The Weekly Options News Roundup – 12/19/2014

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’s Index Options Go Global
As announced last week, CBOE has entered into a licensing agreement with MSCI to offer options trading on multiple MSCI Indexes, including the MSCI EAFE Index and MSCI Emerging Markets Index.  CBOE’s MSCI Index options will help asset managers efficiently gain international equity exposure.

“CBOE Partners with MSCI to List Index Options”– Gabriel Surprise, Global Capital
http://bit.ly/1sJtGmQ

“CBOE Gains Exclusivity for MSCI Options” – Helen Bartholomew, International Financing Review
http://bit.ly/1w2ARkr

Merry VIXmas
The market seems to have been a little naughty, becoming more volatile than usual this holiday season.  The VIX Index surged to its highest level since October, making some investors skittish about the markets. Will it be a Merry VIXmas?

“Volatility Update: Early Present For Vol Junkies – Fear Is Back” – JJ Kinahan, Forbes
http://onforb.es/1zzVxVM

“VIX Bets Surge Amid Biggest Stock Swings Since October” – Callie Bost, Bloomberg
http://bloom.bg/1sDvZlB

“Wall Street’s ‘Fear Gauge’ May Not Recede Before Year-End” – Saqub Iqbal Ahmed, Reuters
http://reut.rs/1AuN1ad

“Volatility Spikes: Here’s The Trade that Tames It” – Steven M. Sears, Barron’s
http://on.barrons.com/1x2srAJ

Vol of Vol
While the CBOE Volatility Index is a measure of the S&P 500, the CBOE VIX of VIX Index (VVIX) is a measure of the VIX itself.  So, what exactly is the VVIX telling investors?   “Some see in the sudden ramp in VVIX as a sign that high-yield bonds (selling off for months) and stocks (still near all-time highs) might be about to reconcile their differences…”

“VIX of VIX Near Record: Some Market Observers Are Nervous” – Chris Dieterich, Barron’s
http://on.barrons.com/1C33Fll

“The VIX pop: Bullish On the Margins?” – Adam Warner, Schaeffer’s Investment Research
http://bit.ly/1Gv76kd

New Era For OCC
Amidst a new regulatory environment, OCC sets out on a new course under the leadership of its More

CBOE Mid-Day Update 12.19.14

Volatility as an asset class

CarMax (KMX) is recently up $5.76 to $66.29 on better than expected Q3 results and customer traffic growth. January call option implied volatility is at 28, April is at 31; compared to its 26-week average of 32.

Finish Line (FINL) is recently down $5.63 to $23.28 after lowering its earnings outlook for the year on margin pressures. January call option implied volatility is at 34, February is at 35; compared to its 26-week average of 34.

Xerox (XRX) is recently up 34c to $14.23 after announcing that it will sell its IT outsourcing business to Atos for $1.05B and announced it is lowering guidance. January call option implied volatility is at 22, April is at 24; compared to its 26-week average of 25.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) down 3.22% to 5.41; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Interest Rate 5 Year Note (FVX) is recently down 22c to 16.37.

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 9% to 32.31, WTI trades $55.63 cboe.com/micro/VIXETF/VXXLE/

CBOE Crude Oil Volatility Index (OVX) down 3.3% to 58.14. cboe.com/OVX

Active options at CBOE: AAPL TSLA TWTR AMZN FB RAD NFLX CIM LNKD GILD VLO

Options with increasing volume @ CBOE: LRCX LF VC CBI RHT OEF TNK PRGO TSO ONVO

CBOE Volatility Index (VIX) is recently down 1.95 to 17.49; January 17 and 25 calls are active on total volume of 442K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 90c to 30.24
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Next Week in Weeklys – 12/22/2014

I almost made the title of this blog, This Week in Weekly since there is only one stock with short dated options available for trading that reports earnings during the holiday shortened week next week.  Walgreens (WAG) will report before the market opens on Wednesday.  Over the past three years the biggest gain off earnings has been 5.44% and the biggest drop 5.89%.  The average move for WAG on the trading day following the report has been 3.03% and last quarter the stock only dropped 0.55%.

CBOE Mid-Day Update 12.18.14

Volatility as an asset class

Oracle (ORCL) is recently up $3.40 to $44.56 after Q2 results beat estimates as Q2 total software plus cloud revenue grew 5% to $7.3B. December call option implied volatility is at 26, January is at 21, February is at 19; compared to its 26-week average of 21.

Cloud software-as-a-service, platform-as-a-service and infrastructure-as-a-service stocks have rallied as volatility decreased.

Salesforce.com (CRM) is recently up $2.28 to $59.25. December call option implied volatility is at 28, January is at 31, February is at 30; compared to its 26-week average of 32.

SAP (SAP) is recently up $1.70 to $70.10. January call option implied volatility is at 18, March is at 20; compared to its 26-week average of 21.

Microsoft (MSFT) is recently up $1.29 to $47.03. December call option implied volatility is at 21, January is at 20, March is at 21; compared to its 26-week average of 21.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.59; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Interest Rate 5 Year Note (FVX) is recently up 51c to 16.63.

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 2.9% to 36.68, WTI trades $55.50 cboe.com/micro/VIXETF/VXXLE/

CBOE Crude Oil Volatility Index (OVX) down 3% to 55.14 WTI oil trades $55.50 cboe.com/OVX

Active options at CBOE: AAPL TSLA PBR TWTR AMZN MCD FB RAD NFLX

Options with increasing volume @ CBOE: QSR ROC PIR TOL NYNY OCR RAD

CBOE Volatility Index (VIX) is recently down 1.95 to 17.49; January 17 and 25 calls are active on total volume of 442K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 90c to 30.24
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Blogging Options: CBOE Morning Update 12.18.14

Overseas markets rallying overnight (European and Asian shares up 1% to 2%), helping US stock futures add to yesterdays gains.   Options activity brisk yesterday, as CBOE trades 6.7 million of 20.8mm contracts.  SPX with 1.49mm and VIX with 975K led the way. Oil and Ruble up slightly this morning. Volatility as an asset class:

Oracle (ORCL) is up $2.11 to $43.27 in the premarket on Q1 revenue increasing +3.5% compared to year ago on strong cloud growth. December call option implied volatility is at 63, January is at 28, February is at 23; compared to its 26-week average of 21.

Accenture (ACN) is higher by $2 to $87.30 on better than expected Q1 results and strong Q2 net revenue $7.25B-$7.5B, consensus $7.46B. December call option implied volatility is at 60, January is at 29, February is at 20; compared to its 26-week average of 20.

Amgen (AMGN) is up $1.88 to $165.36 in the premarket after raising its Q1 dividend 30% to 79c per share. Overall option implied volatility of 27 is above its 26-week average of 24.

Options expected to be active at CBOE: ORCL AKS JBL AMGN RSX

CBOE S&P 500 PutWrite Index (PUT) at 1420.86; 50-day moving average is 1432.90 www.cboe.com/PUT

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.85, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 56.75, compared to its 50-day moving average of 35.03, WTI Crude oil trades $58. cboe.com/OVX

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CBOE Mid-Day Update 12.17.14

Volatility as an asset class

Proshares UltraShort Barc 20 Year Treasury ETF (TBT) is recently up 66c to $46.22 into the FOMC policy statement.  December call option implied volatility is at 37, January is at 27, March is at 26; compared to its 26-week average of 24.

IShares Barclay 20+ YR Treasury ETF (TLT) is recently down 93c to $126.68.  Overall option implied volatility of 15 is above its 26-week average of 11.

Whirlpool (WHR) is recently up $9.28 to $183.82 on targeting to double ongoing EPS by 2018.  December call option implied volatility is at 38, January is at 28, March is at 27; compared to its 26-week average of 25.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.21; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Interest Rate 5 Year Note (FVX) is recently up 43c to 15.69 into Federal Reserve policy meeting decision

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 7% to 37.60, WTI above $56 cboe.com/micro/VIXETF/VXXLE/

CBOE Crude Oil Volatility Index (OVX) down 6.8% to 51.93 WTI oil trades above $56 cboe.com/OVX

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

Options with increasing volume @ CBOE: WYNN MGM LVS CLF MCD BP

CBOE Volatility Index (VIX) is recently down 1.30 to 22.28; January 20 and 22 calls are active on total volume of 4730K cboe.com/VIX

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Blogging Options: CBOE Morning Update 12.17.14

CPI for November dropped 0.3% due to falling energy prices.  Core Rate (-Food & Energy) rose 1.7%, close to in-line.  Stocks added to early gains after this report.  Fed Minutes later this morning.  Ruble still center-stage today.  Volatility as an asset class

Market-Vector Russia ETF Trust (RSX) is down 12c to $14.26 in the premarket as Russian ruble weakens. Overall option implied volatility of 61 is above its 26-week average of 29.

FedEx (FDX) is off $6.06 to $168.20 after reporting Q2 profit rising less than expeected. December call option implied volatility is at 47, January is at 29, April is at 25; compared to its 26-week average of 22.

Joy Global (JOY) is down $0.95 to $45.10, reporting better than expected Q4 EPS and light 2015 outlook. December call option implied volatility is at 87, January is at 46, April is at 37; compared to its 26-week average of 28.

Options expected to be active at CBOE: RSX DRI FDX JOY GLD VIX

CBOE Interest Rate 5 Year Note (FVX) @ 15.26 into Federal Reserve policy meeting decision

CBOE S&P 500 PutWrite Index (PUT) at 1393.05; 50-day moving average is 1433.46 www.cboe.com/PUT

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.44, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 55.77, compared to its 50-day moving average of 34.40, WTI Crude oil trades $54.
cboe.com/OVX

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CBOE Mid-Day Update 12.16.14

Volatility as an asset class

iPath S&P GSCI Crude Oil Total Return (OIL) is recently up 22c to $13.26 as WTI crude oil trades above $56.  Overall option implied volatility of 60 compares to its 26-week average of 25.

Energy Select Sector SPDR (XLE) is recently up $2.09 to $75.49. December call option implied volatility is at 40, January is 35, March is at 33; compared to its 26-week average of 20.

ProShares Ultra DJ-UBS Crude Oil (UCO) is recently up 26c to $11.39. Overall option implied volatility of 96 compares to its 26-week average of 39.

United States Oil Fund (USO) is recently up 24c to $21.31. Overall option implied volatility of 47 compares to its 26-week average of 21.

Exxon Mobil (XOM) is recently up $1.26 to $88.16. Overall option implied volatility of 26 is above its 26-week average of 17 according to Track Data, suggesting larger price movement.

VIX methodology for Goldman Sachs (VXGS) up 2.7% to 29.79, above its 50-day moving average of 22.74. cboe.com/VXGS

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 2.04 to 38.06, WTI above $56 cboe.com/micro/VIXETF/VXXLE/

CBOE Crude Oil Volatility Index (OVX) down 89c to 56.55. cboe.com/OVX

Active options at CBOE: AAPL C PBR TWTR TSLA AMZN BAC NFLX MCD MGM

Options with increasing volume @ CBOE: ARRY BEN GRUB LGCY RUSS LTM CPA PAY TLM IBN

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) up 29c to 6.58; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 86c to 21.28; December 20 and 23 calls are active on total volume of 720K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 43c to 32.63
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Blogging Options: CBOE Morning Update 12.16.14

Busy day yesterday as 19.8 million option contracts trade, with CBOE & C2 accounting for 7.2m.  SPX with 1.28m & VIX with 849K.  VIX Futures showed 417K contracts changing hands.  SPY active with 3.7m contracts trading.  VIX traded up to ~24 intra-day yesterday.  After the close Russia raised rates from 10.5% to 17%, 6th raise of ’14.  Ruble trading near 74, range overnight 60-80.  Russia Q3 growth 0.2% (Oil & vodka main exports?). Oil down again, investors looking at longer term charts looking for support levels.   Volatility as an asset class:

Market-Vector Russia ETF Trust (RSX) is down $0.92 to $13 in the premarket as Ruble value collapses to a record low. Overall option implied volatility of 61 is above its 26-week average of 29.

Boeing (BA) is up $1.42 to $123.50 in the premarket after raises its dividend 25% and authorizes a $12B share repurchase plan. Overall option implied volatility of 23 is near its 26-week average of 22.

3M Company (MMM) closed at $156.85 and indicated slightly higher into raising its Q1 dividend by 20% to $1.03 per share. December call option implied volatility is at 22, January and April is at 17; compared to its 26-week average of 17.

