man AHL
Stephen Crewe, Portfolio Manager, Fulcrum Asset Management
                     Jack Hansen, Chief Investment Officer, Parametric Clifton Group
Andrew Rozanov, Former Managing Director, Permal Investment Management

2:00pm-2:15pm       Session Break

                                 Followed by TWO tracks:

 2:15pm -3:30pm   Asset Allocation Rebalancing Using Short Options
Results from an empirical study on the use of SPX options
to implement allocation shifts with market moves
- Case studies on how dynamic rebalancing has been accomplished in practice
                 Dr. Christoph Gort, Partner, SIGLO Capital Advisors
Pav Sethi, Chief Investment Officer, CEO, Gladius Investment Group

3:30pm -3:45pm        Session Break

3:45pm-5:00pm    The Volatility Surface:  Skew and Term-Structure
- Option Pricing Theory vs. the Real World
- How the volatility surface impacts strategy selection & risk measurement
- Trading Skew: how, when and why bother?
               Natasha Jhunjhunwala, Equity Derivatives Product Management, Credit Suisse
Sheldon Natenberg, Co-Director of Education, Chicago Trading Company, LLC

                                                                        OR

2:15pm-3:30pm

          Volatility of Volatility
An analysis of volatility of volatility surfaces, including the VIX of VIX index, ticker VVIX
- Applications for options on VIX and VIX ETPs
- Historical observations and interpretations
- Trading and hedging applications
             Abhinandan Deb, Head of European Equity Derivatives Research, Bank of America Merrill Lynch
Jean-Gabriel Prince, Portfolio Manager, BlackRock

 3:45pm -5:00pm       Listed Derivative Product Design and Trading
- A detailed description of the VIX settlement process
- Weekly futures and options on short term VIX, ticker VXST
- Volatility of non-equity asset classes including interest rate volatility
- Managing volatility trades
               Dominic Salvino, VIX Specialist, Group One, LLC
William Speth, Vice President, Research and Product Development, CBOE

There is still time to register.  The agenda, topics, speakers and registration form can be viewed at  http://www.cboermceurope.com/agenda

  We’re looking forward to seeing you there.

 

Next Week in Weeklys – 8/15/2014

There were no new additions to the Weeklys list so all we have to talk about is earnings next week. We are in a lull as far as the earnings cycle goes and the calendar of stocks with Weeklys reporting next week is mostly dominated by retailers. Retailers are more prone to reporting results based on quarters that end in January, April, July, and October. This anomaly related to retailers is due to December being a pretty busy month for the sector.

Earnings

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The Fed, Swift Market Moves, and Geopolitical Issues are Testing Market Confidence

Before we jump into a discussion about market confidence, let’s make one thing clear: The market was not only fed liquidity by the Federal Reserve over the past 5-6 years, but it was also given a major shot of confidence.

After the 2008/09 financial crisis, there was little reason to get involved with anything equity-related. If you started talking about stocks to any random person on the street, and they would run in the other direction. As the Fed worked hard to drive up investor confidence with assurances, guarantees of assistance, and promises to be more transparent, investors’ appetite for risk increased.

Of course, at some point we knew that the medicine the Fed was so carefully administering was going to have to stop – and that point is drawing ever closer. Investors may soon be as needy and unsteady as drug addicts unless they accept the new world order of “less Fed” and more “normalized market.”

There has been absolutely nothing normal about the markets over the past few years. The biggest abnormality I have noticed is the speed of moves, which tend to mess with everyone’s minds. In the “old days,” big moves could take many days to materialize, allowing time for investors to change their strategies. Today, the markets drop or go up with startling speed, and investors can barely keep up. If they end up on the wrong side, they get trapped. Nothing shakes confidence more than the inability to get out.

The speed issue is a result of high-frequency trading, algorithms, program trading and ETF rebalancing. Moves are exaggerated sometimes as imbalances are corrected. As a result, it is nearly impossible to swing trade – UNLESS you follow longer term trends and have the confidence to stay with it.

