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

The Week in VXST – 11/17 – 11/21

VXST came under a bit of pressure to end the week due to the S&P 500 reaching more new highs.  The stock market strength combined with the impact of this coming week being a holiday shortened week.  For those new to VXST the explanation behind the previous sentence is the index is based on calendar days and when there is a market holiday a little downside pressure is placed on VXST.

VXST PA

Despite the spot index moving lower, the future that expires this Wednesday on the open is actually a little higher than this time last week.  Pretty interesting with the holiday in front of us and record SPX closing prices just behind us.

VXST Curve

Option trading continues to attract increased interest in the VXST arena.  Despite the S&P 500 moving higher, the VXST pit saw bullish demand for Dec 10th Calls this past week.  On Tuesday, with VXST around 11.30 and the Dec 10th VXST future around 15.35 there was a buyer of 500 of the VXST Dec 10th 20 Calls for 1.00.  The trader in this case is hoping for a quick move up in VXST and hence a quick drop in the S&P 500.

VXST PO

The Week in Volatility Indexes and ETPs – 11/17 – 11/21

Four out of five days last week the S&P 500 hit a new record high. In reaction to the S&P 500 climbing to what some traders consider nose bleed territory three of the four volatility indexes based on SPX option trade dropped in value. The move lower in VXST was a bit overdone and the 7.93% move gets a little bit of an asterisk in this situation since holiday weeks put some extra pressure on this measure of nine-day implied volatility. VXST - VIX - VXV - VXMT

As I have done for three weeks I also included the average term structure close on for the 45 days that the S&P 500 closed on an all-time high in 2014. Sticking with the three out of four theme – VIX, VXV, and VXMT all remain at interesting premiums relative to the average for SPX record days.

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Weekly Market Commentary 11.21.14

The stock market advance is relentless. It has refused to correct for more than a day since bottoming over a month ago and over 230 points lower, but it is up another 12 points in overnight trading as I write this. The chart of $SPX is bullish because it remains in an uptrend.

LM 11 21 14 spx

Equity-only put-call ratios remain on buy signals, as they continue to drop sharply almost daily.

Market breadth has been rather poor of late. In fact, twice this week both breadth indicators slipped into sell signals, only to bounce back up and cancel out those sell signals the very next day. As a result, at the current time, the breadth indicators are clinging to buy signals.

Volatility indices has remained at low levels, and thus are have not been an impediment to rising stock prices.

LM 11 21 14 vix

In summary, the indicators are all positive. Yes, some sell signals are lurking, but none have been able to stick for more than a day. Consequently the intermediate-term picture is bullish, but there is a growing overbought condition that could manifest itself with a sharp pullback, within the ongoing bullish trend. LM

The Weekly Options News Roundup – 11/21/2014

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.

Futures on the Interest Rate VIX
One week ago, CBOE Futures Exchange launched trading of futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index.  Futures on the VXTYN Index provide investors the ability to hedge against swings in the interest rate market.

“CBOE Breathes Life into Treasury VIX – Chris Dieterich, Barron’s
http://on.barrons.com/1AtyxKY

Anticipated Record Options Volume
Although options volumes have cooled in November, last month’s 22% increase in trading boosted total options volume to a 4% gain year-to-date.  This increase puts 2014 on track to be the 2nd busiest year all time.

“Volume Approaches Record Year as October Disrupts Calm” – Lu Wang, Bloomberg Businessweek
http://buswk.co/1x4qTQC

“Tabb Group Says U.S. Equity Volume Up 29% in October to 7.8B Shares” – John D’Antona Jr., Traders Magazine
http://bit.ly/11y0phC

“Industry Volume Spikes to Highest Level in Three Years” – Valerie Bogard, Tabb Forum
http://bit.ly/1p2M0VJ

All Calm on the Western Front
With the volatile month of October behind us, the CBOE Volatility Index and other market indicators have subsided.  Will stocks remain calm for the remainder of the year?

VIDEO:  “Volatility 411” on CBOE TV – Jamie Tyrrell, Group One Trading
http://bit.ly/1xyWwWB

“Volatility Update: Top-Heavy Markets Beg the Question – Too Calm Right Now?” – JJ Kinahan, Forbes
http://onforb.es/1uJcXil

“Pick-up in Volatility Elsewhere Even as VIX Slumbers” – Jamie Chisholm, Financial Times
http://on.ft.com/11G3FIQ

“Why No One Ever Forecasts Lower Volatility” – Adam Warner, Schaeffer’s Investment Research
http://bit.ly/1x4CBe4

“Are Options Underpricing the Probability of More Upside?”- Adam Warner, Schaeffer’s Investment Research
http://bit.ly/1F8wg5J

“Correlation Gauge for S&P 500 Falls at Fastest Rate Ever” – Callie Bost, Bloomberg
http://bloom.bg/1uje7fi

“Low Volatility to Continue in 2015” – Markets Media
http://bit.ly/1BUHjmP

A Step Forward For VIX Kind
After a three- year hiatus, the Korea Exchange (KRX) has resumed options trading.  In addition, futures based on the KOSPI 200 Volatility Index began trading Monday at the bourse. More

CBOE Mid-Day Update 11.21.14

Volatility as an asset class

Euro Currency Trust (FXE) is recently down $1.31 to $122.25 after Mario Draghi announced that the ECB is ready to expand its asset purchase programs. Overall option implied volatility of 8 is at its 26-week.

Foot Locker (FL) is recently down $1.50 to $55.49 after reporting Q3 EPS 83c, compared to consensus 79c and reports comparable-store sales increased 6.9%. December call option implied volatility is at 27, January is at 25, February is at 24; compared to its 26-week average of 27.

Ann Taylor (ANN) is recently down 25c to $38.09 after reporting Q3 EPS ex-items 72c, compared to consensus 68c. Reports Q3 revenue $646.8M, consensus $648.27M.  December call option implied volatility is at 27, January and March is at 29; compared to its 26-week average of 33.

Active options at CBOE: AAPL AMZN AMAT WLT KMI TSLA C NFLX PBR AA

Options with increasing volume @ CBOE: INSM FAST EWC PRGO NGL ERX BLOX PVG REGI

CBOE Volatility Index (VIX) is recently down 11c to 13.47; December 16, 19 and 23 calls active on 117K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 67c to 27.86

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 1c to 10.90; compared to its 10-day moving average of 11.37 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) at 262.92 compared to its 50-day moving average of 263.27cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up $5.52 to 915.94 after China lowered

Blogging Options: CBOE Morning Update 11.21.14

China cutting rates and comments by the ECB have stocks soaring in early trading.  Asian stocks up modestly, European shares up 1% to 2%.  ECB buying Asset-Backed Securities but unclear as to type.  Dollar up again, Oil and Metals also higher.  Several Retailers reporting good sales this morning.   VIX Futures off ~2% in premarket trading on good volume. Volatility as an asset class:

iShares FTSE Xinhua China 25 Index (FXI) is up $1.38 to $39.87 in the premarket after China lowered interest rates. Overall option implied volatility of 18 is at its 26-week average.

Splunk (SPLK) is higher by $5.36 to $70.40 after reporting Q3 revenue of $116M, compared to consensus $107.3M. Splunk said it signed more than 500 new enterprise customers, ending the quarter with more than 8,400 customers worldwide. November call option implied volatility is at 126, December is at 65, January is at 57; compared to it 26-week average of 56.

Autodesk (ADSK) is up $2.03 to $60.49 in the premarket after reporting Q3 adjusted EPS of 25c, consensus 22c. November call option implied volatility is at 94, December is at 39, January is at 34, April is at 31; compared to its 26-week average of 34.

Options expected to be active @ CBOE:  FXI SPLK GME GPS TFM   INTU ADSK ROST GME

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.10; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 33.64, compared to its 10-day moving average of 32.21 WTI Crude oil trades near $76 into Nov 27 OPEC meeting. cboe.com/OVX

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Next Week in Weeklys – 11/24 – 11/28

Despite next week being a Turkey Day shortened week there are a handful of companies with short dated options reporting earnings.  The eight companies that are not taking the full week off appear below along with three years of stock reaction history relative to their earnings release.  The two stocks that are in italics (PANW and WDAY) have less than three years of reporting history to work with.

