The Weekly Options News Roundup – 3/27/2015

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

CBOE Product Innovation
Earlier in the month, CBOE held its annual Risk Management Conference in Carlsbad, California, where more than 300 industry professionals gathered to discuss all things VIX.  EQDerivatives’s Peter Thompson caught up with CBOE’s President and COO, Edward Provost to discuss CBOE’s latest product developments.

“Q&A: CBOE’s Provost on LSEG Deal, VIX Weekly Possibility & VXTYN” – Peter Thompson, EQDerivatives
http://bit.ly/1H6c9rb

Market Madness (VIX Brackets)
While the NCAA tournament has been bringing bracket madness, the month of March has been supplying market madness.  One of the toughest brackets to pick has been the “volatility regional.”

“The Kentucky (and Cinderellas) of Recent Volatility Plays” – Adam Warner, Schaeffer’s investment Research
http://bit.ly/194Rwjy

“CBOE Bracketology Round 1 – VXST Index Rose 122.6% in One Week”- Matt Moran, CBOE Options Hub

http://bit.ly/1NjPH1p

“If You Fear a Correction, Use VIX ETN as a Hedge” – Nigam Arora, MarketWatch
http://on.mktw.net/1BQcJ7u

“Stock Volatility Cools But Other Markets Stay Heated” – JJ Kinahan, Forbes
http://onforb.es/1CtfL6J

There’s a VIX For That
Oil has been a hot topic lately, reaching lows not seen in many years.  Investors with exposure to the energy sector are wisely keeping their eyes on the VXXLE.

“A VIX for the Energy Sector” – Reid Steadman, Indexology
http://bit.ly/1yjHRfB

Discounted Portfolio Protection
For investors concerned about the high prices of equities, call options, which are trading at 5-year lows, are an investment option worth exploring.

“Keep Calm, Trade on, Buy Calls” – Steven M. Sears, Barron’s
http://on.barrons.com/1Eb4CcN

“Cheap Call Options Are a Better Buy Than Stocks” – Steven M. Sears, Barron’s
http://on.barrons.com/1HSOOwt

Power of the Put
Options offer a variety of ways to create portfolio protection.  One star strategy routinely outperforms while offering a less volatile trading environment.  Puts have star power.

“How Put Options Can Improve a Buy-and-Hold Portfolio – Mark Sebastian, Quant Forum
http://bit.ly/1FZQ276

 

Weekly Market Commentary 3.27.15

When $SPX broke down through the 2090 support level, that was a very negative sign, especially since stocks failed at the old highs.   There is now strong resistance at 2110-2120 (the February and March peaks), as well as at 2090 (again).  As for support, the initial support level will be 2040, the early March lows.  Below that, there is support at 1970-1990, which is the area of the December and January lows.

LM 3 27 15 spx

Equity-only put-call ratios continue to remain on sell signals and
are now moving higher at a more rapid pace.

Both of the breadth oscillators are on sell signals.

Volatility indices jumped higher, but they are still in a rather benign state.  $VIX is not even in a “spiking” state.  $VIX would have to make new relative highs in order to turn bearish.

LM 3 27 15 vix

In summary, the intermediate-term has taken on a more bearish slant with the breakdown back below 2090.  The Fed-induced, artificial rally last week obscured the problems that were potentially building, but they have been exposed now.

VIX Options Open Interest Spikes

(Editors Note: Fred Ruffy from Trade Alert, LLC contributed to this article with Henry Schwartz)

VIX April 20 calls were the most active option contract market-wide on Thursday with well over 150K contracts trading, including a block of 83,100 for 60 cents at midday when the market was 50 to 65 cents. VIX crowd confirms the buyer initiated the trade and paid 65 cents for 50K shortly after, with clearing data showing 136,000 contracts of new open interest at the strike. May 47.5 calls, June 50 calls, and July 30 calls saw opening activity as well.

Total open interest in VIX calls increased by 267,000 contracts, or more than 10X the increase in OI in puts on the index (+24K) for the day. Increased activity in calls on the volatility index surfaced as the S&P 500 continued a four-day losing streak. While the broad market has stabilized early Friday, the flow stands out as the largest single-day increases in VIX call open interest this year and suggests a large investor opening a position in VIX upside calls in anticipation of further market losses or higher volatility in the months ahead.

2015-03-27_11-25-22

How to Buy TSLA Almost 8% Lower than Current Price

With TSLA currently around $190, how can I buy the stock anywhere near $175? The answer could be the sale of a cash secured put.