Options expected to be active @ CBOE: RSX VIP CTCM MTL YNDX MBT VIP EWG

CBOE S&P 500 PutWrite Index (PUT) at 1404.44; 50-day MA 1435.02 www.cboe.com/PUT

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 7.24, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 57.55, compared to its 50-day moving average of 33.78, WTI Crude oil trades below $55. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 135.12, compares to its 50-day moving average of 128.38. 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 1037.55 compared to its 10-day moving average of 1061.09 cboe.com/bxm

CBOE DJIA BuyWrite Index (BXD) at 254.75 compared to its 50-day moving average of 261.14 cboe.com/micro/bxd/

‏CBOE Nasdaq-100 Volatility Index (VXN) at 22.08; compared to its 50-day moving average of 17.64.

CBOE 3-Month Volatility Index (VXV) at 21.06, compared to its 50-day moving average of 17.48 cboe.com/VXV

CBOE S&P 500 Short-Term Volatility Index (VXST) at 21.16, compared to its 10-day moving average of 15.86 VXST is a market-based gauge of expectations of 9-day stks.co/r0CS2

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Capitulation Or Acceleration? – Weekly Market Outlook

Stocks toyed with the idea two weeks ago, but pulled the trigger last week.  What’s that?  A significant stumble.  After the bullish momentum slowed the first full week back after Thanksgiving, it reversed – in spades.  The S&P 500’s (SPY) (SPX) 3.5% pullback last week was actually the worst single calendar-week performance since August of 2011.

Ironically, the sheer size of the selloff may also be the best thing going for the market this week, as it may inspire a short-term bounce.  The market also halted Friday’s pullback at a spot where the bulls have a good chance at making a successful stand.  The details are discussed below, following an inspection of last week’s and this week’s key  economic numbers.

Economic Data

Economic data was relatively sparse last week.  In fact, the only heavy-hitting information we got was November’s retail sales growth.  It was encouraging.  Last month’s overall retail consumption was up 0.7%, and even when taking automobiles out of the picture, November’s retail sales were up 0.5%.  Both figures were considerably better than expected.  Perhaps more important at this time, as the plot of the broad retail spending trend below continues to suggest, the consumer is feeling just fine – spending remains healthy. [The month-to-month volatility is normal.]

It’s not as important as the strength in retail spending for November, but it is likely to be an omen of what to expect when we hear this week’s consumer inflation data.

On Friday, the Bureau of Labor Statistics  reported another slide in producer costs.  The Producer Price Index fell 0.2% overall, and was flat on a core (ex-food and energy) basis.  The annualized PPI rate fell from October’s 1.5% to 1.4%.   Last month’s consumer price index data will be announced on Wednesday, and should be similar tepid.  The problem is, the annualized consumer inflation rate now stands at a rather low 1.66%.  There’s not much room for even-weaker inflation before structural problems surface for the economy.

Everything else is on the following table/calendar:

Economic Calendar
PH 121414-econ-data
Source:  Briefing.com
 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Blogging Options: CBOE Mid-Day 12.15.14

Wild ride today as the DJIA was up and then down 100 points within the first 90 minutes of trading.  Over 16 million option contracts trade in the first five hours.  1 million+ SPX contracts and 700K VIX option contracts, with 308K VIX futures changing hands.   Volatility as an asset class

iPath S&P GSCI Crude Oil Total Return (OIL) is down 0.50 to $13.20 as WTI crude oil trades below $57.  Overall option implied volatility of 60 compares to its 26-week average of 25.

Energy Select Sector SPDR (XLE) is off 0.40 to $73.61. December call option implied volatility is at 47, January is 38, March is at 33; compared to its 26-week average of 20.

ProShares Ultra DJ-UBS Crude Oil (UCO) is recently down 0.80 to $11.31.   Overall option implied volatility of 90 compares to its 26-week average of 38.

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 1.5% to 40, WTI below $57 cboe.com/micro/VIXETF/VXXLE/

CBOE Crude Oil Volatility Index (OVX) up 13.5% to 56.55 WTI oil trades below $57 cboe.com/OVX

Active options at CBOE: AAPL C PBR TWTR TSLA AMZN BAC NFLX ABX VIX SPX

Options with increasing volume @ CBOE: RVBD AGCO FRO CRUS UBNT LH PAY PETM OREX KOS

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Blogging Options: CBOE Morning Update 12.15.14

Oil market regains footing and stocks react positively.  Stock futures up nicely but off the highs, after Empire Fed report showed first contraction in the last two years in manufacturing.  Asian shares lower, Europe mixed to higher.  10-year 2.11%.  Dollar strong.  25 K VIX Futures trade this morning in early session, after 500 K Friday.  Volatility as an asset class:

Honeywell (HON) is up $0.72 to $96.70 in the premarket after saying “We expect 2015 to be another strong year for Honeywell with across the board growth in sales, margin, EPS, and free cash flow.” December call option implied volatility is at 28, January and March is at 22; compared to its 26-week average of 18.

Exxon Mobil (XOM) is up $1 to $87.60 as shares rebound from 14-month lows as WIT oil stabilizes at $58 and an upgrade. Overall option implied volatility of 27 is above its 26-week average of 15.

PetSmart (PETM) is up $3.58 to $81.25 in the premarket after being acquired by a consortium led by BC Partners for $83 per share in cash. Overall option implied volatility of 27 compares to its 26-week average of 25.

Options expected to be active @ CBOE: PETM JOY FDX BBRY ORCL VIX

CBOE Equity Options Volume 1,086,847 calls, 885,211 puts CBOE.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 6.61, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 49.77, compared to its 50-day moving average of 33.11, WTI Crude oil trades below $58. cboe.com/OVX

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Last Week in VIX – 12/8 – 12/12

Nothing like a 3% drop to provide a year-end boost to VIX, especially when it appeared no one was expecting it. Last Friday we got through the employment report unscathed and the result was a VIX close under 12. The last potential big “known unknown” this year comes Wednesday afternoon with the FOMC announcement. As a friendly reminder, December VIX futures and options settle on the open Wednesday so any trades based on an FOMC announcement reaction should focus on January contracts.

The curve went from textbook contango to backwardation (when looking at the index and front two month futures). Do note that the farther dated contracts were up over 10% across the board last week. This shows there is a shift in longer term thinking about the health of the US equity markets. So far in 2014 the average closing price for VIX has been around 14. The farther part of the curve indicates the average in 2015 is expected to be higher than in 2014.

VIX Curve

On Wednesday this past week VIX was up 20% on the day rising from 15.35 to 18.53. The December future rose from 14.90 to close at 17.40 that day as well. Someone correctly decided that the upside move was not over and just a few minutes before the 3:15 closing time for VIX options they purchased several (in the 1000’s) VIX Dec 17 Calls at 1.60 and sold the same number of VIX Dec 18 Calls at 1.25 and a net cost of 0.35. With the December future finishing the week at 19.60 and the spot index at 21.08 so far this trade is looking pretty smart.

VIX PO

The Week in Gold and Oil Volatility – 12/8 – 12/12

I recall when I totally ignored Oil in this space for gold, my how things have changed.   USO dropped over 12% last week which places the fund down about 38% in 2014. The result for OVX, as seen on the right side below, was a jump of 45% and a move near all-time highs. The front month December future, which settles on the open Wednesday morning, finished the week at a 2.72 point discount to the index, which indicates to me that a quick move down in OVX (and stabilization of oil prices) is not anticipated for early next week. GVZ moved below 20 as everyone paid attention to the oil market.

GVX OVZ Curve More

The Week in Volatility Indexes and ETPs – 12/8 – 12/12

The VXST – VIX – VXV – VXMT curve shift was the most dramatic change I have seen since writing these blogs. Of course VXST is just a little over a year old so there’s not too much history for comparison. I am more intrigued by the right side of the curve with VXV and VXMT in the 20’s. As a reminder VXV is a 3 month version of VIX and VXMT measures 6 month implied volatility. Those two indexes moving above 20 and in line with VIX indicate some real concern for the S&P 500 going into next year.

VXST - VIX - VXV - VXMT Curve

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The Weekly Options News Roundup – 12/12/2014

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.

MSCI Index Options Coming to CBOE

This week, CBOE announced it entered into a licensing agreement with MSCI to offer options trading on several MSCI Indexes.  In the U.S., options on the MSCI Indexes will be solely listed for trading on CBOE.  Options on the MSCI EAFE Index and MSCI Emerging Markets Index, the first two index options to be listed for trading, are expected to launch in the first quarter of 2015, pending regulatory approval.

“Agreement for New Global Risk Management Products” – Matt Moran, CBOE Options Hub

http://www.cboeoptionshub.com/2014/12/10/agreement-new-global-risk-management-products-cboe-options-msci-indexes/?_ga=1.245543556.165378160.1406565218

“CBOE to Offer Options on MSCI Indexes” – Saqib Iqbal Ahmed, Reuters

http://www.reuters.com/article/2014/12/11/cboe-options-msci-idUSL1N0TU1UG20141211

Asset Managers Use of Index Options on the Rise

A recent study by the TABB Group notes that use of equity-index based derivatives is on the rise among asset managers.  Matt Simon, a TABB principal and author of the study noted “if recent volumes during October are any signal of what to expect in 2015, the changes for increased adoption are already taking hold.”

“Asset Managers Turning to Index Derivatives to Mitigate Risk, Says TABB Group” – Leah Cunningham, HedgeWeek

http://www.hedgeweek.com/2014/12/09/214425/asset-managers-turning-index-derivatives-mitigate-risk-says-tabb-group 

VIX Not Quite Ready for the Holidays

So much for the anticipated quiet markets heading into the holidays…  The CBOE Volatility Index (VIX) popped from 13 to 20 this week and the spike from Monday to Thursday was the biggest four-day advance since 2011.

“Skepticism Jumps in Options as VIX Rises 70% in Four Days” – Callie Bost, Joseph Ciolli and Oliver Renick, Bloomberg

http://www.bloomberg.com/news/2014-12-11/skepticism-jumps-in-options-as-vix-rises-70-in-four-days.html

“Analyzing the Unexpected VIX-plosion” – Adam Warner, Schaeffer’s Trading Floor Blog

http://www.schaeffersresearch.com/commentary/content/blogs/analyzing+the+unexpected+vix-plosion/trading_floor_blog.aspx?blogid=123617&utm_source=SM&utm_medium=Link&utm_campaign=Twitter

“Fear Indicator Spikes as Traders Get Skittish” – Alex Rosenberg, CNBC.com

http://www.cnbc.com/id/102257251

Will Volatility Remain “Lower for Longer?” More

Weekly Market Commentary 12.12.14

Various indicators have been turning bearish since mid-November.  But until
this week, $SPX itself had not broken down, and since price is “king,” that
was quite important.  However, now $SPX has broken down, as it has fallen below
support at 2050.  This completes a bearish pattern, and a full-fledged correction
is underway. This could be sharp and short-lived, and since it is taking place
late in the calendar year (when seasonal bullishness occurs), that is probably
the case.  However, it should be respected until buy signals actually occur.

LM 12 12 14  spx

Equity-only put-call ratios rolled over to sell signals about 10
days ago, and those signals remain strongly in place.

Market breadth has been weakening for several weeks, as the
breadth oscillators gave several sell signals which were subsequently
aborted.  But this time, the sell signals took hold, and they remain in force.

CBOE volatility indices have exploded to the upside. $VIX closed above last
week’s highs, and that established an uptrend in $VIX, which is a sell signal for stocks.

LM 12.12.14   vix

In summary, the indicators are negative, and with $SPX falling below support, it has released selling like the breaking of a dam.  It is likely that the correction will be short-lived, but we are not going to trade the long side until buy signals are confirmed.

Blogging Options: CBOE Mid-Day Update 12.12.14

Big option volume day as stock futures trade off today’s lows.  ~13.6m contracts change hands near noon CST, with SPX options (847K) and VIX (922K) being active.  VIX Futures added on to pre-market interest as 306K futures traded.  Crude stocks still getting hit.  Volatility as an asset class:

iPath S&P GSCI Crude Oil Total Return (OIL) is down $0.45 to $13.76 as WTI crude oil trades near $58.  Overall option implied volatility of 41 compares to its 26-week average of 25.

Energy Select Sector SPDR (XLE) rallied $0.85 off its lows and stood at $74.94, off $0.51.  December call option implied volatility is at 40, January is 36, March is at 31; compared to its 26-week average of 20.

ProShares Ultra DJ-UBS Crude Oil (UCO) is recently down $0.78 to $12.14. Overall option implied volatility of 76 compares to its 26-week average of 37.