Earnings

CBOE Mid-Day Update 11.20.14

Volatility as an asset class

GoPro (GPRO) is recently down $4.90 to $74.24 after files to sell $800M in common stock for holders . November weekly call option implied volatility is at 67, December is at 58, January is at 53; compared to its 15-week average of 56.

El Pollo LoCo (LOCO) is recently down $1.41 to $28.21 after 6M share Secondary priced at $27.00. Overall option implied volatility of 51 is near its 10 week average of 49.

Active options at CBOE: AAPL AMZN WLT CRM DG NFLX TWTR BABA GILD

Options with increasing volume @ CBOE: KBR LM PRGO CHRW DG ZMH LGF ZTS OSIR REGI

CBOE Volatility Index (VIX) is recently down 25c to 13.71; December 22 and 23 calls active on 139K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 14c to 28.64

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 29c to 11.13; compared to its 10-day moving average of 11.41 stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) is recently up 1c to 262.84 compared to its 50-day moving average of 263.527cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up $1 to 909.80 as interest rates trade higher.

Blogging Options: CBOE Morning Update 11.20.14

Soft economic numbers overseas have US stock futures lower.  Eurozone Purchasing Managers survey showed a sharp drop.  European shares off a little less than 1%.  October CPI flat, Core rate up 0.2%. VIX Futures trade ~9,800 contracts in the early session. Volatility as an asset class:

Keurig Green Mountain (GMCR) is down $3.45 (2.2%) to $150.50 in the premarket after reporting Q4 adjusted EPS 90c, consensus 77c. November call option implied volatility is at 153, December is at 51, January is at 45, March is at 43; compared to its 26-week average of 42.

salesforce.com (CRM) is off $1.80 or 3% to $59.22 after the software company reported Q3 EPS 14c, consensus 13c. November call option implied volatility is at 97, December is at 38, January is at 33; compared to its 26-week average of 34.

Williams-Sonoma (WSM) is up over 6% to $74 after reporting Q3 results, guidance. November call option implied volatility is at 100, December is at 35, January is at 29; compared to its 26-week average of 25.

Options expected to be active @ CBOE:  GPRO CZR BABA ANN WSM CRM GMCR VIX

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.23; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 33.14, compared to its 50-day moving average of 26.69 WTI Crude oil trades near $75 into Nov 27 OPEC meeting. cboe.com/OVX

CBOE Crude Oil Volatility Index $OVX @ 33.14 into Nov 27 OPEC meeting, cboe.com/OVX

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CBOE Mid-Day Update 11.19.14

Volatility as an asset class

Tesla Motors (TSLA) down $10.51 to $247.10 after Morgan Stanley took down estimates for the company, though they noted they remain buyers. November call option implied volatility is at 45, December is at 35, January is at 37; compared to its 26-week average of 46.

Staples (SPLS) is recently up $1 to $13.79 after results and sees closing up to 225 North American stores by end 2015. November call option implied volatility is at 48 December is at 29, January is at 25; compared to its 26-week average of 33

Blackberry (BBRY) recently down 56c to $10.21 after Morgan Stanley downgraded BlackBerry to Underweight from Equal Weight. The firm believes the market is too optimistic on new product ramps and in assuming the company will meet its FY16 $350M target in new software revenue. November call option implied volatility is at 67, December is at 65; compared to its 26-week average of 56.

Active options at CBOE: AAPL NFLX TWTR TSLA

Options with increasing volume @ CBOE: DGX PLD TSM PLCE ENDP IPI FOLD EDU CNC IGT CSTM

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.26; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 67c to 14.53; December 13, 14 and 15 puts active boe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 62c to 28.72
More

Blogging Options: CBOE Morning Update 11.19.14

Data on October Housing Starts dragging stock futures lower, as it showed a drop of 2.8% (up 0.6% expected).  Permits up but not watched as much as starts.  10-year up to 2.36%, Asian stocks lower, Europe mixed to higher.  With a little luck, Buffalo N.Y. snowfall this week could exceed 100″.  Volatility as an asset class

Target (TGT) is up $2.04 to $69.60 in the premarket after reporting Q3 adjusted EPS 54c, consensus 47c November call option implied volatility is at 44, December is at 24, January is at 21; compared to its 26-week average of 19.

Vipshop (VIPS) is down $1.67 to $22.04 after the online Chinese discount retailer beat Q3 views and outlook was in line with street estimates. November call option implied volatility is at 104, December is at 64, January is at 53, February is at 54; compared to its 26-week average of 54.

Lowe’s (LOW) is up $2.46 to $60.99 in the premarket on sees FY14 revenue up 4.5%-5%. and sees FY14 SSS up 3.5%-4%. The company expects to open 6 home improvement and 4 hardware stores in FY14. November call option implied volatility is at 54, December is at 25, January is at 20, April is at 19; compared to its 26-week average of 22.

Options expected to be active @ CBOE:  SPLS LOW PETM VIPS JACK AVP TGT

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.26; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 33.17, compared to its 50-day moving average of 26.61 WTI Crude oil trades near $75. cboe.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 132.03, compares to its 50-day moving average of 128.21.

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Trading the Markets, Part 1: Feeling the Pressure

There are many traders who do it for a living because they have a formula for success.  Each one has their own concoction of methods and a particular style that works for them, but I will tell you that most winning traders have a good plan but are flexible to change if needed.  Further, the most successful traders do not let outside factors influence their daily actions or routine, as they will add to the already difficult challenge of trading.  Success to me is not necessarily gaining a big stack, rather it’s about longevity and persistence.

Markets do not move in one direction, and the shorter your timeframe the more volatility we see.  Over time markets tend to rise but this is not like the ‘old days’ when a buy/hold strategy was best served.  This is not your ‘fathers market’ any longer, being rational, realistic,  nimble and flexible often pays better than being patient, sitting and waiting (still a good investing strategy, but we’re talking about trading here).

So, if you’re trading this market you deal with uncertainties, fear and greed.  But are you prepared to buy dips and sell rips when they come at you?  Further, are you capitalized to the point where if you make a bad move your account won’t be severely crippled?   Many feel the pressure to succeed each day, week and month so they can make their mortgage payment, pay bills or put food on the table.  Those are perpetual expenses, they occur all the time and just never end.  But, your gains are not perpetual, you will have setbacks – and then what do you do?   If the market were always going in one direction and we could ride it out and never worry, then it would be easy to do – but as we know, that is just not true.

This approach is a recipe for disaster because of the uncertainties is markets. Anyone can get lucky, but that is not sustainable nor a wise strategy.   The pressure you will feel to be perfect in your timing and selections is extremely intense.  There is nobody who can make a sustained living trading if they are under-capitalized.  You have to have room for market changes, shifts, uncertainties, errors and unfortunate situations.  Hedging is a great way to approach the trade but the returns are reduced.

I suggest being well capitalized to trade your account.  It is said that a trader should have a year’s worth of expenses ‘on the side’ – and then a big stack to work from.  I would agree but perhaps eighteen months worth  of expenses, a good-sized stack and a PLAN of action.  There is nothing more important than the plan – which is a topic we’ll cover next time around.

Bob Lang,  Explosive Options. He is a regular contributor to TheStreet.com. You can find him on Twitter @aztecs99.

CBOE Mid-Day Update 11.18.14

Volatility as an asset class

Home Depot (HD) is recently down $1.73 to $96.30 after reporting in line Q3 EPS of $1.15 and mixed 2015 guidance. November call option implied volatility is at 19, December is at 18, January is at 16; compared to its 26-week average of 18.

Medtronic (MDT) is recently up $2.66 to $71.85 on Q3 revenue increasing 5% and backing FY15 EPS $4.00-$4.10. November call option implied volatility is at 21, December is at 20, January and February is at 17; compared to its 26-week average of 19.