This brings us back to the Fed. With taper upon us and talk of raising rates in the air (it was going to happen at some point, so get used to it!), the Fed is slowly removing itself as the big player in the game. The Fed will always have control (as Marty Zweig said, “Don’t fight the Fed!”), but they would like to see a more normalized market with regular cycles that move from peak to trough and back again.

News has its effects on investor and market confidence from day to day, and with less Fed support, nerves get more easily rattled. Lately it’s Russia/Ukraine and Israel/Hamas, but we need to put these conflicts out of our minds and focus on market trends – they show where money is flowing. If investors lose all or most of their market confidence again, this time the Fed will have a hard time restoring it.

Blogging Options: CBOE Morning Update 8.14.14

Weekly Jobless Claims spiked higher to 311k, putting a damper on stock futures.  10-year with a 2.3 handle, 2.395%.  Mr. Putin talking about the area needs calm sounds good to traders and investors. August Option Expiration tomorrow.  Good luck to Chicago’s  Jackie Robinson West in Little League World Series, starting tonight.  Volatility as an asset class:

Cisco (CSCO) is down $0.34 to $24.84 in the premarket on strong Q4 results and the network company’s Q1 earnings outlook missed consensus.  August call option implied volatility is at 57, September is at 24, October is at 22; compared to its 26-week average of 23.

Noodles & Company (NDLS) is $5.67 to $19.54 after reporting Q2 results and “tempering” its FY14 outlook.  August call option implied volatility is at 153, September is at 58, November is at 53, February is at 48; compared to its 26-week average of 43.

Amgen (AMGN) is down $2.76 to $124.58 in the premarket after announcing the Phase 3 Kyprolis FOCUS clinical trial did not meet its primary endpoint. Overall option implied volatility of 21 near its 26-week average of 23.

Options expected to be active @ CBOE:  CSCO NDLS JWN AMGN DANG NTAP WMT VIPS ITMN

CBOE SKEW INDEX (SKEW) at 126.93, below 50-day MA of 131.94. 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 in the Brazilian Markets Yesterday

Before I get criticized for the nature of this blog, I’ll admit it is going to appear pretty cold and heartless. I actually slept on it before deciding to post it.

Yesterday mid-morning there was a plane crash in Brazil that took the life of one of the major candidates for President. The election is in early October and the financial markets have already been bracing for an uncertain outcome. One of the few areas we have witnessed heighted volatility in 2014 has been through the CBOE Brail ETF Volatility Index (VXEWZ).   Despite already being elevated relative to other volatility indexes, it moved up pretty quickly as the news of the plane crash hit the markets. The chart below shows the front month future and spot VXEWZ Index during the trading day.

VXEWZ 5 Min

Note the mid-morning spike and then the gradual move lower throughout the trading day. I show this chart because it is a good representation of how implied volatility may overreact to a market shock and then adjust, usually to a lower level.

CBOE Mid-Day Update 8.13.14

Volatility as an asset class

Amazon.com (AMZN) is recently up $10.26 to $329.50 on Channel Advisor reported Amazon’s July same-store-sales came in at 40.4%, an increase compared to June’s 34.4%. Amazon has increased its year-over-year growth rate every month so far in 2014, which Channel Advisor called a “very impressive performance.”  August call option implied volatility is at 24, September is at 23, October is at 24; compared to its 26-week average of 29.

Deere (DE) is recently down 94c to $85.58 on the heavy machinery company seeing FY14 earnings to be somewhat lower than in 2013, August call option implied volatility is at 19, September and December is at 16; compare to its 26-week average of 18.

Macy’s (M) is recently down $3.38 to $56.38 after the department store operator’s Q2 sales and profits missed expectations. Macy’s also lowered its fiscal year same-store sales growth forecast to 1.5%-2% from its previous 2.5%-3% view.  August call option implied volatility is at 25, September is at 19, January is at 22; compare to its 26-week average of 24.