With the stock at $191 the April 180 put is trading at around $3.00.  I will sell 1 April 180 put at $3.  If the stock finishes under the strike price of 180 at April Expiration (April 17th), I would be obligated to buy the stock at $177 ( strike price minus the premium received).  If the stock doesn’t fall below $180 at April Expiration, I collect the entire $300 premium. The current delta of the 185 strike put is .25, which means there is only a 25% probability the stock will be under $180 by April expiration.  Remember that if TSLA falls below $180 in the next three weeks and then rallies above my short strike, there is no guarantee I will be assigned.

This strategy would be done in the retirement part of my portfolio. In a retirement account the short put position would be 100% cash secured, meaning $17,700 (180 strike put less $3) would be segregated by my broker in the event the short put was assigned.   I have a slight bullish bias over time and am looking for monthly income. I would repeat this trade every month as long as I still had a bullish bias on the stock over the next 1-2 years. The 12 month low in the stock is $180.    Dan Sheridan   dan@sheridanmentoring.com

Blogging Options: CBOE Morning Update 3.27.15

Q4 GDP Final showed a 2.2% increase, less than the 2.4% consensus.  Q1 GDP first estimate due in five weeks, early consensus shows a drop to 1.5% rise.  Oil fell overnight as mid-east war did not escalate, Dollar higher.  DOW with spinoff, EMC downgraded.  Overseas markets mixed with NIKKEI closing down ~1%.  U of M Sentiment due 30-minutes into trading day.  Good games last night in NCAA Tourney. Volatility as an asset class:

BlackBerry (BBRY) closed at $9.30 into reporting a Q4 profit on a larger than expected sales decrease.  March weekly call option implied volatility is at 185, April is at 72, May is at 61, June is at 57; compared to its 26-week average of 54.

Restoration Hardware (RH) is down $4.14 to $89 in the preopen after the retailer of luxury home goods issued disappointing guidance, citing in part the disruption caused by the West Coast port congestion. April call option implied volatility is at 49, May is at 39, August is at 37; compared its 26-week average of 42.

GameStop (GME) is down $2.25 to $36.54 in the preopen reporting a larger than expected revenue decrease and lower than expected guidance. March weekly call option implied volatility is at 190, April is at 52, May is at 41, July is at 35; compared to its 26-week average of 43.

CBOE Crude Oil Volatility Index (OVX) at 49.58 compared to its 50-day moving average of 54.94, WTI Crude oil near $50. CBOE.com/OVX

Equity Options Volume @ CBOE; 994,232 calls, 581,586 puts, 1,575,818 total cboe.com

Options expected to be active @ CBOE:  GME RH YHOO BBRY CCL FINL

CBOE S&P 500 Skew Index (SKEW) at 122.86. 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 95-110 Collar Index CLL @ 671.75 www.cboe.com/CLL

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CBOE, C2 & CFE Good Friday Holiday Trading Schedule

We have another long weekend coming up.  A week from tomorrow, Friday April 3rd is Good Friday.

Thursday, April 2nd will have regular trading hours for all products at CBOE, C2 and CFE.

Friday April 3rd, CBOE and C2 are closed for business, so there will be no Stock, ETF or Index option trading on that date.  Regular trading will resume Monday morning.

On Thursday evening April 2nd, CFE opens its extended trading session at 3:30pm CDT for VIX (VX) Futures and will close at 8:15am Friday, April 3rd.  Extended trading hours begins again Sunday evening at 5:00pm.  VXTYN will have an abbreviated trading session on Friday, April 3rd from 7:00 a.m. to 10:15 a.m. CDT.
Trades in both the Thursday and Friday extended sessions will be submitted for clearing on the Business Day of Monday, April 6, 2015. Trading will be closed for all CFE products other than VIX and VXTYN futures on Friday, April 3, 2015.

To recap, regular trading hours on Thursday April 2nd on everything.  No option trading Friday April 3rd at CBOE or C2.  Trading in extended hours sessions at CFE Thursday night and Friday morning in VIX Futures, VXTYN  abbreviated session Friday morning.  All extended hours trades clear in Monday session).

Have a good Easter.

History of Good Friday trading:

The Council of Nicaea (A.D. 325) set the date of Easter as the Sunday following the paschal full moon, which is the full moon that falls on or after the vernal equinox (~March 21).  Good Friday is the Friday before Easter. More than you wanted to know, but that’s why Easter is a “moveable holiday” like Labor Day or Memorial Day.

The New York Stock Exchange has been closed every Good Friday for over 150 years, with the exception of 1898, 1906, and 1907. The Friday before Easter is the only non-federal holiday observed by the NYSE.