Dick’s Sporting (DKS) is recently down $1.16 to 46.35 on the sporting goods retailer sees Q4 EPS $1.18-$1.28, compared to consensus $1.21. November call option implied volatility is at 36,
December is at 23, January is at 22, March is at 26; compared to its 26-week average of 27.

Active options at CBOE: AAPL POT AMZN PBR ABX MCD HD GILD C AA

Options with increasing volume @ CBOE: MCD RDSA IRBT NBS PLUG TEVA MOS JASO CTSH

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.26; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently down 50c to 13.49; November 13.5 and 16 calls active on 135K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 71c to 27.88
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Blogging Options: CBOE Morning Update 11.18.14

It’s cold in the midwest.  PPI for October rose an unexpected 0.2% (-0.1% expected, and -0.1% in Sept.).  X-Food % Energy PPI rose 0.1%.   HD beat with earnings but vague comments about cost of security problems shows the shares off $0.90.  Fans of Shark Tank woke up to find GrooveBook (Shark Tank company) bought by Shutterfly for $14.5 million – Kevin O’Leary and Mark Cuban do well. Volatility as an asset class:

Urban Outfitters (URBN) is down $1.38 to $29.45 in the premarket after the retailer reported lower than expected Q3 EPS.  November call option implied volatility is at 68, December is at 38, January is at 34, March is at 30; compared to its 26-week average of 31.

Agilent (A) is down 49c to $40.75 after the testing equipment company reported less than expected Q4 EPS. Overall option implied volatility of 31 is above its 26-week average of 26.

iShares MSCI Japan Index Fund (EWJ) is up 9c to $11.67 after Japanese Prime Minister Shinzo Abe says he will delay a sales tax rise and call a snap election. Overall option implied volatility of 23 compares to its 26-week average of 16.

Options expected to be active @ CBOE:  A SNE URBN TGT HD WSM MDT

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.50; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 34.39, compared to its 50-day moving average of 26.61 WTI Crude oil trades near $75. cboe.com/OVX

CBOE Crude Oil Volatility Index $OVX 4.1% to 34.34 into Nov 27 OPEC meeting, cboe.com/OVX

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Small, But Growing, Reasons To Be Concerned Here – Weekly Market Outlook

Stocks may have technically made a fourth straight weekly gain last week, but the real story was the incredibly quiet, flat market action.  We’ll delve into overall stock market index analysis, and some factors that have us concerned despite the overall bullish trend momentum picture, after we take a look at the recent and upcoming economic releases.

Economic Data

While there was a moderate amount of economic data to work through last week, truthfully, only a couple of items were of any real consequence.

First and foremost, last month’s retail sales weren’t great.  They weren’t bad.  They just weren’t great.  Analysts were expecting a 0.6% improvement of retail spending overall (with or without automobiles), but we only saw a 0.3% uptick (again, with or without automobiles).  That being said, a closer look at the details reveals that super-cheap oil and therefore super-cheap gas were the chief culprits for the shortcoming.  Had it not been for the plunge in petrol prices, retail spending would have actually been up 0.5%.

Whatever the case, consumers are still doing their part – doing enough – to keep the economy humming, even if October’s actual numbers were less than hoped.

The only other piece of economic data from last week worth mentioning (the weekly initial claims figures have largely become irrelevant since they misleadingly exclude a large chunk of the non-working population) was the Michigan Sentiment Index score, and even that piece of data should be taken with a grain of salt… since it’s going to be revised two more times this month.  To the extent it matters though, the initial November reading for the Michigan Sentiment Index was 89.4, up from October’s final score of 86.9.  That confidence trend has been moving upward for years, and it looks like we’ll see at least one more step higher.

Economic Calendar
PH 111614-econ-data
Source:  Briefing.com

The coming week is not only going to be much busier on the economic data front, but a few of the data points in the lineup are hard-hitting things.

We’ll get the ball rolling early on Monday, with last month’s industrial productivity and capacity utilization.  These may well be the best indications of the long-term market’s strength (since they’re so intrinsically linked to the economy), and both sets of figures have been in solid uptrends or at encouraging levels.  The pros seem to be looking for a bit of a lull for last month, though as long as we don’t see a major disappointment stocks should remain firm for the long haul.

On Tuesday we’ll start a wave of inflation data, beginning with producer price inflation levels.  On Thursday we’ll follow up with consumer inflation levels.  Economists are once again looking for tepid inflation – if not near-term deflation – for both producers and consumers.  Cheap oil prices are certainly part of the cause, but that’s not the only reason the inflation beast has been oddly tamed.  Deflation may actually be the bigger worry.

Finally, this week starts a two-week wave of real estate data.  We’ll hear October’s housing starts and building permits on Wednesday, and existing home sales rates on Thursday.  Though forecasters are basically looking for a near-repeat of September’s figures for last month, bear in mind that the longer-term trend here remains an encouraging one on almost all data fronts.

Stock Market Index Analysis

Technically the market is still in a bullish trend,  with the BigTrends TrendScore now stands at 97.4 (out of 100) as of the close last week.  But there’s some reasons to be concerned here, read on below and examine the charts.

Let’s start this week’s analysis with a look at the weekly chart of the S&P 500 (SPX) (SPY) — while bullish overall, what is concerning is (1) a  rally with less and less participation (volume) the longer it goes on, (2) a rally that is slowing down and getting close to a complete stop, and (3) an index that’s now bumping into a potential technical ceiling… the upper 52-week Bollinger band.

S&P 500 & VIX – Weekly Chart
PH 111614-sp500-weekly
All charts created with TradeStation

Not a lot changes when we zoom into a daily chart of the S&P 500.  We can see some more detail regarding the slow-down though.  Namely, we can see the index hasn’t budged in the past four trading days.  While the holiday last week may have had something to do with this, the lack of movement is a slight concern here.

S&P 500 & VIX – Daily Chart
PH 111614-sp500-daily

In last week’s market analysis we added some MACD lines and a momentum indicator to illustrate how the rally was potentially fading.  They’re on the chart above.  The concern here is the MACD narrowing and the Momentum indicator fading a bit.  The bearish clincher on this front would be a full bearish crossunder of the MACD lines, which is actually closer than it seems.

To do that, however, the S&P 500 and the CBOE Volatility Index (VIX) (VXX) would both likely need to do some things of their own.  Namely, the VIX would need to move above its recent ceiling at 15.8 and then, really, above the bigger ceiling at 17.5.  Simultaneously, the S&P 500 will need break under a former ceiling at 2010 to really open the selling floodgates.  We can’t really make many bearish bets until we start seeing those things happen, but that doesn’t mean it’s time to load up on too many bullish positions, either.

Just to be clear, we’re not saying the market’s due to start a new bear market.  Stocks are moderately overvalued though, now that the trailing P/E for the S&P 500 is at 17.75 and the forward-looking P/E is 15.75, and any stumble from here may well be the one to dole out that needed correction.  Any near-term weakness may not be fundamentally-based though.

All we can really know right now is, stocks are set up for some bigger moves after last week’s abnormally quiet activity.  They are vulnerable to a pullback to some degree, and if the aforementioned lines are crossed, that near-term technical selloff may materialize sooner rather than later.  We’ll have to wait and see where the likely floor develops if the market does move lower.  A bigger picture downside level to watch is 1915, should the S&P 500 fall all the way there — that’s where the S&P 500’s 200-day moving average line is resting, and a move to that mark would mean a 6.4% pullback from the high.   But again, we’re not in a bearish mode yet (in fact the overall picture is still a bullish one) — but we’re seeing some small (but growing reasons) to be a bit concerned here.  Trade Well,  PH BigTrends.com

CBOE Mid-Day Update 11.17.14

Volatility as an asset class

iShares MSCI Japan Index Fund (EWJ) is recently down 20c to $11.58 as Japan slipped into recession. Overall option implied volatility of 20 compares to its 26-week average of 16.