CBOE Gold Volatility Index (GVZ) up 1.1% to 19.26, GLD down 5c to $117.62 cboe.com/GVZ

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 7.4% to 33.62, WTI @ $61 cboe.com/micro/VIXETF/VXXLE/

CBOE Crude Oil Volatility Index (OVX) +12% to $50.71, WTI oil trades below $59 cboe.com/OVX

Active options at CBOE: AAPL NFLX PBR AMZN PBR NFLX C TSLA TWTR VIX SPX SPY

Options with increasing volume @ CBOE: CY CWB DYN WIN SAVE XDE PDLI CP HUN MHK SSTK

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) up 70c to 6.58; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 0.62 to 20.70 after a short trip above 21; December 20 and 25 calls are active on total volume of 724K cboe.com/VIX

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Blogging Options: CBOE Morning Update 12.12.14

November PPI fell 0.2% (gasoline accounted for over half of the drop – flat expected) Core Rate was flat.  Oil being hammered again ON IEA lowering oil price forecast again.  Overseas markets down sharply, US following.  Jan WTI trading $58.50.  10-year near 2.12%. VIX Futures active in pre-market with 59K contracts traded.  Volatility as an asset class:

Adobe (ADBE) is up $4.17 to $73.90 in the premarket after reporting first quarter results and that it will acquire Fotolia for approximately $800M in cash. December call option implied volatility is at 45, January is at 31, April is at 28; compared to its 26-week average of 29.

SeaWorld (SEAS) is up $021 to $16.30  after announcing a restructuring program, job cuts and Chairman David D’Alessandro named Interim CEO. Overall option implied volatility of 39 is near its 26-week average of 38.

United Technologies (UTX) is down $2.00 to $112.05 in the premarket after providing fiscal 2014 and fiscal 2015 guidance. December call option implied volatility is at 22, January is at 19; compared to its 26-week average of 18.

Options expected to be active @ CBOE: ADBE UTX XLE USO UNG XLE XOM UCO OIL.

CBOE Equity Options Volume 928,958 calls, 664,359 puts, 1,593,317 total CBOE.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.88, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 44.95, compared to its 50-day moving average of 32.53, WTI Crude oil trades below $60. cboe.com/OVX

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Weekly Weekly’s Option Report 12.11.14

Volatility is shaking up the market and traders are loving the fast-pace of trades in the Weekly’s.  I’m Angela Miles. Today I am covering Weekly options expiring this Friday.  Next Friday is a traditional options expiration.

I’m starting with trades in the SPX. It’s a big volume day for SPX (S&P 500 Index) options contracts as the market responds to better-than-expect news on retail sales. One of the more predominate plays is at the 2,020 put strike going into Friday’s expiration. Implied volatility is relatively high at 25 implying this market still has a case of the jitters. On the call side, it’s mostly at-the-money call buying (2045 strike).

The Russell has a buying binge going on. Traders are setting up call positions at the 116 & 117 strikes. Put action is light.

Tesla shares have been mostly rolling lower this week, but today  the stock is driving $3 higher to $213. Traders are jumping on the rally with call buying in the Weeklys at the 212 and 217 strikes. There appears to be some hedgers in traditional options in TSLA as 200, 205 and 210 put players move into the options market.

Lululemon reported earnings that included positive comments about online sales, which could be a plus going into the holiday season. The options straddle predicted up to a 10% move and indeed LULU is rallying about 10% higher today. Traders are counting on the stock stretching to new levels. The weekly calls are moving at the 50, 51.5, 52 and 53. Some of those call buyers may be shorts scrambling as LULU breaks out.  Also in the Weeklys for this week, put players are buying options contracts at the 49 strike. And, someone in the traditional paper wants the 47 puts. Going out into January 52 calls are active. Perhaps it will be a happy holiday season for Lululemon athletic wear lovers.
A report says EBAY is considering massive job cuts next year and the stock is up a $1 to $56. The options are just getting started with 56 call buyers.

Amazon is active. As AMZN trades $307, call players are stepping into the 307, 315 and 320 call strikes, There is a smattering of put paper in the Weeklys at the 300 line.  Feel free to check out my In The Money Show for trader Tim Biggam’s Amazon strategy.

Next Friday, Blackberry turns in earnings. Traders are already building positions on the put side at the 9.5 and 10 strikes.

And, before I take off there is one name to mention that is added to the list of available Weeklys: Talsman Energy.

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

Blogging Options: CBOE Morning Update 12.11.14

Retail Sales rose this morning, aided by Auto Sales (+1.7%).  Overseas markets not doing as well, talk of more problems in Greece hurting Asian stocks.  OIL off an additional 1%.  Volatility as an asset class

The ‘Majors’ option implied volatility is elevated as WTI Crude Oil futures trade below $62

Exxon Mobil (XOM)  option implied volatility of 24 compares to its 26-week average of 18.

BP (BP) overall option implied volatility of 28 compares to its 26-week average of 17.

ConocoPhillips (COP) option implied volatility of 43 compares to its 26-week average of 19.

Chevron (CVX) overall option implied volatility of 29 compares to its 26-week average of 17.

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

Eni SpA (E) overall option implied volatility of 42 compares to its 26-week average of 25.

Options expected to be active @ CBOE: LULU CIEN RH AET ATHN XOM CVX SPX IWM

CBOE Equity Options Volume 1,002,145 calls, 743,328 puts, 1,745,473 total CBOE.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.49, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 42.21, compared to its 50-day moving average of 32.13, WTI Crude oil trades below $62. cboe.com/OVX

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Next Week in Weeklys – 12/15/2014

*Graphic corrected to show NAV reporting Tuesday before the open.

The year is quickly coming to an end, but there are still a handful of opportunities to trade earnings reports.  Things don’t get started next week until Wednesday before the open with FedEx (FDX).  All numbers below are based on the last 12 quarters earnings history with the Abs Avg representing the  average move off earnings without taking direction into consideration.

Weekly Corrected

Agreement for New Global Risk Management Products — CBOE Options on MSCI Indexes

On December 10 CBOE Holdings, Inc. announced that it has entered into a licensing agreement with MSCI Inc., a leading provider of investment decision support tools worldwide, to offer options trading on several MSCI indexes.  Under the agreement, in the U.S., options on the MSCI indexes will be solely listed for trading on the Chicago Board Options Exchange (CBOE). The six indexes included in the agreement are the MSCI EAFE Index, MSCI Emerging Markets Index, MSCI ACWI Index, MSCI USA Index, MSCI World Index and the MSCI ACWI ex-USA Index. CBOE plans to offer options trading in the first quarter of 2015, pending regulatory approval, on two of MSCI’s best-known indexes: the MSCI EAFE Index and the MSCI Emerging Markets Index.

THE MSCI EAFE INDEX and MSCI EMERGING MARKETS INDEX

The MSCI EAFE Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It captures large- and mid-cap representation, and comprises the MSCI country indexes that represent developed markets outside of North America: Europe, Australasia and the Far East.  The MSCI EAFE Index is calculated in U.S. dollars on a real-time basis, and values are disseminated every 60 seconds during market trading hours. At the end of November 2014 the MSCI EAFE Index had these features –

  • 908 constituent stocks;
  • the three largest stocks in terms of market capitalization were Nestle (1.88% of index), Novartis (1.73%), and Roche Holding Genuss (1.64%);
  • companies from the United Kingdom and Japan accounted for more than 41% of the country weightings in the index (see the pie chart).

mm111-Country Weights EAFE & Emerging Mkts

The MSCI Emerging Markets Index captures large- and mid-cap representation across 23 emerging markets countries, and the index covers approximately 85% of the free-float-adjusted market capitalization in each country. At the end of November 2014 the MSCI Emerging Markets Index had these features –

  • had 833 constituent stocks,
  • the three largest stocks in terms of market capitalization were Samsung Electronics (3.22%), Taiwan Semiconductor Mfg. (2.82%), and Tencent Holdings (2.06%), and
  • companies from China accounted for more than 20% of the country weightings in the index (see pie chart).

VOLATILITY AND THE MSCI INDEXES More

CBOE Mid-Day Update 12.10.14

Volatility as an asset class

Las Vegas Sands (LVS) is recently down $1.94 to $54.17 after FBR lowered its estimates for LVS, Wynn Resorts (WYNN) and MGM Resorts (MGM) citing the 20% decline in Macau gross gaming revenue in November and a “soft” first week of December.  December call option implied volatility is at 36, January is at 32; compared to its 26-week average of 28.

Wynn Resorts (WYNN) is recently down $8.15 to $148.49. December weekly call option implied volatility is at 42, December is at 35, January is at 31; compared to its 26-week average of 30.

MGM Resorts (MGM) is recently down 73c to $20.78. December weekly call option implied volatility is at 33, December is at 38, January is at 32; compared to its 26-week average of 28.

CBOE Crude Oil Volatility Index (OVX) up 11.4% to 41.85, WTI crude oil trades below $61. cboe.com/OVX

CBOE Gold Volatility Index (GVZ) down 3% to 19.44, GLD down14c to $118.05 cboe.com/GVZ

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 11% to 34.94, WTI @ $61 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL C BAC VZ TSLA TWTR AA DOW BAC ODP CVX MRK NFLX RIG

Options with increasing volume @ CBOE: GMCR FSLR MRK VZ GGP S XOM WFT

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) up 16c to 5.16; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 1.27 to 16.16; December 16 and 18 calls are active on total volume of 318K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 1.04 to 28.49
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Blogging Options: CBOE Morning Update 12.10.14

Economic news overseas not great this morning, but overseas markets steady (Asia mixed, Europe fractionally higher) after yesterday’s selloff.  Metals lower, 10-year 2.22%.  Chicago baseball fans prepare for subway series after signing pitchers.  Volatility as an asset class:

Costco (COST) is up $1.50 to $144.54 in the premarket after reporting better than expected Q1 EPS of $1.12 and Q1 SSS up 5%.  December call option implied volatility is at 16, January is at 15, April is at 14; compared to its 26-week average of 16.

Yum! Brands (YUM) is down $3.62 to $71.60, after saying its sees 10% EPS growth in 2015. Overall option implied volatility of 33 compares to its 26-week average of 23.

United States Oil Fund (USO) is down $0.55 to $23.65 in the premarket as WTI oil trades below $63. December weekly call option implied volatility is at 40, December and January is at 36; compared to its 26-week average of 22.

VIX methodology for iShares Trust FTSE China 25 Index Fund (VXFXI) @ 28.64, compared to its 50-day MA is 24.76 as FXI moves up 32c to $40.61.

Options expected to be active @ CBOE: COST TOL KKD TITN USO XLE YUM

CBOE Equity Options Volume 996,670 calls, 774,691 puts, 1,771,361 total CBOE.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 37.66, compared to its 50-day moving average of 31.46, WTI Crude oil trades below $63. cboe.com/OVX

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CBOE Mid-Day Update 12.9.14

Volatility as an asset class

Bank of America (BAC) is recently down 32c to $17.34 on the bank sees Q4 sales and trading revenue down linked-quarter, y/y. December call option implied volatility is at 19, January and February is at 20; compared to its 26-week average of 23.

Citigroup (C) is recently down $1.19 TO $55.19 on the CEO sees $2.7B charges in Q4 to address legal reserve charges. December call option implied volatility is at 20, January is at 18, February is at 20; compared to its 26-week average of 21.

Burlington Stores (BURL) is recently up $1.43 to $44.28 after beating Q3 estimates, raising FY14 outlook. December call option implied volatility is at 38, January is at 31, March is at 35; compared to its 26-week average of 45.

CBOE Crude Oil Volatility Index (OVX) down 2.5% to 38.69, WTI crude oil trades $65. cboe.com/OVX

CBOE Gold Volatility Index (GVZ) up 2.7% to 20.15, GLD up 2% to $118.17 cboe.com/GVZ

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 9.1% to 29.99, WTI @ $64 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL C BAC VZ TSLA TWTR AA DOW BAC PBR KO

Options with increasing volume @ CBOE: CONN CBST SAVE HAIN

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) at 5.05; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 1.80 to 16; December 20 calls and December 13 puts are active on total volume of 317K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 1.40 to 28.45
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Index & ETF LEAPS To Be Added for 2017

On Wednesday, December 24, 2014, trading begins for December 2017 LEAPS® in the below Index and exchange-traded fund (ETF) option products:

DJX (Dow Jones Industrial Average)
MNX (Mini-NASDAQ 100 Index)
NDX (NASDAQ 100 Index)
OEF (iShares on the S&P 100 Index Fund)
OEX (S&P 100 Index with American Exercise)
RUT (Russell 2000 Index)**
SPX (S&P 500 Index)
SPY (SPDR S&P 500 ETF Trust)**
XEO (S&P 100 Index with European Exercise)

** Note: RUT and SPY are the only products identified in the above list which trades on both CBOE and C2. All of the other products are listed for trading only on CBOE.