Urban myth says that those times the market was open on Good Friday that the market crashed.  It’s a great story but it’s not true.  Good Friday in 1907 was actually an up-day, but right in the middle of a 9-month bear market with several panic trading days.

The real reason may be that many Christians went to religious services on Good Friday.  Brokers and exchanges thought that there would be little trading on that day, as well as their employees asking for the afternoon off to attend those services. Passover is the same weekend in 2015.

So the answer is… no one knows, we’ve always been closed on Good Friday

 

CBOE Mid-Day Update 3.26.15

Volatility as an asset class

Accenture (ACN) is recently up $6.21 to $94.42 after the consulting company raised its growth target.  April weekly call option implied volatility is at 23, April is at 15, May is at 16, August is at 17; compared to its 26-week average of 19.

Five Below (FIVE) is recently up $3.81 to $36.02 after the teen focused retailer reported Q4 profit rose 34% and plans to continue its rapid expansion. April call option implied volatility is at 36, May and August is at 35; compared its 26-week average of 43.

United States Oil Fund (USO) is recently up 64c to $18 as WTI trades up 2% to $50.25. April weekly call option implied volatility is at 47, April is at 46, May is at 45; compared to its 26-week average of 37.

Active oil stocks, ETF & index’s @ CBOE:  USO, OIL, XLE, UCO and PBR

CBOE Crude Oil Volatility Index (OVX) up 4% to 48.92 compared to its 10-day moving average of 20.35 as WTI oil trades near $50.  cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 4.5% to 23.15 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR AMZN GILD FB NFLX AMAT

Options with increasing volume @ CBOE: SWKS SNDK MU BTX ALL FIVE SGYP SWFT RHT IDCC NVS WGO

CBOE Volatility Index (VIX) up 1% to 15.58, high 17.19, low 15.52, April 17, 18, 24 and 25 calls are active on total volume of 120K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 14c to 26.14.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 3.7% to 15.85; compared to its 50-day moving average of 15.21. stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 0.1% to 267.50 compared to its 50-day moving average of 266.04 cboe.com/micro/bxd/

CBOE Mini-SPX options (XSP) down 0.1% to 205.80 http://www.cboe.com/micro/xsp/

S&P 100 Options (OEX) recently down 0.1% to 900.40 on middle-east geo-political risks.

Blogging Options: CBOE Morning Update 3.26.15

Overseas markets leading stocks lower again today (European shares retreat ~1.4%), as Saudi Arabia sends troops into Yemen.  Oil prices jumped, Bond yields higher.  Several big spreads in VIX Options yesterday.  Volatility as an asset class:

lululemon (LULU) is down $0.66 to $61 (big range in the pre-market) after reported Q4 EPS of $0.78, $0.05 better than the analyst estimates. Revenue for the quarter came in at $602M versus the consensus estimate of $601M. March weekly call option implied volatility is at 104, April is at 56, June is at 43, September is at 36; compared to its 26-week average of 36.

SanDisk (SNDK) is down $10.27 to $71.15 after the flash storage solutions provider said its Q1 revenue will be around $1.3B compared to the $1.4B-$1.4B previously forecasted. Overall option implied volatility of 37 compares to its 26-week average of 31.

Red Hat (RHT) is up $4.05 to $72.50 in the pre-market after reporting Q4 EPS of $0.43, $0.02 better than the analyst estimate of $0.41. April call option implied volatility is at 46, May is at 34, June is at 31, September is at 29; compared to its 26-week average of 31.

CBOE Crude Oil Volatility Index (OVX) at 47.83 compared to its 50-day moving average of 55.03, WTI Crude oil above $51. CBOE.com/OVX

Equity Options Volume @ CBOE; 987,157 calls, 684,767 puts, 1,671,924 total cboe.com

Options expected to be active @ CBOE:  SNDK LULU RHT FIVE ACN BBRY MGA XOM COP HAL SLB

CBOE S&P 500 Skew Index (SKEW) at 122.95. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

CBOE S&P 500 95-110 Collar Index CLL @ 672.85 www.cboe.com/CLL

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CBOE Mid-Day Update 3.25.15

Volatility as an asset class
Kraft (KRFT) is recently up $23.66 to $84.97 on privately held H.J. Heinz Company announcing the purchase of Kraft. Heinz shareholders will own a 51% stake in a combined company, while Kraft shareholders will hold a 49% stake and receive a special cash dividend of $16.50 per share. April option implied volatility is at 29, May is at 25; compared to its 52-week average of 16.