American Express (AXP) is recently down 72c to $89.96 after reporting October net write-off rate 1.3% vs. 1.2% last month. November call option implied volatility is at 15, December is at 17, January is at 15; compared to its 26-week average of 19.

Celldex (CLDX) is recently up $4.80 to $19 after the company on Friday afternoon reported interim positive data for its brain tumor treatment, rindopepimut. November call option implied volatility is at 69, December is at 65, January is at 64; compared to its 26-week average of 73.

Active options at CBOE: AAPL BABA AMZN TWTR PBR GILD NFLX

Options with increasing volume @ CBOE: MMM SNSS URBN HD HTZ WB

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.58; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 88c to 14.19; November 16, 17 and 20 calls active on 145K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 6c to 28.60
More

Blogging Options: CBOE Morning Update 11.17.14

Asian markets off sharply as Japan officially enters recession.  NIKKEI off 3% after trading off 6%. Oil and grains off fractionally. Nov. VIX settles this Wednesday. It’s cold in Chicago.  Volatility as an asset class:

Baker Hughes (BHI) is up $9.51 to $69.43 in the premarket on Halliburton (HAL) acquiring all the outstanding shares of Baker Hughes in a stock and cash transaction valued at $78.62 per share. November call option implied volatility is at 71, December is at 45; compared to its 26-week average of 24.

Halliburton is down $2.48 to $52.60.  November call option implied volatility is at 39, December is at 37; compared to its 26-week average of 28.

Linkedin (LNKD) is down $3.89 to $230 in the premarket on Facebook (FB) quietly working on “Facebook at Work,” a website that would compete directly with LinkedIn the Financial Times reports.  November call option implied volatility is 31, December is at 30, January at 32; compared to its 26-week average of 46.

Options expected to be active @ CBOE:  BHI HAL SLB BABA PBR DWA ACT AGN VRX

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.44; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 32.99, compared to its 50-day moving average of 26.55 WTI Crude oil trades near $75. CBOE.com/OVX

More

The Week in VIX – 11/10 – 11/14

A week ago I discussed what VIX was doing when the S&P 500 set recent records relative to SPX record highs set earlier in 2014. At that time there were 38 days where the S&P 500 had closed at a new all-time high, now the number is up to 41 with three records being set last week. The week closed with the S&P 500 at an all-time high and VIX at 13.31, slightly up on the week. I think each of us can interpret the VIX action in our own way, personally I think a lack of quantitative easing in the market place has heighted the risk perception associated with owning stocks.

VIX on SPX Records

More

The Week in Emerging Market Volatility – 11/10 – 11/14

The iShares MSCI Emerging Markets ETF (EEM) was up about a half percent last week despite the performance of the Brazilian market. We shall get to Brazil in a moment. EEM is down down 0.03 for the year for a loss of 0.07% which is close enough to say flat on the year. The result of the relatively quiet week for EEM was a quiet week for VXEEM which managed to drop 0.20 or about 1% to finish the week at 18.55.

VXEEM PA

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The Week in Gold and Oil Volatility – 11/10 – 11/14

Friday was a pretty slow day on the floor at CBOE. I hosted groups from a couple of different colleges mid-day on Friday and there were very few large open outcry trades coming into the SPX or VIX pit while we were on the trading floor. Apparently all the Friday action was in the gold market. GLD finished the week up 1.3% with most of that move coming on Friday. What also resulted from that move in gold was a spike in the CBOE Gold ETF Volatility Index (GVZ) which rose 11.3% on Friday alone. The implied volatility of commodity markets is always unique to the underlying market, but generally it will move up based on a rally or a big drop in the underlying market. GVZ has demonstrated just that over the past few weeks as gold and broken support and then put in a small rally.

GVZ PA

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The Week in Russell 2000 and Nasdaq-100 Volatility – 11/10 – 11/14

The Russell 2000 was up a whopping 0.04% last week which lagged the gains racked up last week in the S&P 500 (0.39%) and Nasdaq-100 (1.55%). Despite the underlying market rising more, VXN was actually up slightly more than RVX last week. The Russell 2000 has had a tough 2014, but since the equity market bottomed out on October 15th small cap stocks have kept pace with large cap stocks as represented by the S&P 500.

Both the RVX and VXN curves experienced unusual moves as the spot indexes rose and the futures all lost value. November expiration is this coming Wednesday so with little action in the index, the futures closed the gap by losing value.

RVX VXN

The Week in VXST – 11/10 – 11/14

I’m very hung up on volatility indexes not approaching 2014 lows despite the S&P 500 making new highs. This may be attributed to the rough patch the equity market encountered back in October or a lack of safety net that resulted from the ending of Quantitative Easing. Either way, note the chart below that depicts the VXST closing prices for each of the 41 times in 2014 that the S&P 500 closed at a record high.

VXST SPX Highs

The average VXST close on S&P 500 record days is just over 11. All the recent closing levels for VXST have been above the average for 2014 and well above several closing prices for VXST this year.

More

The Week in Volatility Indexes and ETPs – 11/10 – 11/14

The S&P 500 set three record highs last week, you may not be aware since there was not very much fanfare surrounding record closing high numbers 39, 40, and 41 for 2014. Also, Friday’s record was almost a rounding error to the upside relative to Tuesday’s record. Sticking with a theme I latched onto last week the VXST – VIX – VXV – VXMT term structure curve below has an extra line on the bottom. The purple line shows the average closing 2014 term structure on days where a record high was set for the S&P 500. The other two lines show the same term structure for the past two Fridays, both of which were record setting days. I’ll just note what I pointed out a week ago, risk perceptions are high considering the S&P 500 is at all-time highs.

Term Structure Curve

More

Weekly Options News Roundup 11/14/14

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.

Futures on the Interest Rate VIX are Here!!!
Futures on the CBOE/CBOT 10-Year US Treasury Note Volatility Index (VXTYN) debuted on the CBOE Futures Exchange (CFE) yesterday.  This exciting new addition to CBOE’s volatility suite of products offers traders a way to hedge pure interest rate volatility based on U.S. government debt with a single product for the first time.

“A Perfect Ten? CBOE’s Latest Vol Contract Could Be A Stunner” – Sarah Rudolph, John Lothian News
http://bit.ly/1sApQ9E

“CBOE Taps Rate Concerns With Futures on Bond Volatility” – Callie Bost, Bloomberg
http://bloom.bg/1uu2Tt8

“CBOE Launches Treasury Version of VIX” – Jamie Chisholm, Financial Times
http://on.ft.com/112AE9o

“What to Make of the Latest Volatility Gauge”– Adam Warner, Schaeffer’s Investment Research
http://bit.ly/14hTPxU

“CBOE U.S. Bond Volatility Index Rises as Futures Debut” – Richard Leong, Reuters
http://reut.rs/1tMeFtV

“CBOE/CBOT to Launch 10-Year U.S. Treasury Note Volatility Index Futures”- FTSE Global Markets
http://bit.ly/1tMXiOq

BLOG: “Futures on Interest Rate Volatility Index [VXTYN] To Launch on Nov. 13” – Matt Moran, VIX Views
http://bit.ly/1xS97lL

VIDEO:  “Volatility 411: VXTYN Makes Its Introduction” – Dan Deming, Equity Armor Investments, CBOE TV
http://bit.ly/1utCYBC

Mr. Popularity
The record trading activity at U.S. exchanges in October has been well-documented.    It’s also worth noting that October’s volatility spurred brisk trading in structured products, including many linked to VIX, across European exchanges.

“Volatility Triggers Surge in Structured Products Trading” – Yakob Peterseil , Bloomberg
http://bloom.bg/1EynvU1

Small Caps: “It’s Been a Hell of a Bumpy Ride”   
2014 has been a wild year for small caps.  The CBOE Russell 2000 Volatility Index (RVX), the “VIX for small-caps,” traded at a higher premium than the VIX Index throughout the year.  In October, however, we saw RVX dip below VIX for the first time ever.