Actives at CBOE:  AAPL TSLA TWTR PBR AMAT NFLX AMZN

Stocks with increasing volume @ CBOE: KMI NQ CPWR SEAS KATE

CBOE DJIA BuyWrite Index (BXD) is recently up 1.56 to 266.79, compared to its 50-day moving average of 267.77 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) is recently down 92c to 13.21. VIX August 14, 15, 16, 17 and 23 calls are active on 375K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 1.39 to 30.27.
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CBOE Risk Management Europe Conference Draws Near

CBOE’s Risk Management Conference (RMC)  Europe is returning to The Powerscourt Hotel, County Wicklow, Ireland.   It will be held from Wednesday September 3rd to Friday September 5th.  2014.   Participants in 2012 had glowing comments on the beauty of the world famous Powerscourt Hotel, the hospitality of the Irish and the proximity and ease of travel to Dublin, Ireland, only 25 K away.  This year’s conference has drawn tremendous interest.

CBOE RMC Europe 2014 DAY ONE Tentative Agenda

Wednesday, 3 September 2014
11:00am – 5:30pm   Conference Registration

12:30pm – 1:45pm  Primer on Options and Volatility Strategies
- How equity-related options and volatility strategies are used for hedging and for increasing returns by different types of investors
- Long, short and relative value volatility strategies
- Alternative methods to analyze historical and implied volatility characteristics
Colin Bennett, Managing Director, Head of Quantitative and Derivative Strategy, Banco Santander Central Hispano
Paul Stephens, Vice President, Institutional Business Development, CBOE

1:45pm – 2:00pm   Coffee break

2:00pm – 3:15pm    Directional Options Trading and Strategy – An Analysis of Managing a Directional Options Portfolio
- Pre-trade rich/cheap analysis; a look at implied volatility and skew
- Choosing the right options strategy
- Position management tactics – When to roll or adjust strikes
Bill Looney, Director, Institutional Business Development, CBOE
Oleg Lugovkin, Volatility Trader, Argentière Capital AG

3:15pm – 3:30pm   Session break

3:30pm – 4:45pm  US Options and Volatility Market Client Demographics
- Results of the Tabb Group’s research on European trading of US listed options
- A discussion of uses of products, how and why
Andy Nybo, Principal, Head of Derivatives, TABB Group
Steven M. Sears, Senior Editor and Columnist, Barron’s and Barrons.com
Leaf Wade, Head of US Derivatives Sales into Europe, UBS

4:30pm – 5:30pm   Registration continues

6:30pm – 8:30pm Opening Reception:  Cocktails and Dinner

Irish PubThe agenda, topics, speakers and registration form can be viewed at  http://www.cboermceurope.com/agenda
We’ll give you more information as the date draws closer.  We’re looking forward to seeing you there.

Blogging Options: CBOE Morning Update 8.13.14

Retail Sales disappointed, and x-food and energy were worse than the headline number.  Macy’s came in $0.06 light on earnings, off $3 or 5%.  Energy sector soft in pre-market.  Weak economic numbers overseas.  Volatility as an asset class:

King Digital (KING) is down $4.08 to $14.12 in the premarket after the videogame maker cut its outlook for fiscal 2014 growth rates. August call option implied volatility is at 148, September is at 66, November is at 61, January is at 54; compared to its 18-week average of 56.

Cree (CREE) is down $4.21 to $44.99 after the maker of LED lighting and semiconductor products company reported its Q4 earnings rose 6% and lower than expected guidance. August call option implied volatility is at 98, September is at 48, December is at 40; compared to its 26-week average of 40.

Fossil (FOSL) is off $2.24 to $100.01 in the premarket after the accessory manufacturer reported Q2 earnings fell 22% on higher costs. August call option implied volatility is at 97, September is at 57, January is at 32; compared to its 26-week average of 35.