A notice listing the new LEAPS series (strike prices) will be issued during the week of December 15, 2014.

Additionally, notice listings for CBOE and C2 2017 LEAPS can be found by accessing the below hyperlinks during the distribution week mentioned above.

CBOE:
http://www.cboe.com/tradtool/DailyNewListings.aspx
C2:
http://www.c2exchange.com/Trading/C2DailyNewSeriesOnline.aspx

Blogging Options: CBOE Morning Update 12.9.14

Greek shares off over 10% (bailout talks faltering and elections announced), Chinese shares in Shanghai lower by ~6% (tightened collateral rules) have US stock futures on edge.  European shares off ~1.5%, Gold higher, 10-year 2.23%.  Over 20 K VIX Futures trade in early session this morning.   JOLTS at 9am CDT. TMUS with interesting Convertible Preferred announced after the close. Volatility as an asset class

VIX methodology for iShares Trust FTSE China 25 Index Fund (VXFXI) at 28.47, compared to its 50-day MA is 24.71 as FXI sells off 2.9%.

Verizon (VZ) is down $1.25 to $47.65 in the premarket after reporting that it expects Q4 impacts of promotional offers will pressure wireless EBITDA and EPS. Overall option implied volatility of 15 is  at its 26-week average.

AutoZone (AZO) is up $17.96 to $599.01 in the after reporting Q1 EPS $7.27, compared to consensus $7.16. December call option implied volatility at 22, January and March is at 17; compared to its 26-week average of 19.

Diamond Foods (DMND) is up $0.29 to $29.30 in the premarket after reporting better than expected Q1 EPS and backed FY15 EPS view 90c-$1.10, consensus $1.03. December call option implied volatility is at 62, January is at 44, March is at 39; compared to its 26-week average of 38.

Options expected to be active @ CBOE: DMND AAPL MW KKD AZO COST HRB PBY TMUS BXP CBST

CBOE Equity Options Volume 1,240,062 calls, 764,250 puts, 2,004,312 total CBOE.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 4.82, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 39.68, compared to its 50-day moving average of 31.36, WTI Crude oil trades below $65. cboe.com/OVX

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Skipping Around: Of Jobs, Oil and Markets

Today, we’ll take a look at how jobs, oil and market volatility are playing a role in the market environment.

A Solid Jobs Report:  But You Can’t Please Everyone

Last week’s job number took many by surprise.  What a great report it was, 321K jobs created based on the latest survey, previous reports revised upward.  Yet, all I heard were complaints – the jobs created were temporary, not high-paying career type positions and that this will turn tail in a couple of months.  I disagree with all of this noise.  First, any job creation is great for the economy, and those who have been sitting around waiting for a job are finally getting their chance.

To me, it doesn’t really matter the quality of the job – just that companies are hiring is a GREAT sign!  There have been so many unemployed for so long that they have mostly been forgotten.  More jobs, more income, more spending, broader tax base.  It’s all good.  This jobs report is indicative of an economy growing at a moderate pace which can continue for the next three to five quarters at least.

Oil is Gushing Out of Control

Many were shocked and surprised after the OPEC meeting and the ministers decided not to cut production of crude.  While the drop in price has been substantial over the past four months, the trend was pretty clear by looking at the chart.  Bearish sentiment has also been seen with an increase of put options bought in the futures market.  OPEC controls supply but does not control demand, and therein lies the issue.

Demand for crude has not expanded to absorb the supply on the markets and hence prices fall.  At some point the market will find a balance.  Much of the speculation about companies’ health and spending in the years ahead is just guessing and trying to jump ahead.  Stay away from the noise and just pay attention to what the market is telling you.

No Fear According to the VIX

With the VIX indicator sitting just under 12% it is understood that market players are showing complacency.  That might be ‘normal’ at a time when holiday cheer is being spread around but extremes are something we need to guard against.  Remember the opposite in mid-October, when fear was rising and hit a point of ‘I can’t take it anymore’?  At the time markets had corrected nearly 10% in  short month, volatility hit more than 30% but subsequently collapsed to where we are at today.

There are reasons for a rise in fear, an overbought market may be just one of them.  Recently it was the ebola crisis, which thankfully has dissipated.  But the pain left on the airlines and travel business was real, more than 30% declines in stock values – but when that disappeared and lower oil prices (see above) hit then these stocks started to gain some footing and are at/near highs again.

Right NOW would be a good time to lighten up on long portfolios, perhaps even buy some cheap protection via SPY, QQQ, or IWM puts.  But have an understanding of what the purpose is of that protection or insurance.   Every time we have seen volatility spike lower to this area there has always been a whack coming.  As Pete Najarian from Optionmonster said on CNBC’s Fast Money Friday, ‘expect to lose money on this‘, that is if you are protecting a long portfolio.  Bob Lang, Senior Market Strategist, and editor of Explosive Options.

CBOE Mid-Day Update 12.8.14

Volatility as an asset class

Large Cap oil Services Company’s volatility is elevated as WTI Crude oil trades near $65

Baker Hughes (BHI) overall option implied volatility of 34 compares to its 26-week average of 28.

Dril-Quip (DRQ) overall option implied volatility of 35 compares to its 26-week average of 29.

Halliburton (HAL) overall option implied volatility of 40 compares to its 26-week average of 29.
_DSC0115
National Oilwell (NOV) overall option implied volatility of 30 compares to its 26-week average of 26.

Schlumberger (SLB) overall option implied volatility of 32 compares to its 26-week average of 25.

Weatherford (WFT) overall option implied volatility of 54 compares to its 26-week average of 38.

CBOE Crude Oil Volatility Index (OVX) up 12.9% to 38.60, WTI crude oil trades $65. cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 9.1% to 29.99, WTI @ $65
cboe.com/micro/VIXETF/VXXLE/

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

Options with increasing volume @ CBOE: DWA AMAT COP SUNE CBST DWA

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) at 4.78; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

VIX methodology for iShares Trust FTSE China 25 Index Fund (VXFXI) -2.6% to 28.52, 50-day MA is 24.71 after sharp FXI rally

CBOE Volatility Index (VIX) is recently up 96c to 12.78; December 15 calls and December 12 puts are active on total volume of 133K cboe.com/VIX
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Can The Nasdaq Comp & Russell 2k Give The Next Boost? – Weekly Market Outlook

Though the market may have gotten off  to a bad start with Monday’s 0.7% stumble, the bulls took charge again the very next day to hammer out a gain for the week.  Granted, it was less than a 0.4% gain when all was said and done, but a gain is a gain.

On the other hand, it didn’t take long after last week’s turnaround from Monday’s dip for the lethargy to set in again (some of which is likely due to the winter holiday season).  Once again, the S&P 500 (SPX) (SPY) is bumping around new-high territory, but failing to clearly move above this area.

We’ll dissect the action and weight the odds, but let’s first set the bigger-picture stage with a look at last week’s major economic news.

Economic Data

There was plenty of economic data in the lineup last week, but all eyes were on Friday’s unemployment data.  The jobs numbers were better than expected, but when you delve in they are perhaps not as good as the headlines implied.

Yes, Bureau of Labor Statistics reported that in November the U.S. economy added (net) 321,000 jobs, more than jiving with the ADP payroll report of 208,000 new jobs being created in November.  So why didn’t the unemployment rate change from 5.8%?  It’s got to do with the way the unemployment is calculated.  The number of people who count themselves as unemployed – but willing and able to work – grew just about as much as the entire labor pool (employed or not) did, resulting in no net change of the proportion of unemployed-to-total-labor-force.  It’s a dubious improvement… more people are working, but more people that would like to have a job are also not working.

The proverbial litmus test continues to be the labor force participation rate and the employment rate of the nation’s population.  The percent of the nation’s inhabitants at work now is 59.2%, up from a low of 58.3% on late-2009, but still well under the peak at 63.3% seen in 2007.  The percent of the population that’s officially in the labor force (working or not) is still at 62.8%, just as tad above the multi-year record low of 62.7% hit in September.  Some, though not all, of that decline can be blamed on the ongoing wave of retirement of the baby-boomers.

On other fronts, the Institute for Supply Management’s data was a mixed bag.  The overall index slumped from 59.0 to 58.7, but the ISM Services Index advanced from 57.1 to 59.3 in November.

The Department of Labor reported a revision to Q3’s productivity rate.  The DOL now says it was up 2.3% in the third quarter, and not the previously suggested 2.0% increase.  Also, factory orders fell 0.7% in October following September’s dip of 0.5%.  Neither is considered hard-hitting data, however.

Economic CalendarPH 12 8 14  120714-econ-data

Source: Briefing.com

Stock Market Index Analysis

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Blogging Options: CBOE Morning Update 12.8.14

US stock futures weak on economic news out of Japan (GDP), Chinese trade data, S&P downgraded Italian debt… and there’s Oil.  Morgan Stanley is said to have cut their oil price base forecast from $98 to $70, and said oil could hit $53 bbl in 2015.  Bond yields off fractionally. European shares lower.  LUV & EBAY upgraded before the opening.  Volatility as an asset class

Cubist Pharmaceuticals (CBST) is up $26.74 to $101.10 in the premarket on Merck (MRK) acquiring for $102 per share in cash.   Overall option implied volatility of 45 is above its 26-week average of 42.

Merck (MRK) is up 16c to $61.65. Overall option implied volatility of 15 compares to its 26-week average of 17.

McDonald’s (MCD) is recently down $2.81 to $93.69 in the premarket after reporting November global comparable sales decreased 2.2%. Overall call option implied volatility of 15 is at its 26-week average of 15.

Options expected to be active @ CBOE: MRK CBST DMND AAPL SDRL MCD

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 4.85, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 34.20, compared to its 50-day moving average of 30.06, WTI Crude oil trades below $65. cboe.com/OVX

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The Week in VIX or Part 2 of the Big VIX Option Trade

VIX drifted to close under 12.00 for the first time since late August as the S&P 500 made more new highs. The leftover fear from the market’s dive in October seems to be gone just like all our Thanksgiving leftovers. At least one derivative strategist thinks lower VIX levels are on the near term horizon. Buzz Gregory from Goldman Sachs was featured in Barron’s this weekend saying his models point to VIX around 10.60 before 2014 is done. The trades executed last week and discussed in a previous blog and at the end of this posting match up well with this forecast.

VIX PA More

The Week in VIX Indexes and ETPs – 12/1 – 12/5

With the S&P 500 racking up more record high closes last week volatility indexes dropped to levels expected when there is a strong bull market run combined with a lack of concern regarding a pull back for stock prices. We also got past the employment number, which did have a few traders on edge, without the stock market not visiting lower levels.

VXST - VIX - VXV - VXMT The next big economic event on the horizon is the FOMC Rate Decision coming out the afternoon of December 17th. Any traders concerned about the market impact from the Fed’s last meeting of 2014 would focus on January VIX futures and options since the December contracts actually settle on the morning of the 17th.

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The Weekly Options News Roundup – 12/5/2014

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.com 2.0
CBOE recently introduced a newly enhanced website that offers easier navigation and search capabilities, updated and revised educational content and a responsive design that optimizes desktop, mobile phone and table viewing.  Check out all its features at http://www.cboe.com/.

“CBOE Revamps Website” – Finextra
http://bit.ly/1CJlPK6

“The VXTYN is a Fear Gauge of Interest Rates”
Last month, CBOE Futures Exchange launched trading of futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN Index), changing the game when it comes to hedging interest rates.  CBOE’s John Angelos discusses some of the mechanics and potential users of this new product.

“Trading Bond Volatility” – Steve Marlin, Markets Media
http://bit.ly/12BZNZU

It’s Beginning to Look a Lot Like VIXmas
The VIX Index seems to be forecasting a calmer market as we approach the holidays.  Hovering around 12, it’s offering investors the gift of lowered volatility.  This sentiment is also echoed by increased activity in VIX put options activity…. but will it really be a Silent Night?

“VIX Shunned as Few Bumps Seen for S&P 500 at Year’s End” – Callie Bost, Bloomberg
http://buswk.co/1yX3C7G

“Should We Fear the Fear Index?” – Abigail Stevenson, CNBC.com
http://cnb.cx/1BhgEzj

“Volatility Goes Into Hibernation” – Ron DeLegge, ThinkAdvisor
http://bit.ly/1vQPive

“Low Volatility Ahead? VIX Put Options See Heightened Activity” – Saumya Vaishampayan, Wall Street Journal
http://on.wsj.com/1yS34iz

One Year Old and Here’s to Many More
In November 2013, CBOE launched futures contracts on the CBOE Russell 2000 Volatility Index (RVX).  Russell Investments’ Pat Fay discusses the rising interest in small cap stocks and the performance of RVX.