“For Stocks in 2014, Even Volatility Is Volatile” – Paul Vigna, The Wall Street Journal
http://on.wsj.com/1xlbzUY

VIDEO:  “Measuring Fear and Greed in the Markets” – Russell Rhoads, BNN TV
http://www.bnn.ca/Video/player.aspx?vid=490730

VIX on a Downward Slope
The VIX Index continues its retreat from the 31-level it touched in mid-October to the 13s this morning.  Is last month’s fear slowly transforming back to the year’s complacency?

“VIX Leads The Way Lower” – Anna Coulling, Investing.com
http://bit.ly/14dEbDr More

Weekly Market Outlook 11.14.14

It has been a great stock market rally, with $SPX advancing 200 points
in about a month.  But the advance is slowing, and sell signals are
setting up (although none has actually been confirmed yet).

$SPX has minor support at 2030 and also below there, at 2000.

lm 11 13 spx
Equity-only put-call ratios have remained solidly on buy signals
for nearly a month.  They are dropping rapidly on their charts, and it’s
bullish for stocks as long as they continue to decline.

Market breadth has not been particularly strong, but it’s been
strong enough to keep the breadth oscillators on buy signals.
However, they are weakening, and one more day of negative breadth
will generate sell signals.

Volatility indices have generally remained subdued. $VIX traded
below 13 this past week.  While that’s an overbought condition of
sorts, it’s not dangerous for stocks unless $VIX begins to trend higher.
LM 11 13 vix

In summary, the intermediate-term indicators are bullish for now,
but overbought conditions look like they’re going to produce some
sell signals soon.  LM

CBOE Mid-Day Update 11.14.14

Volatility as an asset class

Geron (GERN) is recently up 59c to $2.90 after announcing a global strategic collaboration with Janssen Biotech. November call option implied volatility is at 116, December is at 99, January is at 88, March is at 97; compared to its 26-week average of 106.

Harley-Davidson (HOG) is recently up 88c to $68.51 after Goldman Sachs upgraded the motorcycle company to Buy after its channel checks indicated U.S. retail sales accelerated in October. November and December call option implied volatility is at 20, February is at 21; compared to its 26-week average of 21.

SPDR S&P Oil and Gas Exploration and Production ETF (XOP) is recently up 52c to $59.13 as WTI Crude Oil trades near $75. November call option implied volatility is at 43, December is at 41; compared to its 26-week average of 29.

Active options at CBOE: AAPL BABA AMZN TWTR GILD AMAT PBR TSLA HTZ AA WMT

Options with increasing volume @ CBOE: GERN AKAM DB HLF HAL AIG

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.44; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently down 0.7% to 13.68; November 16 and 20 calls active on 175K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 50c to 29.07

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 2.5% to 11.67; compared to its 10-day moving average of 12.46 stks.co/r0CS2
More

Weekly Weekly’s 11.14.14

JC Penney and Cisco are in play post earnings!

Next week is traditional options expiration, so today I’m mainly focused on options expiring this Friday, November 14th.

Starting with JCP. A trader told me this one was difficult to predict how the earnings move would shape up. JCP reported a sales miss, but its loss was less than anticipated. Traders really want to know if the turnaround is working at the retailer. JCP is trading around $7.20 and there are more puts than calls trading now that the earnings news it out. The 7 and 7.5 put option strikes are generating interest. And, there are calls active at the 7.5 line in JCP. But, at this point of the session the heaviest action is centered around the 7 put strike.

Cisco topped on earnings and the stock is trading $25.40. The call buyers are stepping into the Weeklys at the 25 and 26 strikes. I would also note there are puts trading at the 25 strike. So far today, the options market seems to suggest CSCO will settle at 25.5 at options expiration Friday.  As a side note, John Burnside of Freeboard Capital is on my ‘In The Money Show’ right on this website talking about his collar options strategy in Cisco. John is using a collar strategy  because he says he likes the stock but wants to the protection options offer. Click on my show if you have the chance.

Applied Materials reports earnings after the close. As AMAT trades $22 most of the action is centered around the call side. The 27 and 27.5 strikes are especially active. However, there is an interesting “inexpensive” hedge play that popped up.  There are 1,000 put contracts that are way out-of -the money at the 18 strike going for one penny.

Youko offers results tonight and the straddle is pricing in a major move of 9% off the 21.5 strike.

Taking a look at big movers this week….

Alibaba has been making it onto the most active list this week. Reports say the founder Jack Ma may consider buying a larger stake in Youku for its video streaming capabilities. BABA has had a decent range this week that traders have enjoyed. Today BABA is on the move to $119 today. Traders are coming for the calls at the 118, 119, and 120 strikes. That could even be a spread play. It’s becoming clear through the options paper that traders are rolling their strikes higher in BABA. The stock, for now, appears to have upside momentum.

It’s another week of new highs for Apple! Today APPL is trading $112 and calls are active at 112, 113 and 114.strikes. Calls are more predominate than puts at this juncture of the session, but the puts are more expensive than the calls in a possible sign traders are willing to “pay up” for that put protection in Apple. Again, spread plays appear to be popular in the Apple options trade.

Lulemon has a spike in implied volatility that traders are paying attention to this week. Vol is at the upper end of the range again today at 58. Although, options paper is light in LULU. The smattering of options paper that is active includes the 43 calls and the 44 and 44.5 puts.

The S&P 500 has been a record setter this week. Today the SPX is attracting an abundance of calls versus puts. Calls are active at 2,045 and 2,065 strikes. On the Put side the 2,025 strike is active.

And finally,… One name has been added to the list of available Weeklys: American Outfitter.
And, one name has been deleted: GW Pharmaceuticals.

Thanks for watching my shows on CBOETVand reading my blogs. Feel free to follow me on Twitter @AngieMiles

Blogging Options: CBOE Morning Update 11.14.14

Stocks look to open slightly higher after a DJIA record close and a NASDAQ 14-year high.  Retail Sales for October at +0.3% beat, X-Auto also up 0.3%.  Nordstrom sales exceed expectations.  Talk of FED tightening swirl on trading floor.  Soft economic news out of Europe and Russia sabre rattling a drag on overseas markets.  Volatility as an asset class

SINA (SINA) is down $1.75 to $40.10 the premarket after the Chinese internet portal company reported a lower than expected Q3 profit. November weekly call option implied volatility is at 127, December is at 41, January is at 39; compared to its 26-week average of 46.

Youku.com (YOKU) is is recently down $1 to $20.25 after the Chinese internet television company reported a Q3 miss and soft Q4 outlook and outlook. November call option implied volatility is at 70, December is at 52, January is at 45; compared to its 26-week average of 49.

Hertz (HTZ) is down 51c to $22.38 in the premarket after outlining a new rental car strategy. November call option implied volatility is at 84, December is at 59, January is at 54, March is at 47; compared to its 26-week average of 43.

Options expected to be active @ CBOE:  BHI HAL SLB BABA PBR BP SINA GERN JWN HTZ

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) at 5.39; compared to 52-week low of 1.69 and high of 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 31.20, compared to its 50-day moving average of 26.27 WTI Crude oil trades near $75. CBOE.com/OVX

More

Next Week in Weeklys – 11/17 – 11/21

Next week we have a small but mighty list of stocks with short dated options available for trading reporting earnings. Monday afternoon SandRidge Energy (SD) gets things going. Note the biggest drop the stock has experienced when reporting was last quarter. It will be interesting to see if investors are skittish in front of the earnings release. On the other side of the spectrum Home Depot (HD) reporting on Tuesday morning and Gap Stores (GPS) reporting Thursday after the close are coming off strong stock performances based on earnings three months ago.Earnings

New Class Offering at CBOE

Next month I will team up with Mark Sebastian from Option Pit one more time this year for a final seminar at CBOE. This time our class is going to cover different consistent and structured trading approaches to the option market. The underlying markets discussed include VIX, SPX, and individual stock with time frames varying from a few days to a few weeks. You can either join us in Chicago or if Chicago in December is not your thing join us online.