Peer April option implied volatility on Heinz merger agreement

Campbell Soup (CPB) is recently down 2c to $45.37. April call option implied volatility is at 15, May and August is at 16; compared to its 26-week average of 18.

Kellogg (K) is recently up 88c to $63.83. April call option implied volatility is at 17, May is at 16, July is at 16; compared to its 26-week average of 19.

General Mills (GIS) is recently up 81c to $54.01. April call option implied volatility is at 17, May and July is at 16; compared to its 26-week average of 16.

CBOE Crude Oil Volatility Index (OVX) is recently down 1.9% to 47.04 compared to its 10-day moving average of 52.35 as WTI oil trades near $47.  CBOE.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 0.9% to 21.41 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR KRFT PBR TSLA GILD NFLX C AMZN

Options with increasing volume @ CBOE: KRFT RIG PBR LL NVO SXC SONC LXK APO

CBOE Volatility Index (VIX) up 7.7% to 14.67, high 14.75, low 13.20, April 22 and 24 calls are active on total volume of 130K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently up 48c to 24.58.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 13.7% to 13.92; compared to its 50-day moving average of 15.25. stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 0.6% to 269.48 compared to its 50-day moving average of 265.99 cboe.com/micro/bxd/

CBOE Mini-SPX options (XSP) down 0.7% to 207.70 http://www.cboe.com/micro/xsp/

S&P 100 Options (OEX) recently down 0.8% to 908.40 on industrial orders that unexpectedly

Blogging Options: CBOE Morning update 3.25.15

Chicago (Northfield) based Kraft joins Warren Buffett’s conglomerate, see below.  “Synergies” = possible layoffs, we’ll see.  February Durables drop 1.4%, +0.2% expected.  Most of the components looked awful.  January Durable Goods revised sharply lower. Relationship to positive Housing Starts yesterday and revised Q1 GDP will be discussed on trading desks today.  10-year 1.86%.  Volatility as an asset class

Kraft Foods (KRFT) is up $18.60 to $80 in the preopen on privately held H.J. Heinz Company and publicly held Kraft Foods Group (KRFT) announcing Heinz shareholders will own a 51% stake in a combined company,  Kraft shareholders with 49% stake and a special cash dividend of $16.50 per share. Together the new company will have eight $1B+ brands and five brands between $500M-$1B.  April option implied volatility is at 15, May is at 19; compared to its 52-week average of 16.

Merck (MRK) is up $0.85 to $59.47 in the preopen after announcing new $10B share repurchase program. Overall option implied volatility of 16 compares to its 26-week average of 19.

Steelcase (SCS) closed at $19.92 into sees Q1 adj. EPS 13c-17c, consensus 15c.  April call option implied volatility is at 41, May is at 32, July is at 30; compared its 26-week average of 29.

CBOE Crude Oil Volatility Index (OVX) at 47.94 compared to its 50-day moving average of 55.14, WTI Crude oil near $47. CBOE.com/OVX

Equity Options Volume @ CBOE; 751,475 calls, 523,710 puts, 1,275,185 total cboe.com

Options expected to be active @ CBOE:  KRFT MDLZ PEP KO SJM K GIS RHT LULU BBRY MRK

CBOE S&P 500 Skew Index (SKEW) at 126.82. 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 95-110 Collar Index CLL @ 679.30 www.cboe.com/CLL

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Sentiment Tools: Taking the Temperature of the Market With the VIX, Part 1

Random movements in the stock market are very tough to explain but if we can understand the role of sentiment, these moves make sense.  Remember, stocks move along the spectrum of fear and greed, a chart being an excellent portrayal of these emotions.  We can point to several sentiment-related indicators to get a pulse of market players, this is especially useful in the short run.  In part 1 of a series, we’ll take a look at some of these and how they impact decisions and market movement.

A chart can tell us everything we need to know about emotions.  Buying and selling are the actions of emotions fear and greed.  But sentiment tends to build and compound, much like an adrenaline rush we can overdose on one or the other.  Certain points in time we can run too far on either end of the spectrum, it is at these moments when the bus becomes too full and a turn is likely to happen.

The VIX, or volatility index (fear index) is a superb tool which tells us where short term option players are placing their bets.  The VIX rises when fear is present, drops when the fear subsides.  What worries markets and causes the VIX to rise?  Basically it is uncertainty over future events and high complacency.  If traders/investors become too greedy it shows up in a very low VIX reading, much like we have currently (VIX is at 13%, the lowest of the year and the lowest since December).