VIDEO:  “Small Caps Coming Up Big: Russell’s Pay Fay on the One-Year Anniversary of the CBOE Russell 2000 Volatility Index” – John Lothian News
http://bit.ly/1BhwZnv

Looking for Volatility? Try Gold and Oil  
While volatility in equities has remained subdued, the gold and oil markets have been a very different story.   The CBOE Gold ETF Volatility Index (GVZ) increased 19% over the past week, as turbulence hits the precious metals market, and the CBOE Crude Oil ETF Volatility Index (OVX) has doubled since the beginning of the year.

“Gold ETF Volatility Soars as Dollar, Oil Tame Inflation: Options” – Callie Bost, Bloomberg
http://bloom.bg/1I4vdIt

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CBOE Mid-Day Update 12.5.14

Volatility as an asset class

Ulta Salon (ULTA) is recently up $5.39 to $131.16 on strong profit and revenue growth.  December call option implied volatility is at 31, January is at 28, March is at 32; compared to its 26-week average of 34.

Five Below (FIVE) is recently down $5.33 to $37.52 after Q4 outlook misses expectations. December call option implied volatility is at 39, January is at 41, February is at 47; compared to its 26-week average of 46.

Gap (GPS) is recently up 94c to $41.50 after reporting November SSS rose 6%. December call option implied volatility is at 21, January is at 23, February is at 26; compared to its 26-week average of 27.

CBOE Crude Oil Volatility Index (OVX) down 0.5% to 35.20, WTI crude oil trades $66. cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 0.1% to 27.70, WTI @ $66 cboe.com/micro/VIXETF/VXXLE/

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

Options with increasing volume @ CBOE: AMAT NOAH FRAN BIG GREK KEY VIAB

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) down 19c to 4.80; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently down 40c to 11.98; December 18 calls and December 12 puts are active on total volume of 152K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 10c to 26.61
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Weekly Market Commentary 12.05.14

The stock market, as measured by the Standard & Poor’s 500 Index
($SPX), sold off for a couple of days and then rebounded quickly to
new all-time intra-day and closing highs.  However, sell signals and
overbought conditions abound, so all is not bullish.

LM 12 04 14 spx

With $SPX making new all-time highs, its chart is bullish, and
the trend of the market is higher. Price is the most important indicator.
That has not changed.

Both of the equity-only put-call ratios have rolled over to sell
signals.  The weighted signal was confirmed a few days ago, and now
the standard ratio has joined in.

Market breadth has been bouncing back and forth with the
market, forcing the oscillators to move into and out of sell signals.  As
it stands at the moment, the NYSE-based breadth oscillator is on a sell
signal, while the “stocks only” is not (although it is very close to one).
indicators.

Volatility indices spiked up last Monday, but then have settled
back down at low levels.  As such, volatility remains in a bullish
stance as far as the stock market goes.

LM 12 04 14 vix

In summary, the trend of the market is up, and as such it must be
respected.  Hence the intermediate-term outlook remains bullish.
However, with sell signals from breadth and equity-only put-
call ratios, there is certainly danger of at least a sharp, but perhaps
short-lived correction.  With seasonality being as bullish as it is, it is
much more likely that any such correction would occur very soon or
not until after the New Year.  LM

Blogging Options: CBOE Morning Update 12.5.14

Non-Farm Payrolls for November spiked up to a gain of 321K, previous months revised higher by 44K.  Unemployment rare unchanged.  Consensus was a gain of ~225K to 235K.  This was the largest gain in employment since Jan of 2012.  The Participation Rate was unchanged at 62.8%.  Gold off 1%, oil down fractionally. 10-year up to 2.31%. US stock futures keep small gains going into regular session.  Volatility as an asset class:

Google (GOOG) is down $5.40 to $531.90 in the premarket after being downgraded to Neutral from Buy at BofA/Merrill. Overall option implied volatility of 19 is below its 26-week average of 22.

VIX methodology for Google (VXGOG) at 20.45, below its 50-day moving average of 23.86. cboe.com/VXGOG

Yahoo (YHOO) is up $080 to $51.21 after being upgraded to Buy from Neutral at BofA/Merrill. Overall option implied volatility of 32 is below its 26-week average of 37.

Ambarella (AMBA) is down $0.68 to $54.95 in the premarket after the developer of low power, HD video compression and image processing semiconductors reported stronger than expected Q3 results. Overall option implied volatility of 67 is above its 26-week average of 52.

Options expected to be active @ CBOE: AEO YHOO GOOG ULTA FIVE GPS AEO GERN

CBOE Equity Options Volume 876,429 calls, 579,656 puts cboe.com

CBOE Interest Rate 5 Year Note (FVX) 15.87 into November job report

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 4.99, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn
CBOE Crude Oil Volatility Index (OVX) at 35.39, compared to its 50-day moving average of 30.67, WTI Crude oil trades below $67. cboe.com/OVX

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CBOE Volatility Update 12.4.14

Volatility as an asset class

Sears Holdings (SHLD) is recently down 55c to $33.73 after reporting a Q3 loss of $5.15 per share on larger debt levels. December call option implied volatility is at of 67, January is at 70, March is at 65; compared to its 26-week average of 58.

Kroger (KR) is recently up $2.12 to $60.77 on the grocery company sees FY15 EPS growth of 8%-11%. December call option implied volatility is at 18, January and April is at 16; compared to its 26-week average of 21.

Express (EXPR) is recently down $1.36 to $13.13 on the retailer sees FY14 EPS 69c-76c, compared to consensus 89c. December call option implied volatility is at 55, January is at 59, April is at 52; compared to its 26-week average of 50.

CBOE Crude Oil Volatility Index (OVX) down 0.1% to 36.11, WTI crude oil trades down 1% to $66.67. cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 4.2% to 27.84, WTI @ $66.67
cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR TSLA OPK WLT SIRI NFLX PBR BIDU

Options with increasing volume @ CBOE: ONN SIRI EEP ASHR BBG UTX

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) down 12c to 5.02; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 2c to 12.49; December 13 and 14 puts are active on total volume of 172K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 10c to 26.61
More

Blogging Options: CBOE Morning Update 12.4.14

US stock futures mixed as ECB leaves rates unchanged.  Weekly Jobless a tad higher than expected.  NFP Parroll Report main economic item traders watching. Oil prices fractionally lower.  10-year 2.275%.  Volatility as an asset class:

Disney (DIS) is up $).39 to $93.50 in the premarket after declaring an annual cash dividend of $1.15 per share, up 34%, or 29c per share. December call option implied volatility is at 16, January is at 15; compared to its 26-week average of 21.

Aeropostale (ARO) is down $0.57 to $2.52 after reporting Q3 results and a Q4 outlook. December call option implied volatility is at 94, January is at 65, April is at 63; compared to its 26-week average of 62.

Energy Select Sector SPDR (XLE) is down $0.66 to $81.30 in the premarket as WTI trades down 0.52% to $67.05. December weekly call option implied volatility is at 32, December is at 26; compared to its 26-week average of 18.

Options expected to be active @ CBOE: PBR DIS ALGT COST SHLD SEAS HE

CBOE Equity Options Volume 935,706 calls, 604,914 puts, 1,540,620 total cboe.com

CBOE Interest Rate 5 Year Note (FVX) 16.07 into November job report.

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.14, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 36.16, compared to its 50-day moving average of 30.36, WTI Crude oil trades below $68. cboe.com/OVX

More

CBOE Mid-Day Update 12.3.14

Volatility as an asset class

Energy indexes and ETF option implied volatility decreases three-year highs as energy prices stabilize

Energy Select Sector SPDR (XLE) is recently up 1.13 to $82.13. December weekly call option implied volatility is at 39, December is at 24; compared to a level of 27 from December 2 and its 26-week average of 18.

Oil Services Holders Trust (OIH) is recently up 71c to $38.10. December weekly call option implied volatility is at 59, December is at 34, January is at 33; compared to its 26-week average of 22.

United States Oil Fund (USO) is recently down 8c to $25.51. December weekly call option implied volatility is at 40, December is at 38, January is at 34; compared to its 26-week average of 21.

SPDR S&P Oil and Gas Exploration and Production ETF (XOP) is recently up 1.43 to $51.32.  December weekly call option implied volatility is at 70, December is at 47, January is at 43; compared to its 26-week average of 24.

CBOE Crude Oil Volatility Index (OVX) -5% to 36.67, WTI Crude oil @ $68. cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) -4.9% to 26.87, WTI @ $68 cboe.com/micro/VIXETF/VXXLE/

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

Options with increasing volume @ CBOE:  ONNN WLT SDRL QCOM

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) down 21c to 5.14; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently down 29c to 12.56; December 17 and 18 calls active on total volume of 221K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 29c to 26.68
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A Little More Color on Yesterday’s Big VIX Option Trade

Yesterday I participated in a webcast with Mark Sebastian from Option Pit shortly after the market closed.   The first thing he said to me was, “did you see that big VIX put trade today?” Since then there has been more discussion of VIX put volume and the buyer of VIX Dec 12.50 Puts that came into the market yesterday. The specific trade was a buyer of 175,000 VIX Dec 12.50 Puts at 0.13. The payoff diagram below shows the outcome if this position is held through settlement on Wednesday December 17th along with yesterday’s VIX and December VIX futures closing prices.  As a friendly reminder, VIX options and futures are AM settled contracts so these options will cease trading the day before on Tuesday afternoon. Any settlement below 12.37 will result in a profit for this trade.

VIX Long P Payoff

Upon hearing about this trade, I decided to take a look at the eleven VIX settlements in 2014. The lowest VIX settlement this year was in July at 11.03 with the highest settlement in October at 15.92. The average this year has been 13.51, but there have been several settlements below the 12.37 break-even level for this trade.  The graphic below shows the settlement levels in 2014 with the trade break highlighted.

Long P Break Even

I’m always around for VIX settlement ready to tweet or blog depending on the circumstances. Shortly after the open on December 17th I’ll be keeping a close eye on December VIX settlement and where it comes in relative to this particular trade’s break-even price.

 

Blogging Options: CBOE Morning Update 12.3.14

ADP Employment Report for November showed a less than expected growth of 208K jobs (mid-220’s expected).  Several Retailers in the news.  Abercrombie (ANF) up $0.15 on good sales but cautious guidance, TJX up $1 on light volume after an upgrade, TGT lawsuits continue.  10-year still below 2.3%.  ISM later this morning. Volatility as an asset class:

European energy stocks option implied volatility is elevated as Brent Crude Oil stabilizes at $71

BP (BP) overall option implied volatility of 33 is compares to its 26-week average of 17.

Statoil (STO) overall option implied volatility of 32 compares to its 26-week average of 22.

Eni SpA (E) overall option implied volatility of 36 compares to its 26-week average of 24.

Total (TOT) overall option implied volatility of 24 compares to its 26-week average of 21.

Options expected to be active @ CBOE:  TASR AEO ANF SDRL BP XOM ICPT BIIB

CBOE Equity Options Volume 953,300 calls, 615,297 puts, 1,568,597 total cboe.com

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.35, 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 38.57, compared to its 50-day moving average of 30.05, WTI Crude oil trades below $68. cboe.com/OVX

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Fill ‘Er Up… No, Just Check the Oil

Last week I did something I haven’t done for 5 years; I filled my gas tank for under $3 gallon.

000

This got me to thinking about ways to lock in current prices without pumping and storing hundreds of gallons of explosive liquids in my garage. We know the cliché, “there’s an app for that!” the same can be said for ETFs, “there’s an ETF for that!”. Doing a quick search for Exchange Traded Fund and “unleaded fuel” I found the UGA the United States Gasoline Fund, LP ETF symbol UGA.

Below is the description of UGA and a current price quote.