For more information can be found at the link below –

Structured Approaches to Option Trading

CBOE Mid-Day Update 11.13.14

Volatility as an asset class

Kohl’s (KSS) is recently down $2.11 to $55.80 after reporting less than expected Q3 results and issued a less than expected Q4 outlook. November call option implied volatility is at 25, December is at 21, January is at 20; compared to its 26-week average of 25.

Tyco (TYC) is recently down $1.41 to $41.95 after reporting less than expected Q4 revenue. November and December call option implied volatility is at 19, January is at 18 compared to its 26-week average of 19.

Hasbro (HAS) is recently down $2.77 to $54.70 on reports of interest in acquiring DreamWorks Animation (DWA). November call option implied volatility is at 21, December is at 20, January is at 18; compared to its 26-week average of 18 according.

DreamWorks Animation is recently up $3.53 to $25.91. November call option implied volatility is at 59, December is at 57, March is at 44; compared to its 26-week average of 39.

VIX methodology for Google (VXGOG) up 3.6% to 19.89, compared to its 50-day moving average of 25.12. cboe.com/VXGOG

Active options at CBOE: AAPL BABA AMZN WMT PBR TSLA TWTR NFLX BAC AA PEP

Options with increasing volume @ CBOE:  AME STAR BYD CYBR TTWO RCAP FUEL HAS RGLS CBG

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.33; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Volatility Index (VIX) is recently up 4.4% to 13.59; November 13 and 14 puts active on 189K cboe.com/VIX
More

Blogging Options: CBOE Morning Update 11.13.14

Volatility as an asset class

Procter and Gamble (PG) is down $0.58 to $88.90 on Berkshire Hathaway Inc. (BRK.B) acquiring the Duracell battery business from Procter & Gamble in deal valued at approximately $6.4B. Overall option implied volatility of 13 is near its 26-week average of 14.

Cisco (CSCO) is  higher by $0.38 to $25.50 on a Q1 profit decrease of 8.4%. November weekly call option implied volatility is at 77, November is at 34, December is at 23, January is at 19, February is at 20; compared to its 26-week average of 23.

Wal-Mart (WMT) is up $2.83 to $82.003 in the premarket on a Q3 earnings beat. November weekly call option implied volatility is at 33, December is at 14, January and March is at 12; compared to its 26-week average of 14.

Options expected to be active @ CBOE:  CSCO DWA JCP WMT TWTR BABA FUEL SINA

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.26; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 30.71, compared to its 50-day moving average of 25.98 WTI Crude oil trades near $77. CBOE.com/OVX

More

Blogging Options: CBOE Morning Update 11.12.14

Stocks headed lower at the opening, as profit-takers emerged. VIX bounces higher to 13.44, up 0.52.  Volatility as an asset class:

Macy’s (M) is up $1.11 to $59.70 after reporting Q3 EPS 61c, compared to consensus 50c and lowered FY14 EPS view to $4.25-$4.35 from $4.40-$4.50. November call option implied volatility is at 46, December is at 29, January is at 26, February is at 25; above its 26-week average of 24.

Fossil (FOSL) is up $9.50 to $113.25 after reporting Q3 results, share buyback’s and a renewed agreement with Michael Kors (KORS). November weekly call option implied volatility is at 104, November is at 62, December is at 37, January is at 32; compared to its 26-week average of 35.

J.M. Smucker (SJM) is down $5.57 to $98.51  on Q2 results fell short of expectations due to its coffee business. Overall option implied volatility of 19 is near its 26-week average of 18.

Options expected to be active @ CBOE: FOSL YHOO BABA M CSCO ECA WMT ZTS CSIQ

CBOE/CBOT 10-year U.S. Treasury Note Volatility (VXTYN) @ 5.25; 52-week low 1.69, high 14.58 www.cboe.com/vxtyn

CBOE Crude Oil Volatility Index (OVX) at 30.79, compared to its 50-day moving average of 25.74 WTI Crude oil trades near $78. CBOE.com/OVX

More

As Fixed-income ETFs Fall, Will VXTYN Futures Have Huge Upswings?

In a 2012 op-ed piece in the Wall Street Journal, Professor Burton Malkiel wrote – “Bonds are the worst asset class for investors. Usually thought of as the safest of investments, they are anything but safe today … the 10-year U.S. Treasury note is a sure loser.”

How can investors monitor and manage interest-rate volatility? Futures trading on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) is scheduled to launch on Thursday, November 13. The VXTYN Index measures the expected volatility of the price of 10-year Treasury Note futures. The VXTYN futures have a $1,000 multiplier, with final settlement dates generally on a Wednesday, and trading hours from 7:00 am to 3:15 pm Chicago time (except on the final settlement date). Futures on the VXTYN Index will offer customers a way to hedge pure interest rate volatility risk based on U.S. government debt with a single product for the first time.

  1. BIG MONTHLY MOVES FOR VXTYN SINCE 2003

Rising interest rates can have a negative impact (in the near term) on the market value of bonds and fixed income ETFs, and the implied volatility associated with fixed income ETF options can rise if interest rates are moving.

Both Exhibits 1 and 2 below show months in which the iShares 7-10 Year Treasury Bond ETF (IEF) had big moves. Exhibit 1 shows the six months since February 2003 in which the IEF ETF price dropped by more than 3.1%; in these months the average % change for the VXTYN Index was up 21.7%, as the VXTYN gained more than 57% in two of the six months.

mm ex 1 001-IEF  VXTYN Six Months

I find it very interesting to compare and contrast the columns in Exhibit 2 to examine the interrelationships of the ETFs and indexes. Big interest rate changes have impacted the IEF and TLT ETF prices. Note that in the table the three biggest moves of the VXTYN – up 64.1%, up 57.4%, and up 38.9% – these moves were bigger than any moves of the VIX Index and all the other indexes in the table.mm 002-IEF VXTYN table

The correlations of the monthly changes for the VXTYN Index and IEF ETF were –

  • Negative 0.16 for all 142 months from February 2003 through October 2014; and Negative 0.37 for the 23 months in which the IEF ETF fell by more than 1.5%.
  • The negative correlations and big price moves of the VXTYN Index support the idea of exploring the VXTYN futures for potential for fixed-income portfolio diversification.

Please note that the price movements of the VXTYN futures usually will not exactly match the movements of the VXTYN spot Index.  See the VXTYN Futures Primer for more discussion of the pricing of VXTYN futures.

  1. VXTYN VALUES RANGED FROM 3.62 TO 14.72

The price data history for the VXTYN Index begins in January 2003. The daily closing values of the VXTYN Index have ranged from a low of 3.62 on May 8, 2013, to a high of 14.72 on November 20, 2008. mm 003-VXTYN Rates line chart

  1. JANET YELLEN, INTEREST RATES, AND FINANCIAL TURBULENCE

A November 7 news story at wsj.com stated that —

“Federal Reserve Chairwoman Janet Yellen said Friday the central bank could trigger some financial turbulence when it starts raising short-term interest rates from near zero, where they have been pinned for six years. The Fed will try to limit such volatility by communicating its interest rate plans clearly, Ms. Yellen said in remarks prepared for delivery at a central banking conference in Paris. …”

  1. REASONS TO CONSIDER VXTYN FUTURES

The VXTYN Index is calculated by applying the CBOE Volatility Index® (VIX® Index) methodology to futures options data from CME Group’s 10-year U.S. Treasury note contract — one of CME Group’s most actively traded interest rate options products. Three Lead Market Makers (LMMs) have been appointed to make markets in VXTYN futures when the contract launches.