Options expected to be active @ CBOE:  KING CSCO NTAP M DE JCP FOSL CREE JDSU‏ KATE

CBOE SKEW INDEX (SKEW) at 123.69, below 50-day MA of 131.83. 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 1082.14, compared to its 10-day moving average of 1079.11 cboe.com/BXM

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CBOE Mid-Day Update 8.12.14

Volatility as an asset class

Tesla Motors (TSLA) is recently down $2.26 to $257 on Model S ‘has more than its share of problems,’ Consumer Reports says. August call option implied volatility is at 40, September is at 39, December is at 41; compared to its 26-week average of 52.

Kate Spade (KATE) is recently down $7.80 to $31.24 after the retailer was ‘cautious’ on its FY16 outlook.  August call option implied volatility is at 101, September is at 50, January is at 38; compared to its 20-week average of 36.

Caesar’s Entertainment (CZR) is recently down $1.41 to $12.26 after the casino operator said its Q2 loss widened on strong Las Vegas results affected by weak Atlantic City and regional markets. August call option implied volatility is at 80, September is at 83, December is at 68; compared to its 26-week average of 53.

Actives at CBOE:  AAPL TSLA TWTR DE NFLX PBR AMZN MNKD KO

Stocks with increasing volume @ CBOE: KATE MGM ACM ARO TKMR ODP ICPT GPI FENG LINTA NDLS

CBOE DJIA BuyWrite Index (BXD) is recently down 63c to 264.74, compared to its 50-day moving average of 267.77 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) is recently up 14c to 14.37. VIX August 14, 15, 16, 17, 20, 24 and 25 calls are active on 247K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 25c to 31.60.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 1% to 14.96; compared to its 10-day moving average of 16.21. stks.co/r0CS2
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Blogging Options: CBOE Morning Update 8.12.14

Stock futures off a little as Ukraine and Iraq situations prompt some profit takers to lock in gains from the last two sessions.  Small business optimism up slightly. Volatility as an asset class:

Intercept Pharmaceuticals (ICPT) is up $119.43 to $356.60 in the premarket after announcing an experimental liver disease drug may have had a more benign effect on patient’s cholesterol. Overall option implied volatility of 105 is above its 26-week average of 97.

Nuance (NUAN) is down $1.50 to $16.60 after the company which makes software that converts speech into text reported less than expected Q3 earnings and guidance. August call option implied volatility is at 67, September is at 42, January is at 34; compared to its 26-week average of 38.

Rackspace (RAX) is down 31c to $31 in the premarket after the enterprise cloud service company said it’s on track to deliver 15%-18% YoY revenue growth for FY14.  August call option implied volatility is at 97, September is at 52, December is at 46; compared to its 26-week average of 54.

Options expected to be active @ CBOE:  ICPT NUAN RAX TWTR CIE CZR VIX SPX

CBOE SKEW INDEX (SKEW) at 124.24, below 50-day MA of 131.83. 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 1083.80, compared to its 10-day moving average of 1080.25 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) at 265.37 compared to its 50-day moving average of 265.37 cboe.com/micro/bxd/

CBOE S&P 500 Short-Term Volatility Index (VXST) at 14.84, compared to its 10-day moving average of 16.06. VXST is a market-based gauge of expectations of 9-day stks.co/r0CS2

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 31c to 31.54

CBOE Volatility Index (VIX) closed at 14.23, compared to its 10-day moving average of 15.56 and its 50-day moving average of 12.49. cboe.com/VIX

SPDR S&P 500 ETF Trust (SPY) is recently up 17c to $193.96 on easing geopolitical tensions.

Calls with increasing volume at CBOE:

IWM  8/16/2014   113  17K contracts
KMI   9/20/2014     40  11K
SPY   8/16/2014   195  10K
VXX   8/22/2014     35    8K
EWJ   8/16/2014 11.50  7K

Puts with increasing volume at CBOE:

SPY    8/16/2014 193  22K contracts
IWM  8/16/2014 112  14K
QQQ 8/16/2014  96   8K

A Historical Perspective on Current VIX Levels

VIX has been fairly low for most of 2014. I can admit that. When I hear comments like, “VIX is broken”, due to the recently low levels for VIX then I get to work.