111222

The ETF’s objective is to “reflect the daily changes in percentage terms of the spot price of gasoline..”. Therefore one share of UGA for $42.22 would be the roughly equivalent to $42.22 worth of gasoline. If I felt unleaded prices were going to increase over the next month and I knew I was going to consume 47 gallons of fuel over that period, I could do one of two things to lock in the current price. The first one is to purchase the fuel now and store it consuming it as needed. 47 gallons of fuel at current AAA prices ($2.76) would be around $130. I have no desire to purchase, transport and store 47 gallons of highly flammable liquid not to mention the fact that I would need to purchase proper storage containers. Couldn’t I just purchase $126.66 worth of UGA (3 shares at $42.22) and buy the fuel as needed? If unleaded fuel increases by 5% from $2.76 to $2.90 my 3 shares should also increase roughly the same percentage from $126.66 to $133. The $6.33 profit from the shares would offset the increased cost of fuel at the pump. What if the price of unleaded declined by 5% from $2.76 to $2.62? The 3 shares would also drop by roughly 5% but I would spend less at the pump offsetting the decline on the position Regardless of the move, I’ve already established my fuel costs. Essentially, I’d be locking in the price of fuel over the next month at the current price. This is what airlines do although they utilize futures and take physical delivery of their fuel, something we’ve already decided we don’t wish to do.

If you’re following along with this concept you’ve probably already found some of the major flaws with this plan. The first is that most of our vehicles don’t hold one month’s supply of fuel. Those 47 gallons probably represent two, three or even four trips to the pumps and it only hedges for one month with us essentially liquidating the shares at the same time as we take delivery of our fuel. That’s not efficient. The second issue is the cost to execute the trade in commissions pretty much eliminates our hedge. The third is that much of our fuel costs in California are the fixed taxes per gallon, the strategy doesn’t allow for this. Finally, what if I feel the price of unleaded will continue to fall? The answer is simple, don’t “lock in” prices until you feel prices have reached a bottom and you’re seeing evidence of a move higher. This approach to hedging gasoline has its flaws in execution but conceptually it’s sound trading theory applicable to many commodities we consume in our daily lives.

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Performance Divergence Among Asian ETFs

One of the nice things about ETFs is the broad diversity they offer in terms of exposure to a vast variety of stock sectors within the US — but they also have exposure to a growing number of international countries (and in some cases, multiple choices within a single country or region), commodities, currencies, volatility, bonds, etc.  All of which can be traded in a single brokerage account (or brokerage retirement account).  In general, we tend to look for outperforming and underperforming ETFs for our specific option trades in the ETFTRADR program — as well as non-correlated prices moves, among other factors.

One example of a interesting divergence performance we’ve seen recently is among a few of the different single country ETFs within Asia.  This is just an example, we see divergences and outperformance/underperformance like this occur all the time.

Take a look at the chart below, which depicts the Relative Performance of China ETF (FXI), Thailand ETF (THD), South Korea ETF (EWY) and Malaysia ETF (EWM) since mid-October.  Far from being monolithic, there increasingly over time is diversity among performance in single countries within Asia, Europe, etc.

[FXI is red, THD is purple, EWY is green, EWM is yellow]

FXI vs THD vs EWY vs EWM Since October Market Bottom, Relative Performance Chart
asia etf rel perf chart
Now, all of these ETFs are underperforming the S&P 500 ETF (SPY) over this time frame, we’re not saying this chart is giving a screaming ‘buy’ on any of them.  But it clearly shows you would have done well in  FXI & THD since the October rapid whip reversal, while in EWY or EWM you would be either breaking even or down — and this doesn’t include the leverage we get with option trading strategies.

Here is another example on the chart below, just within Japan ETFs there are divergences going on — over the same time frame, Japan Hedged Equity ETF (DXJ) is strongly outperforming other Japan ETFs such as (EWJ) & (NKY) — but also outperforming the SPYders.  [DXJ blue, SPY white, EWJ green, NKY orange]

DXJ vs SPY vs EWJ vs NKY Relative Performance Chart
dxj spy ewy nky relative performance chart

There are structural factors among ETFs (sometimes important ones) that can influence or magnify the performance divergences seen above.  Looking at the ‘charter’ of an ETF and things like the Top 10 holdings and levels of exposure to individual companies is one way to ascertain this.

For example, as part of its structure, DXJ attempts to neutralize exposure to the Japanese Yen relative to the US Dollar.  The lack of currency exposure is pushing this recent outperformance relative to the ‘regular’ Japan ETFs, at least a good portion of it.

And with the China, Malaysia, Thailand, South Korea ETFs listed above — FXI, EWM, THD have similar % allocations to their Top 10 holdings, for example — but EWY is more heavily weighted to 1 large company:  Samsung, with 22% of the holdings in that one stock.  So due to its current market cap, Samsung will tend to have a larger influence on the performance of the EWY ETF, both positive and negative.

Finding non-correlated price moves and outperformance/underperformance divergence is a key to finding the profitable trends, in both directions, that can really diversify your investing and trading portfolio.  And with the growth of ETFs expected to continue (and particularly as there are more liquid and varied International & Commodity ETFs), there will be increasing opportunities to find these profitable trends in the future.  As an example, in the next 5 to 10 (or 20) years, there may be as many different niche China sectors & ETFs available to US traders and active investors as there are varied sector ETFs within the US stock market.  Moby Waller
co-Portfolio Manager, ETFTRADR & Rapid Options Income 

Risk Management in Trading Trumps All

During the recent period of high volatility many of my client portfolios took a ride up and then down then back up again, which may be of some concern.  I received a phone call from of them (of which I rarely do) and she asked if I could just ‘sell stuff before the market goes down and buy stuff right before it goes up’.  I certainly wish it were that easy!  Yet, my job is to make money for clients regardless of the direction, and with options my timing has to be nearly perfect.

If I have a good read on the direction then I give myself a chance for some nice wins.  However, those wins are not counted unless the gains are booked, which brings me to the most important lesson in trading/investing – risk management.

I use many different tools in my trading arsenal – technical tools such as the MACD, bollinger bands, RSI, Williams %R and others.  I will also recognize fundamental and macro data which may help contribute to my decision process.  Further, the options montage helps me to determine the best strike and month if chart/technicals are favorable.  Yet, putting all the pieces together and creating a winning trade is useless if I do not have risk management system in place.

The game of trading is about booking profits – PERIOD.  There is no other goal in mind and if you focus on booking gains you will always give yourself a chance at staying in the game.   Sizing your position right is a great rule and one we preach often.  It’s the easiest to understand but mostly abused rule in trading.   The reason is greed.  Instead of showing discipline and consistency in the trade we are looking for that ‘big win’ that is going to make up for all of those losses.  This is a bad approach of course and will usually end badly.   There are times when trades move against us and those are unfortunate moments, but if you size properly then you won’t get killed.

No matter what you think the company may do or what the chart is saying, if you are not willing to take a profit at any time then you will be vulnerable.  If you are willing to take something down you will always be in the game.

Taking profits is easier than you think.  But, the one question I’m asked constantly is ‘Bob, should I sell here’?  My answer, if you have a profit — will always be ‘yes, take some or all off the table’.  I always say that if you have to ask then it’s probably the right thing to do.  What are they afraid of?  Missing out on future gains of course, being left aside if a stock runs without them.  When I enter a trade I do NOT have expectations of a return goal or target.  That may sound odd, but the market is a moving target.  My plays are based on the chart/technicals and not the price of the option.

Basically I will shoot for singles and doubles but always giving myself a chance to hit a homerun.  My hard/fast rule in options trading is to talk half off at a double if I’m fortunate enough to be in that situation.  No thinking here, just take half and re-assess the position.  At this point I now have an extraordinary advantage, playing with the house’s money.  Having my original capital back in my pocket affords me a great luxury of holding a ‘free trade’ on the remainder.  This frees up financial and emotional capital that can be spent elsewhere.

Good risk management techniques which includes sizing right and taking profits will always giving you a chance in this challenging trading environment.    BL    Explosive Options

Mini-SPX (XSP) – Recent Record Highs for Index and for Options Open Interest

In November 2013 CBOE launched Mini-SPX (ticker XSP) options with PM-settlement, and, as shown in the chart below, the maximum open interest for the XSP options has grown in all 12 months since the contract launch.

111 01-XSP Open Interest

In the past month the XSP options hit an all-time high open interest of 292,227 contracts, and the XSP Index hit its all-time daily closing high level of 207.28 on November 26.

Key features of the Mini-SPX (XSP) options include —

CONTRACT SIZE AND ADDED FLEXIBILITY. Mini-SPX options have 1/10th the value of the S&P 500® (SPX) Index options. At 1/10th the size of SPX options, Mini-SPX options provide added flexibility. For example, if an investor is looking to hedge $19,000 to $180,000 of broad U.S. stock market exposure, Mini-SPX options may be helpful to investors as they work to achieve a specific desired exposure.

PM-SETTLEMENT. PM-settlement aligns with single-stock options and ETF options. PM settlement is preferred by many investors, including those with end-of-day reporting needs. PM settlement gives investors the ability to trade in and out of positions on the third Fridays. The last trading day for the standard XSP options generally is on the third Friday of the expiration month.

CASH-SETTLEMENT, EUROPEAN-STYLE EXERCISE

  • Like SPX and most other index options, and unlike SPY and other ETF options;
  • No risk of early assignment and loss of dividends, no portfolio disruption on assignment.

COVERED CALLS   CBOE Circulars (RG99-09 and RG00-171) allow SPX options to be written on a “covered” basis against SPY or IVV ETF shares in a margin account, provided the investor’s brokerage firm has such policies in place. More

Blogging Options: CBOE Morning Update 12.2.14

Biogen (BIIB) getting the attention of traders this morning, as positive early results of a new alzheimer’s drug (BIIB 37) announced at a DB conference have pushed shares higher by $28. FDX upgraded, AAPL downgraded, off $1 in early trading after falling yesterday. Oil stabilizes overnight.  Volatility as an asset class:

Energy stocks and ETF option implied volatility increases as oil prices stabilize.

United States Natural Gas Fund (UNG) overall option implied volatility of 49 compares to its 26-week average of 32.

Oil Services Holders Trust (OIH) overall option implied volatility of 41 compares to its 26-week average of 22.

EOG Resources (EOG) overall option implied volatility of 41 compares to its 26-week average of 29.

Apache (APA) overall option implied volatility of 44 compares to its 26-week average of 25.

Cypress Semiconductor (CY) is recently up $1.49 to $11.92 in the premarket after announcing a merger with Spansion (CODE) in an all-stock, tax-free transaction valued at approximately $4B. Overall option implied volatility of 30 is near its 26-week average of 32.

Spansion (CODE) is recently up $4.65 to $27.59 in the premarket. Overall option implied volatility of 57 is near its 26-week average of 55.

Options expected to be active @ CBOE:  BIIB SDRL CY CODE AVNR AEO ANF SCVL RCL CLR BP XOM EOG CVX RDS.A RIG FDX VIX

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.49; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 37.49, compared to its 50-day moving average of 29.68, WTI Crude oil trades below $69. cboe.com/OVX

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Grinding Higher Economy & Stocks – Weekly Market Outlook

As is usually the case, Thanksgiving week proved to be a rather tepid one for stocks, with most of the trading crowd choosing to check out around the middle of the week.  Volume for last week as about half the norm. Nevertheless, where we left off on Friday is where we’ll restart things on Monday, so it’s still worth figuring out where we are and where we’re likely to go from here for the broad stock market.

We’ll do exactly that below and look at one interesting sector long-term setup, after a quick run-down of last week’s economic numbers.

Economic Data

Despite the holiday break, we heard plenty of economic news last week.  Some of it as good, and some it was less-than-compelling.

One of the encouraging data nuggets was the second estimate for Q3’s GDP growth rate.  Economists are now saying the economy grew at an annualized pace of 3.9%, versus the first estimate of 3.2%.  There’s one more possible revision to go, although it’s rare to see a significant change between the second and third (final) estimates.

Everything else from last week was a bit of a mixed bag with a grinding growth undertone, even within the category of data in question.  For instance, although the Michigan Sentiment Index score for November advanced from October’s reading of 86.9 to a score of 88.8 for this month, the Conference Board’s consumer confidence level fell from 94.1 to 88.7 for November.

Durable orders were a mixed bag too.  Overall orders grew 0.4% last month, but when taking transportation orders out of the mix, durable goods orders actually fell 0.4%.  [It’s important to know that despite one month’s stumble, the longer-term orders trend is still a positive one.]

The Case-Shiller Index indicated 4.9% growth (yoy) in home prices for September, while the FHFA Housing Price Index didn’t budge for September (on a month-to-month basis).  Both are still in uptrends, but the pace of progress is slowing.

Finally, although pending home sales fell 1.1% for October, the annual pace of new home sales reached 458,000 units for October, up from September’s pace of 455,000.  New home sales continue to generally trend higher, though total pending home sales seem to be lethargic.

Economic Calendarph 113014-econ-data

Source:  Briefing.com.