Potential users of VXTYN futures could include mortgage-backed securities investors and other large credit managers seeking to hedge against adverse interest rate movements; large bond funds that are naturally long interest rate volatility and are seeking a yield-enhancing mechanism; and hedge funds, volatility arbitrage firms and global macro participants seeking to express their views on forthcoming monetary policy events or to capture mispricing anomalies between cross-asset volatility (e.g., fixed income versus equity volatility). More

“V” Shaped Bottom for the SPX

Everyone hates a ‘V’ bottom because it rarely gives a chance to get on board and messes with a trader’s mind.  Once again, we have another rally that is hated by everyone.  This one was a whopper – 220 SPX points in just three short weeks, an historic move in such a short time period.  Most didn’t get in before the turn and a slew of others thought the end of the bull rally was nigh and leaned to the bearish side too heavily.

bob L 11 10

That proved fatal in mid October unless you had the courage to say you were wrong.  But once the rubber band was stretched far back enough and then snapped, the market started to rise – where/when were you going to get in if you were on the sidelines?  So many had said this:  ‘I will wait for a 10% correction and then get in’.  We went down about 9.4% over a month – that seemed just about right, didn’t it?

Oh, and don’t get me started about the media frenzy.  As the market was taking a nosedive last month the chatter was there was no end in sight, 5% down would lead to 10% down, then 20% and a bear market.  Fear mongering is great for ratings – after all, isn’t a market that goes up just boring?  Who needs to be smart about that?  I’ve said for years, ignore the noise and distractions that take you off your game.  Some thought the Sept 19 BABA release was the market top, yet the market didn’t tell us this was to be the case.

Bob L spx 110814

Now, could we have predicted this size of rally off the levels below?  Heck no!  Anyone who says so is lying their butt off.  I thought we were overbought 100 handles ago, but my thought is meaningless to the markets.  Trade what you see, not what you think.  This was a move of monumental proportions that had just about everyone flummoxed.  However, the conditions were ripe.  As a momentum trader, trying to find bottoms or tops is not my game, I leave that for the market timers to fight over.  That’s a fun game to play, but you’ll lose money at it.

But, I am not naive enough to not recognize a lopsided condition, those moments are rare indeed.  At that point you trust your judgment, pull the trigger and let it fly.  Unless something disastrous were to occur the odds were pretty good the market would snap back sharply.  See the futures chart below that identified a buy point after the bottom was in.

Here we stand with this V shaped rally.  Many think they are late to the party and are frustrated for missing a more than 10% rally.  My advice?  Listen to the message of the markets, proceed with caution and go with what is working.  If it is ‘up’, then go with it.  Protect yourself, be aware and bank profits when you have them.  Easier said than done, but not impossible if you are focused and prepared.  BL

Bob is as one of Jim Cramer’s go-to technical experts on Mad Money and regularly contributes to TheStreet.com.  follow him on Twitter @aztecs99

CBOE Mid-Day Update 11.11.14

Volatility as an asset class

SPDR Gold Trust (GLD) is recently up $1.10 to $111.53 as gold slips lower. November weekly call option implied volatility is at 23, November is at 19, December is at 20; compared to its 26-week average of 15.

Groupon (GRPN) is recently up 22c to $7.65 after reporting 53M total customers, sold 88M Groupons in the last quarter. November weekly call option implied volatility is at 70, November is at 54, December is at 55, January is at 55; compared to its 26-week average of 60.

Active options at CBOE: AAPL BABA AMAT PBR TSLA TWTR YHOO NFLX GILD

Options with increasing volume @ CBOE: HTZ MRK RLGY M JWN CALL

VIX methodology for iShares Silver Trust (VXSLV) up 4.5% to $35.05; SLV is up 8c to $15.04.

CBOE Volatility Index (VIX) is recently up 2.5% to 12.98; November 15, 17 and 25 calls active on 289K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 32c to 28.81.
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Blogging Options: CBOE Morning Update 11.11.14

Veteran’s Day, US banks closed.  Talk of Japan postponing tax increase has dollar and stock futures modestly higher, tacking on to yesterday’s gains.  Volatility as an asset class:

Caesar’s (CZR) is down $084 to $10.70 in the premarket after reporting a larger than expected Q3 loss. November weekly call option implied volatility is at 147, November is at 104, December is at 174, January is at 150, March is at 134; compared to its 26-week average of 68.

Alibaba (BABA) is off $1.71 to $117.32 after closing at a record high. November weekly call option implied volatility is at 55, November is at 45, December is at 43, January is at 43.

Rackspace (RAX) is higher by $1.71 to $39.03 in the premarket after reporting Q3 results and announcing a $500M share buyback. November weekly call option implied volatility is at 94, November is at 65, December is at 46, January is at 44; compared to its 26-week average of 44.

Options expected to be active @ CBOE: BABA GPRO M CSCO RAX JNPR

CBOE Crude Oil Volatility Index (OVX) at 30.72, compared to its 50-day moving average of 25.49 WTI Crude oil trades near $78. CBOE.com/OVX

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Where We Stand Now After The Volatility – Weekly Market Outlook

It wasn’t an especially stellar week for the market, but a gain is a gain.  Even a small gain is better than a loss, right?  Yet, it still seems as if the rally is running out of steam, with investors hesitant to keep pouring in when the market is this technically overbought in the near-term, and perhaps too overvalued for the long haul.

We’ll take our usual look in a moment, right after dissecting last week’s and this week’s most important economic information.

Economic Data

While we processed several economic data points last weeks, there’s little doubt that the biggest and most important information was unveiled on Friday.  We’re talking about October’s employment snapshot.  The employment numbers were encouraging… even the numbers you didn’t hear about.

What you do know: The U.S. economy added (net) 214,000 new jobs last month. It was shy of expectations, and shy of September’s job growth of 248,000 new payrolls.  But, it was enough to move the unemployment dial down from 5.9% to 5.8%.  Wages were up a bit (+0.1%), and the average workweek held steady at 34.6 hours.

What you don’t know: The improvement in the unemployment rate wasn’t just some happy circumstance where the number of people who dropped out of the official workforce plunged by millions, thus artificially making the unemployment rate number drop.  The workforce actually grew last month.  It’s just that the number of workers grew even more.  All told, 147.3 million people are employed now, out of 156.3 million being counted in the labor force.  Both figures are up from September’s levels of 155.9 million and 146.6 million, respectively.  Although participation rates are still just off multi-year lows and the number of people who are not in the labor force but still wants jobs ticked higher by about 200,000 last month, overall we continue to see progress on the jobs front.

Jobs news wasn’t the only economic data released last week, however.  We actually kicked off the week with Monday’s ISM Index reading, and followed that up with Wednesday’s ISM Services Index.  These measure economic activity by surveying manufacturing and non-manufacturing companies.  The former ramped up from 56.6 to 59.0, while the latter rose fell back from 58.6 to 57.0.  While both indexes are broadly rising, both are also still too choppy to deem hyper-reliable indications of economic strength.

ISM Index and ISM Services Index ChartPH 110914-ism

Source:  Thomson Reuters Eikon

Finally, on Tuesday we heard about September’s factory orders.  The fall of 0.6% wasn’t an encouraging step, particularly after August’s steep 10.0% decline.  It’s data we need to keep an eye on going forward, though it’s worth mentioning the durable goods orders data – relatively similar to factory orders – is showing a much more encouraging trend.  Here’s the rest on the following grid:

Economic CalendarPH 110914-econ-data

Source:  Briefing.com

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CBOE Mid-Day Update 11.10.14

Volatility as an asset class

Teucrium Corn Fund (CORN) is recently up 23c to $25.96 amid USDA lowering corn production forecast by 68M bushels.  Overall option implied volatility of 24 is near its 26-week average of 23.

Teucrium Soybean Fund (SOYB) overall option implied volatility of 25 compares to its 26-week average of 23.

Teucrium Wheat Fund (WEAT) overall option implied volatility of 29 compares to its 26-week average of 27.

Active options at CBOE: AAPL BABA PBR TSLA TWTR YHOO NFLX GILD

Options with increasing volume @ CBOE: TW CMCSA JCP ACI HTZ WAG

VIX methodology for iShares Silver Trust (VXSLV) down 10.6% to $32.11; SLV is down 12c to $14.98.