What does this mean?  Simply put the market is not showing worry about stocks going down, but a contrarian thinker might say there are no buyers left at this point and seller are only left to act.  When everyone is in the pool and has bought there is little left to boost stock prices (or so the theory goes).

When the VIX is elevated that normally tells us fear is rising and buyers are absent, and that has often presented opportunities to buy when extreme levels are reached.  But how do we know?  I will bracket the daily VIX chart with Bollinger bands, two standard deviations from the mean.  The bands capture 95% of the price action in VIX but it is the moves toward the upper band and through it that tell us the best times where a reversal is about to happen.  Take a look at the chart below.

vix bl

CBOE Mid-Day Update 3.24.15

Volatility as an asset class

Twitter (TWTR) is recently up $2.40 to $50.87 after shares traded at a new recent high of $51.09. March weekly call option implied volatility is at 48, April is at 38, May is at 51, June is at 42, September is at 41; compared to its 26-week average of 53.

Netflix (NFLX) is recently up $15.09 to $440 after Cantor Fitzgerald raised his price target on shares of Netflix to $500 from $450 saying the streaming service is the “clear winner” as TV unbundles. March weekly call option implied volatility is at 29, April is at 47, May is at 45; compared to its 26-week average of 34.

Apple (AAPL) is recently up 48 to $127.60. March weekly call option implied volatility is at 22, April is at 21, May is at 29, June is at 25; compared to its 26-week average of 26.

CBOE Crude Oil Volatility Index (OVX) is recently down 2.7% to 48 compared to its 10-day moving average of 52.57 as WTI oil trades near $47.  CBOE.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 1.86% to 21.60 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR TEVA TSLA AMZN RIG NFLX FB GILD GOOG AMAT

Options with increasing volume @ CBOE: HLF OPK OAS LOCK OPK NVO BKX BBG ROYT SONS GII ARAY CMCM ABMD

CBOE Volatility Index (VIX) down 6% to 12.61, high 13.55, low 12.59, April 14 puts and April 22 calls are active on total volume of 104K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 43c to 24.81.

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SPX Weekly Bear Call Spread Analysis

I’ve seen several trades using RUT options to initiate out of the money credit spreads as of late. However, I just came across a pretty interesting one using SPX options. There was a seller of SPX Mar 27th 2140 Calls at 0.35 who also purchased the SPX Mar 27th 2150 Calls at 0.15 for a net credit of 0.20. As long as the S&P 500 is not over 2140 on the close this coming Friday the credit of 0.20 will result in a profit. The payoff diagram below shows the risk – reward of this trade along with yesterday’s closing SPX level.

SPX PO

There’s something else that is worth mentioning about this SPX Mar 27th 2140 / 2150 Bear Call Spread. This was executed while most of us were sleeping or just before 3:00 am Chicago time during what we at CBOE refer to as the extended hours session (ETH).

Blogging Options: CBOE Morning Update 3.24.15

Stocks look flat on the opening, as CPI and Core Rate each rise 0.2%.  McCormick (MKC) beat estimates, looks to open higher by 4%. NFLX could help NASDAQ.  Overseas markets modestly higher.  10-year 1.904. Housing numbers released after the opening, expected higher. Volatility as an asset class:

Chesapeake (CHK) is up $0.44 to $14.55 in the preopen on Carl Icahn disclosing an increased stake in the company to 73M shares (10.98%), up from 66M shares (9.98%) in December. March weekly call option implied volatility is at 48, April is at 44, July is at 47; compared to its 26-week average of 41.

Whiting Petroleum (WLL) is indicated down $7 to $31.39  on offering of 35M shares of common stock. April call option implied volatility is at 77, May is at 74; compared to its 26-week average of 49.

Sonus (SONS) closed at $13.16 into cutting its Q1 revenue view to $47M-$50M from $74M.  Overall option implied volatility of 46 compares to its 26-week average of 48.

CBOE Crude Oil Volatility Index (OVX) at 49.32 compared to its 50-day moving average of 55.19, WTI Crude oil near $47. CBOE.com/OVX

Equity Options Volume @ CBOE; 907,438 calls, 503,796 puts, 1,411,234 total cboe.com

Options expected to be active @ CBOE:  WLL CHK SONS RHT LULU BBRY OCN FB TSLA

CBOE S&P 500 Skew Index (SKEW) at 127.12. 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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Earnings This Week – 3/23 – 3/27

A more appropriate title for this blog would be “Earnings Later This Week” as there are only four stocks with short dated options reporting earnings this week and they all report either Thursday or Friday.    The list below depicts three years of earnings history with the biggest move higher, lower, average move, and what the stock did last quarter shown for each stock.

Earnings