Stock Market Index Analysis More

Free Webcast and a Cyber Monday Deal

Tomorrow Mark Sebastian and I will be hosting a webcast at 3:30 pm Chicago time to discuss our recent paper on leveraging buywrite strategies along with a discussion of preliminary results for a leveraging SPX put selling strategies. There’s still time to register –

www.cboe.com/webcasts

CBOE is on the “Cyber-Monday” bandwagon offering deeply discounted online access to many of our upcoming classes. Mark Sebastian and I will be giving on of these discounted classes a week from Friday where we will discuss different systematic approaches to trading options.   The discount is good until midnight tonight so check out the schedule and don’t hesitate for this deeply discounted price –

http://www.cboe.com/learncenter/seminars.aspx

OVX (Oil VIX) Rose a Record 118.5%, GVZ (Gold VIX) Up 96% In Past 3 Months

Over the past three calendar months (September through November) –

  1. The CBOE Crude Oil ETF Volatility Index (OVX) rose 119%, the highest percentage rise for OVX over three calendar months since the inception of OVX price history in 2007.
  2. The CBOE Gold ETF Volatility Index (GVZ) rose 96%.
  3. The spot prices for crude oil (WTI) fell 31.1%,  gold fell 9.3%.
  4. The market capitalizations for Apple (AAPL) stock rose 14%, and for Exxon Mobil (XOM) stock fell 10%.

THREE VOLATILITY INDEXES

Investors who have a view on the future movement of oil volatility, gold volatility, and stock market volatility can explore tradable futures and options contracts on the OVX, GVZ, and VIX® indexes. The closing values for last Friday were 36.44 for the OVX Index, 25.17 for the GVZ Index, and 13.33 for the CBOE Volatility Index® (VIX®).

mm 12 1 14 no 1

CAPITALIZATION FOR THREE STOCKS

As noted above, over the past three months, the spot price for crude oil (WTI) fell 31.1%, the market capitalization for Exxon Mobil (XOM) stock fell 10%, and the CBOE Crude Oil ETF Volatility Index (OVX) rose 119%.  Investors who wish to hedge exposure to energy-related securities might initially consider options on XOM and the USO ETF.  If investors would like instruments with the potential to explode on the upside in the event of more volatility in the crude oil market, futures and options on the OVX Index are other instruments that could be considered.  For more information on options and futures on volatility indexes, please visit www.cboe.com/volatility.

mm 12 1 14  no 2

CBOE Mid-Day Update 12.1.14

Volatility as an asset class

Energy indexes and ETF option implied volatility has increased on wide oil and gas price movement.

Energy Select Sector SPDR (XLE) December weekly call option implied volatility is at 39, December is at 30; compared to its 26-week average of 18.

cboeOil Services Holders Trust (OIH) December weekly call option implied volatility is at 64, December is at 41, January is at 37; compared to its 26-week average of 22.

United States Oil Fund (USO) December weekly call option implied volatility is at 44, December is at 34, January is at 37; compared to its 26-week average of 21.

SPDR S&P Oil and Gas Exploration and Production ETF (XOP) December weekly call option implied volatility is at 91, December is at 54, January is at 53; compared to its 26-week average of 24.

CBOE Crude Oil Volatility Index $OVX +5.9% to 38.60, WTI Crude oil @ $68. cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR $VXXLE +10.7% to 30.84, WTI @ $68
cboe.com/micro/VIXETF/VXXLE/

VIX methodology for Apple (VXAPL) up 13.8% to 29.33, compared to its 50-day moving average of 25.46 cboe.com/VXAPL

Active options at CBOE: AAPL AMZN TWTR TSLA AIG C PBR

Options with increasing volume @ CBOE: KMI CVX LBTY SDRL

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) up 66c to 5.55; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 1.21 to 14.54; December 22 and 23 calls active on total volume of 299K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 1.28 to 26.69
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Weekly Market Outlook 11.28.14

(Editors Note: We got this Friday from Larry. Enjoy)

The stock market, as measured by the Standard & Poor’s 500 Index
($SPX) continues to march upward at a dizzying pace.  The market
is overbought, and if $SPX violates support at 2060, we could finally see a correction.

lm 11 28 spx
Equity-only put-call ratios remain on buy signals.  You can see
from the ratios are still trending downward.  That is bullish.

Both of the breadth indicators remain on buy signals,
and they are modestly in overbought territory.

Volatility indices have generally been declining, and — while VIX can certainly be considered overbought as it hovers near 12 — stocks can continue to advance while these volatility measures meander at low levels.
lm 11 28 vix

In summary, the intermediate trend is bullish, but the overbought
condition is getting to be problematic.    LM

Blogging Options: CBOE Morning Update 12.1.14

Japan rating lowered by 2 notches at Moody’s and OPEC’s decision to not curtail production the talk of the trading floor.  Oil producing countries currencies getting hit, slower growth in China and Europe all leaning on US stock futures.  Volatility as an asset class

Cyber Monday retailers option implied volatility is at low end of range.

Amazon.com (AMZN) overall option implied volatility of 37 compares to its 26-week average of 29.

eBay (EBAY) overall option implied volatility of 28 is near its 26-week average of 29.

Wal-Mart (WMT) option implied volatility of 12 compares to its 26-week avg. of 14.

Target (TGT)  option implied volatility of 16 compares to its 26-week avg. of 17.

Macy’s (M)  option implied volatility of 24 compares to its 26-week average of 24.

VIX methodology for Amazon (VXAZN) at 28.60, below its 50-day moving average of 33.09 into Cyber Monday cboe.com/VXAZN

VIX methodology for Apple (VXAPL)at 25.78, near its 50-day moving average of 25.36. cboe.com/VXAPL

Options expected to be active @ CBOE:  CLR BP XOM EOG CVX RDS.A AMZN EBAY RIG SDRL VOD

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The Week in VIX – 11/24 – 11/28

The S&P 500 has now closed at record highs on 47 of the 230 trading days in 2014. Two of those records were set last week before the market dropped during the short post-Thanksgiving shorted session. The lone green bar below coincides with a 5 point drop in the S&P 500 on Friday.

VIX PA

VIX ended the week slightly higher and the curve hardly budged. I’m sure there is some sort of Thanksgiving too stuffed to move analogy I could insert here.   December’s premium at about a point and a half if pretty high considering the time of year and the holiday effect we usually experience for VIX in December.

VIX Curve

At least one trader showed up and put on a pretty interesting VIX spread trade on Friday. They purchased VIX Dec 18 Calls at 0.70 and at the same time sold VIX Dec 14 Puts at 0.35. The specific trade sold 2 of the puts for each call so the net was at even (no cost). The payout, if held to December expiration, shows up below. However, I expect if there is some sort of spike in VIX this plan would be to exit quickly.

VIX PO Fixed

 

The Week in Gold and Oil Volatility – 11/24 – 11/28

Friday’s drop for the United States Oil ETF (USO – 25.58) was the seventh largest in history. The history is a bit limited, just going back to April 2006 when the fund was introduced. OVX was bracing for a move closing Wednesday in the mid-30’s so when the markets opened on Friday OVX didn’t move too much. Using OVX’s closing level of 36.02 on Wednesday, a single day one standard deviation move on Friday would be a move of 0.63. USO dropping 2.32 can be converted to about a 3.7 standard deviation move which is not unheard of in the markets when a news event results in a big price move. Do note on the chart below showing USO’s weekly performance over the past 12 months that this past week was just an acceleration of a move that has been in place for some time.

Oil Weekly 11282014

Gold volatility rose on Friday in front of it is own potential market moving event as this weekend the Swiss go to the polls to vote on a referendum that is being watched closely by gold traders. The vote is a referendum that could result in the Swiss National Bank having to increase their holding of gold. The potential increased demand would be expected to provide price support for up to five years. GVZ was up last week in front of this vote, despite the expectation that the referendum will not pass.

Taking a look at the curves tells a couple of different stories, which has been the case for a few weeks now. GVZ prices are in backwardation, but the spot market moved much more than the futures last week. This would be based on the expectation that volatility will drop after the election this weekend. OVX moved up and the curve remained in backwardation with a very uniform shift across the whole term structure.  Take that as uncertainty and volatility in the price of oil is not expected to end any time soon.

GVZ OVX

The Week in VXST – 11/24 – 11/28

The CBOE Short-Term Volatility Index finished the week with a surge on Friday’s short session. The S&P 500 was down about 5 points which one would not expect to be cause for Friday’s 16% gain in VXST. It appears that the oil and gold prices may have influenced VXST a bit as both those markets were under pressure Friday afternoon. I realize saying ‘under pressure’ for oil’s price action on Friday is a huge understatement.

VXST PA

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Blogging Options: CBOE Morning Update 11.28.14

Other than Black Friday shopping, Oil the talk of Wall Street.  OPEC failed to reach an agreement on a token production cut, WTI Crude at $69.40 per bbl.  This dragging the  S&P lower in early trading,  DJIA Futures flat, NASDAQ slightly higher.  Airlines shares soaring, drillers and majors down.  Gold down 1%, Silver off 3%.  10-year at 2.20%.  VIX Futures trade 14.5K in early session.   Early dismissal today, markets close 12:00 pm CST, 12:15pm on major Index options.  Volatility as an asset class

Oil indexes and ETF option implied volatility is elevated as WTI Crude Oil trades below $70

Oil Services Holders Trust (OIH) overall option implied volatility of 31 compares to its 26-week average of 22.

United States Oil Fund (USO) overall option implied volatility of 32 compares to its 26-week average of 21.

iPath S&P GSCI Crude Oil Total Return (OIL) overall option implied volatility of 35 compares to its 26-week average of 21.

ProShares Ultra DJ-UBS Crude Oil (UCO) overall option implied volatility of 66 compares to its 26-week average of 35.

Options expected to be active @ CBOE:  BP XOM CVX RDS.A TOT EOG CEO

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.11; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 36.02, compared to its 50-day moving average of 28.95 WTI Crude oil trades below $70 into OPEC meeting. cboe.com/OVX

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OPEC’s Announcement and Oil Volatility

Just a few minutes ago I was taking a break from putting lights on the tree. A break for me does not involve checking the Lions – Bears score. My break involves checking in on the markets.   I was aware that OPEC was meeting today and that a big oil price move was possible based on the outcome of that meeting. It appears that OPEC members are happy to let oil prices move lower. I’ll leave the speculation of their motivation behind allowing oil prices to drop to the fundamental experts. My interest in the move today relates to volatility. It always comes back to volatility.

Wednesday the CBOE Crude Oil Volatility Index (OVX) finished Wednesday at 36.02, which is a pretty high level considering the average for OVX in 2014 is just a tad over 20. The chart below shows OVX in November and the constant move higher into the OPEC meeting.

OVX Daily

There is a common rule of thumb that is often cited when taking implied volatility and converting it to a one day move. Basically take the volatility index and divide it by 16, doing that with OVX near 36 gives us a single day move of about 2 1/3%. As I write this oil futures are down about 6 1/2%. OVX was expecting a big move, but not quite what we are seeing at the moment. Friday will be fun day to do a little more analysis on this move, for now I’m going back to stringing lights and preparing for Thanksgiving dinner.

Weekly Weekly’s Option Report 11.26.14

The Weeklys are on short leash this week. I’m Angela Miles covering weekly options expiring this Friday and Next Friday.

The market is open all day today, closed Thursday for Thanksgiving and open for a half day Friday. So there’s not much time left until this week’s options expiration, which is perfect for traders who like short-term snappy plays  .

Today, I’m starting with Apple. The options are going gonzo into the Black Friday buying blitz by American holiday shoppers. AAPL hit a market cap of $700 billion this week along with new highs. Calls continue to outpace puts. Today apple is trading $119 and call buyers are gobbling up 118, 119 and 120 calls. There seems to be a suggestion in the options paper flow that traders believe Apple will rally to $120 by the end of the week. Also for this week there are put sellers at the 117 strike, which tends to be a bullish strategy. Next week in Apple, traders want the 121 calls.

Alibaba is also active. As the stock trades  $113, 115 call option contracts are in demand.

The rumor mill is busy with talk that Goldman Sachs could go private there is some light call buying at 190.

Hertz shares are driving higher on word billionaire investor Carl Ichan is upping his stake now that the rental car company has hired a new CEO. Hertz is trading $25 puts for this week at 24.5 are catching action.

Traders have been building positions in Lululemon ahead of earnings December 11th. LULU trades $48 and calls are picking up trades at the 49 strike. Next week, the are Dec 45 calls active. Some January activity was seen.

Among other popular trades…

Facebook (FB) is generating selling interest in the Nov 75, 76 and 77 calls.

Coke has been active on its new milk product, Fairlife. The company belie believes money will be “pouring in” on this ground breaking product. KO is $44 Dec 43 puts are moving.