CBOE has data on VIX going back to January 1990. The average closing price for VIX from January 1, 1990 through August 11, 2014 has been 20.02. The average for VIX in 2014 has been about 13.65. That’s the kind of comparison that has people thinking something is wrong with VIX.   To show VIX is perfectly fine and behaving within the parameters of history I took a look at some different averages.   The chart below shows the daily rolling 1, 5, and 10 year average of closing prices for VIX from January 1, 2000 through August 11, 2014.

Rolling VIX Prices

The more active blue line represents what the 1 year average for VIX has been since January 2000. This rolling average has been as high as 41.16 and low as 12.30.  On August 11th it was at 13.97. 13.97 is pretty high relative to 12.30 which occurred in 2006.  You can take that as VIX really isn’t that low or VIX can go lower – I’ll leave that to your market outlook.

The red line shows the rolling 5 year average closing VIX level. The highest 5 year average is 26.38 while the lowest has been 15.83. This lowest level occurred in May 2008. I find it worth mentioning that less than six months after the 5 year average hit its lowest level VIX closed over 80.00. The current 5 year average for VIX is currently at 19.24 which is pretty high when compared to the low back in May 2008.

The fairly tame looking green line shows the rolling 10 year average close for VIX which has ranged from 18.36 to 22.21. I love when I run numbers and the outcome has some sort of irony. The 10 year average is currently at 20.03, which is right in the middle of the average 10 year range and just 0.01 higher than the average close from 1990 through present.

So is VIX broken or too low? The numbers say, “No VIX is low, but it is not really doing anything different than we have seen historically”.

Following Up on Alcoa’s Bullish Market Signal by Hannah Chody

Twenty trading days have passed since Alcoa reported its earnings on July 8th. To see if what I concluded last month held true, we took a look at the performance of Alcoa’s stock after their earnings release and what the S&P 500 did over the last 20 days. The link below discusses how a positive price reaction from Alcoa’s stock may be a bullish signal for the overall equity market –

http://www.cboeoptionshub.com/2014/07/08/care-alcoas-earnings-hannah-chody/

After earnings, Alcoa closed at 15.69 on July 9th – up from 14.85. The S&P 500 closed at 1972.83 that same day – up from 1963.71 on July 8th. Based on history his positive move in Alcoa’s stock after its earnings announcement was a bullish signal for the S&P 500 over the course of earnings season.

Five days after Alcoa’s stock traded up on earnings, the S&P 500 was up to 1981.57. This follows the trend identified in the last blog, which showed the S&P 500 level was higher 70.59 percent of the time five days following an increase in AA’s stock price after earnings.

Ten days later, the S&P 500 was still increasing, up to 1987.01 after the market close on July 23rd. This still followed the trend that a positive reaction to Alcoa’s earnings resulted in a bullish forecast for the stock market.

Due to a slight sell off in the market, the S&P 500 was down to 1970.07 fifteen days after earnings. However, this is only 2.76 points lower than the S&P 500 level the day Alcoa’s stock reacted to its earnings. This decrease does not match the research showing that in this situation, the stock market should be up 88.24 percent of the time.

Twenty days later, the S&P 500 was doing terribly in relation to its typical reaction when AA trades up on earnings. The S&P 500 closed at 1920.20 on August 6th, making my prediction based on historical performance completely incorrect. The numbers that suggested the S&P 500 should be up 82.35 percent of the time twenty days after a positive reaction to AA earnings and, on average, up 65.12 percent of the time throughout earnings season regardless of how Alcoa’s stock reacts after earnings did not support the behavior of the stock market this earnings season.

Overall, the stock market reacted as we expected for at least ten days after Alcoa’s stock price increased after its earnings announcement. However, as time went on and the market sold off more and more, the S&P 500 levels fifteen and twenty days later do not match our data.