SPX is attracting at the money calls and put activity, especially in the 2050 puts and slightly out of the money 2070 strike calls.

That’s it for now. Thank you for watching. Feel free to follow me on  Twitter @Angie Miles.
Have a wonderful Thanksgiving. I will be back on Friday with a final check on the Weekly’s market

CBOE Mid-Day Update 11.26.14

Volatility as an asset class

Deere (DE) is recently down 75c to $87.08 after reporting stronger than expected Q4 results, analysts believe that the company’s guidance indicates that demand for large farm equipment will continue to drop in FY15.  December weekly call option implied volatility is at 14, December is at 15, January at 19, March is at 18; compared to its 26-week average of 18.

cboeApple (AAPL) is recently up 94c to $118.52 after trading at a record high of $119.10.  December weekly call option implied volatility is at 20, December and January is at 22; compared to its 26-week average of 24.

VIX methodology for Apple (VXAPL) -0.3% to 24.33, compared to its 50-day moving average of 25.30 cboe.com/VXAPL

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

Options with increasing volume @ CBOE: SDRL BLOX HP KBR ADP BHP LFC TPX TASR

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) down 15c to 5.16; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently down 26c to 11.99; December 16 and 17 calls active on total volume of 104K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 30c to 26.82
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Blogging Options: CBOE Morning Update 11.26.14

Economic data soft this morning.  Durable Goods rose, but the Core report showed a sharp drop. Overseas markets soft. The 10-Year fell to 2.24%.  Big storm on East Coast should have traders getting their work done early today.  Several more data releases due in next hour.  Volatility as an asset class:

HP (HPQ) is down 87c to $36.76 in the premarket as Q4 revenue decreased into its “value-creating” break-up remains on track. November weekly call option implied volatility is at 50, December is at 25, January and February is at 22; compared to its 26-week average of 26.

Perfect World (PWRD) is down $1.02 to $18.40after the online game operator reported Q3 EPS 41c, compared to consensus 40c.  Q3 revenue was $158M, compared to consensus $160.89M. Overall option implied volatility of 43 is near its 26-week average of 42.

Analog Devices (ADI) is up $1.03 to $52.74 in the premarket after the integrated chip manufacturer reported Q4 EPS 69c, consensus 68c. Q4 revenue was $814M, compared to consensus $804M. Overall option implied volatility of 24 is near its 26-week average of 23.

Options expected to be active @ CBOE:  HPQ SDRL USO DE PWRD

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.31; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 37.49, compared to its 50-day moving average of 28.62 WTI Crude oil trades near $75 into OPEC meeting. cboe.com/OVX

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Thanksgiving Trading Schedule 2014

We got a few e-mails today in The Options Institute, asking about the trading schedule for the rest of the week.  The chart below summarizes it in a very understandable fashion.  The bottom line for option trading in stocks, ETF’s and Indexes – Wednesday is a normal trading day, Friday is a half-day.  The extended session at CFE is a little more involved.  Here’s the chart.  Have a good Thanksgiving weekend.

thanksgiving trading schedule

 

Don’t Let a Trade Define You

As traders and investors we often judge ourselves by the wins/losses in our buying/selling activities.  Yet, the results – while they do matter – are only a small part of the overall success you will achieve.  Many are destined to succeed based on their account growth, yet others (like myself) consider success as it relates to longevity.  Regardless, one should not let their net worth equate to their self worth.  What do I mean here?  Don’t let your bottom line, or even your last trade define who you are as a person.

It is said that ‘you are only as good as your last trade’, and for those who need to be humbled – well, that is certainly the case.  However, I prefer to look at an entire body of work to judge the success of an investor or trader.  While we certainly need to rack up more wins than losses, the extent of a trader/investor career is far more important in my book.  Though we may have losses in the trade they are simply a result of the environment.

There will always be losses along with wins in trading, but that doesn’t mean you are inadequate nor does it mean your are a failure.   Yet, how we manage our own minds in crucial situations makes the difference for handling setbacks – big or small.  In option trading, one can still be successful with a negative win/loss rate.  Much like a baseball player (who is considered a success making outs 7 of 10 at bats), an options trader can fail 60-70% of the time (on individual trades) and still positively grow an account.

Recently, a subscriber in our chat room was going to give up trading entirely after a bad trade result.  A newbie trader, this young man saw his account move up nicely until a recent drawdown pulled him back, and then he started to over-size trades, something we talk about often as the wrong thing to do.  He was really upset, bothered and felt like a loser,  feeling bad enough that his trading results affected his attitude at home.

When I probed further about the issue it seemed he made some mistakes that were correctable, and as I pointed this out to him this trader started to feel much better about himself.  He made some changes to his approach and in fact the next trade he made was a positive result, yet he didn’t feel invincible.  You see the highs and lows with trading results but if you can manage the emotions and just focus on the task at hand, you will find yourself moving forward and feeling much better about yourself.  BL , Senior Market Strategist, Explosive Options. 

CBOE Mid-Day Update 11.25.14

Volatility as an asset class

Chico’s FAS (CHS) is recently up 32c to $16.14 after the casual retailer reported Q3 gross margins increased 54%. December call option implied volatility is at 29, January is at 28, February is at 26; compared to its 26-week average of 35.

Hormel Foods (HRL) is recently down $2.19 to $51.94 after guiding 10% earnings growth in FY15, expects 5% sales growth and increased its dividend 25%. December call option implied volatility is at 26, January is at 24, March is at 23; compared to its 26-week average of 21.

Tiffany (TIF) is recently up $1.44 to $106.45 after reaffirming FY14 EPS view $4.20-$4.30 ex-items on expectations of robust sales growth. December call option implied volatility is at 21, January is at 24, February is at 21; compared to its 26-week average of 27.

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

Options with increasing volume @ CBOE: CEO RNA NEON HOV BMRN DANG BEBE NES

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) up 22c to 5.11; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently down 6c to 12.56; December 19 and 23 calls active on total volume of 110K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 3c to 27.28
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Blogging Options: CBOE Morning Update 11.25.14

Q3 GDP revised higher from a gain of 3.5% to 3.9%.  Case-Shiller Home Prices showed a modest increase.  Train empty on way in this morning.  They’re missing an intra-day, all-time high on SPX. Volatility as an asset class:

Palo Alto (PANW) is up $1.51 to $114.77 in the premarket after the cybersecurity company reported a Q1 loss on rising expenses. November weekly call option implied volatility is at 83, December is at 48, January is at 46, March is at 41; compared to its 26-week average of 52.

Workday (WDAY) is down $5.15 to $87.44 after human resource software firm showed a slower pace of growth. November weekly call option implied volatility is at 84, December is at 45, January is at 43, March is at 41; compared to its 26-week average of 42.

Nuance (NUAN) is up $0.70 to $16.04 in the premarket after reporting a strong finish to fiscal 2014, with revenue, EPS and bookings above our guidance ranges. December call option implied volatility is at 52, January is at 41, April is at 37; compared to its 26-week average of 38.

Options expected to be active @ CBOE:  PNAW WDAY PBR HRL NUAN

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 4.89; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 36.28, compared to its 50-day moving average of 28.24 WTI Crude oil trades near $76 into OPEC meeting. cboe.com/OVX

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Oil & Dollar At Crucial Long-Term Areas – Weekly Market Outlook

While the release of the Federal Reserve’s meeting minutes on Wednesday of last week was supposed to be catalytic, the market seemed a little disappointed – and disinterested – in the fact that Janet Yellen and her cohorts didn’t really say much (or decide much) of anything during last month’s gathering.  It wasn’t until Friday’s news that Europe as well as China would be issuing new stimulus that we saw U.S. stocks start to move.  But, move they did, with the S&P 500 (SPX) (SPY) hitting record highs in the process.

The overall trend for stocks remains positive, for the time being.  We’ll take a look at the bigger market picture right after we take a closer look at last week’s economic reports.  Lastly, we look at the big picture view of Crude Oil and the Dollar Index, both of which are around possible reversal areas.

Economic Data

We worked our way through a pretty big dose of economic information last week, and it was mostly good.  We didn’t start the week out on the strongest foot though, with less-than-stellar industrial production and capacity utilization numbers. Industrial production numbers fell 0.1% in October, and capacity utilization fell from 79.2% to 78.9%.  Neither lull is a trend-breaker.  On the other hand, no trend is dramatically big when it first develops.

The NAHB Housing Market Index rose from 54 to 58 for November, and existing home sales reached a new multi-month high pace of 5.26 million.  Housing starts for October fell from September’s pace, but the 1.009 million units is still solid.  Building permits grew from 1.031 million to 1.080 million units for last month.  The bigger trend remains positive.

There’s more data on the way this week to round out the picture, but barring some surprising weakness on the yet-to-be-released numbers, we have to continue to view real estate and construction in a positive light.

Finally, we also got an updated view of the inflation picture last week.  As of October, the annualized consumer inflation rate stands at 1.66% (same as September), while the producer price inflation rate fell from 1.6% to 1.5%. The tumble of oil and gasoline prices, and food prices, was the core of the reason for the lull. It’s not deflation yet, but the Federal Reserve was understandably concerned about weak – and weakening – inflation, as indicated by last week’s release of last month’s Fed meeting minutes.

Although the Fed didn’t “do” anything to stave off the likely slide of already-weak inflation that will be caused by the end of its bond-buying/QE efforts and the eventual rise in interest rates, it’s clearly on Janet Yellen’s radar.

Everything else is on the following grid:

Economic Calendar

PH 112314-econ-data
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Briefing.com

Stock Market Index Analysis         S&P 500 & VIX – Daily Chart
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Blogging Options: CBOE Morning Update 11.24.14

Conflicting business surveys on a slow news Monday.  Germany’s came in a little better than expected, firming up European stocks, while Markit’s Global Survey showed slowing.  This morning’s business news filled with “Nor’easter” hitting DC to Maine on Wednesday, giving traders and investors an excuse to extend the Thanksgiving weekend.  OPEC meets later this week, giving a little volatility to oil futures.  Volatility as an asset class:

Trina Solar (TSL) is down 47c to $10.46 in the premarket after reported Q3 EPS of $0.34, better than the analyst estimate of $0.15. Revenue for the quarter came in at $616M versus the consensus estimate of $645M. Overall option implied volatility of 65 compares to its 26-week average of 62.

Prosensa (RNA) is up $7.42 to $18.77 in the premarket on BioMarin Pharma (BMRN) to acquiring the drug maker for $17.75. Overall option implied volatility of 88 is above its 26-week average of 84.

Options expected to be active @ CBOE: BMRN PBR ITUB SRPT AAPL

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.01; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 34.92, compared to its 50-day moving average of 27.92 WTI Crude oil trades near $76. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 138.46, compares to its 50-day moving average of 128.14. 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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The Week in Emerging Market Volatility – 11/17 – 11/21

At The Options Institute we travel extensively and the travel is very seasonal. Between Labor Day and Thanksgiving each of the instructors are on the road almost once a week. Just for the heck of it, I scanned my airline frequent flier account and I’ve racked up 19,825 miles between those two holidays this year on behalf of CBOE. My point behind this is not that we log a lot of frequent flier miles, it is that this is a difficult time of year to keep up with what is going on in the markets.

When I see headlines about Brazil I make a mental note since each weekend I like to have something to say about that market in respect to VXEWZ. This past week I saw a couple of what would be considered very bearish comments regarding Brazil. Needless to say, I was shocked when I saw that the iShares MSCI Brazil Capped ETF (EWZ) was up almost 12% last week. That shock turned into a little confusion when I saw VXEWZ rose over 5% as well last week.

VXEWZ PA

Before moving on to the futures price action, I came across a EWZ trade on Friday that expects a pretty big move to the upside for EWZ over the next few weeks. On Friday there was a buyer of 20,000 EWZ Dec 52 Calls for 0.08 that also sold 20,000 EWZ Dec 54 Calls at 0.04 and a net cost of 0.04. Note the payoff diagram below – for EWZ to reach the break-even point a move of 18.4% will be needed. A rally or 22.9% or more between now and December 19th would result in a profit of 1.96.

EWZ PO

VXEEM didn’t get any love or attention above so I’ll talk about the term structure for VXEEM first. It is normal and dull. Now on to the exciting market, VXEWZ is still in backwardation which usually can be taken as uncertainty with a focus on the downside for the underlying market. At least that is normally the case in the equity index world. However, in this instance is could be taken as EWZ is either going to rally or fall apart (again) into the end of the year. At least one trader (see above) is hoping for a big move to the upside.

VXEEM VXEWZ