CBOE Volatility Index (VIX) is recently down 4.2% to 12.57; November17, 18, 20 and 21 calls active on 296K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down $1.05 to 27.98.
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Blogging Options: CBOE Morning Update 11.10.14

Quiet overnight session after three weeks of gains.  European shares higher, Asian stocks mixed. Several Retailers will post results in the next few days. Chinese economic numbers released this morning exactly on consensus estimates, whatever that means.  Traders on the floor this morning talking about Chicago Bears humiliation at the hand of Green Bay Packers last night.  Volatility as an asset class

GoPro (GPRO) is down $4.76 to $74.30 in the premarket after filing to sell $800M in common stock. November weekly call option implied volatility is at 66, November & December at 67, January is at 76; compared to 15-week average of 56.

McDonald’s (MCD) is up $0.80 to $95.90 on APMEA’s comparable sales decrease of 4.2%, reflecting the ongoing impact of the supplier issue on performance in Japan and China, partly offset by strong performance in Australia.  Overall option implied volatility of 14 is near its 26-week average of 15.

Toll Brothers (TOL) is up $0.77 to $32.99 after reporting preliminary Q4 revenue $1.35B, consensus $1.31B. Overall option implied volatility of 26 is at its 26-week average.

Options expected to be active @ CBOE: RAX DDD BID JCP BZR CSCO M GPRO MCD

CBOE Crude Oil Volatility Index (OVX) at 29.47, compared to its 50-day moving average of 25.21 WTI Crude oil trades near $79. CBOE.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 127.08, compares to its 50-day moving average of 128.58. 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 VIX – 11/3 – 11/7

This weekend I felt like Ed Rooney. Not Ed Rooney after Ferris Bueller’s sister kicks him in the face 12 times, Ed Rooney when he kept repeating nine times to Ferris’s mom, however my number was 38. I decided to take a look at what the volatility markets did each day the S&P 500 made a new high in 2014. I was genuinely surprised to see 38 record highs for the S&P 500 this year.

I then took a look at VXST, VIX, and the term structure as created when using the VXST – VIX – VXV – VXMT closing curve.   Two previous blogs from this weekend talk about VXST and the curve. In this space I take a look at VIX which has an average closing level of 12.15 when the S&P 500 makes a new high, Friday VIX closed at 13.12 or almost a point above that average.   All the closing VIX prices for each day when the S&P 500 set a record appear in the graph below.

VIX on Record Days

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The Week in Russell 2000 and Nasdaq-100 Volatility – 11/3 – 11/7

I’m going to start with the Nasdaq-100 because I have a lot more to say about Russell 2000 volatility this week. VXN was down about 6% despite the underlying market rising only a little last week. This is one of those time periods where VXN and RVX both appear to take the lead from VIX more than in reaction to what may be going on in the underlying market.

NDX PA

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Next Week in Weeklys – 11/10 – 11/14

There was one addition to the Weeklys list last week, the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG – 4.34).  JNUG is exactly what you would expect and with gold being under pressure in 2014 the performance should be no surprise either.

JNUG

Now on to earnings, which is what everyone really cares about in this space.  The list is my best shot at a comprehensive list of stocks with Weeklys available reporting earnings next week.  Unless italicized, the data is based on the stock reactions over the last 12 quarters.

Earnings

The Week in Emerging Market Volatility – 11/3 – 11/7

Emerging markets had a tough week relative to stocks in the US.  EEM was down 2.2% which places the fund down for 2014.  Brazil was a little worse off with the EWZ dropping over 5% which places that market down about 6 1/2 % for the year.  The numbers for EWZ are even more amazing when you consider than it was up over 23% at the peak this year.

With the markets under pressure you would expect the volatility of options on those markets to have worked higher on the week.  That turns out to be a half-truth as VXEEM was down slightly for the week while VXEWZ was up 4.5%.  The price charts for both appear side by side with VXEEM on the left and VXEWZ on the right below.

VXEEM VXEWZ PA

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The Week in Gold and Oil Volatility – 11/3 – 11/7

Gold implied volatility in the form of the CBOE Gold ETF Volatility Index (GVZ) was down slightly on the week despite GLD not appearing to have developed a new support level.  Despite dropping, GVZ at 21.38 is definitely elevated relative to this year’s average of 15.85 and is just a couple points lower than the 2014 high.  Note the chart below showing weekly price action for GLD and the significant support level that was violated just a couple of weeks ago.

GLD Weekly

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The Week in VXST – 11/3 – 11/7

The S&P 500 closed on Friday at an all-time high.  For those keeping score this is the 38th record for the S&P 500 in 2014.  I replaced the daily price chart that normally appears below with a chart showing the closing level for VXST on each of those record days in 2014.  The average for VXST when the S&P 500 makes a new high in 2014 has been 11.  The last four record highs have come over the past couple of weeks and although trending down to the average level, VXST is still a bit higher than when the market set those previous records.   In behavior terms this means the market is pricing in more risk than it has when previous records were set.

VXST All Time Highs

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The Week in Volatility Indexes and ETPs – 11/3 – 11/7

The S&P 500 made a couple more record highs last week to bring the total to 38 in 2014.  That means that 17.5% of trading days in 2014 have resulted in a record high for the S&P 500.  I bring all that up to put the curve below in context.  The red and blue lines show the VXST – VIX – VXV – VXMT term structure curve for the past two Fridays.  The lower purple line is composite curve put together using the average close on record S&P 500 days this year.  Note that on average these four volatility indexes are at lower levels than recent curves created with closing prices.

VXST - VIX - VXV - VXMT Curve

In the exchange traded product space the long funds continue to give back performance gains from the middle of October plus a little more.  XIV and SVXY have managed to return to positive territory for 2014 after experiencing quite a draw down last month.

ETPS Indexes

The Weekly Options News Roundup – 11/7/2014

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.

Options Education: There’s An App For That 
CBOE, a leader in options and volatility trading education, continues to expand its education offerings with the launch of “CBOE Mobile” — a new options education application for iPhone and iPad users.  The app can be downloaded free in the iTunes App Store at: https://itunes.apple.com/app/cboe-mobile/id408732793?mt=8

“CBOE Introduces New Options App for iOS Users” – CBOE Press Release
http://bit.ly/1xYQDQb

“CBOE Releases New State-of-the-Art ‘CBOE Mobile’ Options Application for iPhone and iPad Users” – Mike Fox, LeapRate.com
http://bit.ly/1u02gY1

“CBOE Launches Options App for iPhone and iPad” – Finextra
http://bit.ly/10rHPaF

CBOE Bringing VIX to the Interest Rate Market
On Thursday, November 13, futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) will begin trading on the CBOE Futures Exchange.  The latest addition to CBOE’s suite of volatility products, futures on the VXTYN Index offer customers a way to hedge pure interest rate volatility risk based on U.S. government debt with a single product for the first time.

“CBOE Futures Exchange To Launch CBOE/CBOT 10-Year U.S. Treasury Note Volatility Index Futures Next Week” – CBOE Press Release
http://bit.ly/1z2LPKE

“CBOE/CBOT to Launch 10-yr US Treasury Note Volatility Index Futures” – FTSE Global Markets
http://bit.ly/1tMXiOq

VIX Leveling Off
Living up to its reputation as the most volatile month of the year, October did not disappoint.  The CBOE Volatility Index spiked from 15 to 31 to 14, while the Dow posted triple digit swings.  The first week of November has seen the VIX Index level off.  So, are investors calm?

“Falling Volatility: Bullish for Stocks” – Jim Strugger, Barron’s
http://on.barrons.com/1vIIWv4

“Fear Gauges Fall Back to Pacified Levels” – Financial Times
http://on.ft.com/1x7Uuwb

Options Protection
With the recent escalation in market turbulence, investors have turned to options to help  mitigate volatility and manage risk.

“Record Index Options Volume in October Reflects Demand for Risk Management Tools” – Matt Moran, CBOE Options Hub
http://bit.ly/1tAiNAj

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CBOE Mid-Day Update 11.7.14

Volatility as an asset class

Sears (SHLD) is recently up $9.29 to $41.94 after saying company is actively exploring a REIT transaction involving 200-300 owned properties through a rights offering. November call option implied volatility is at 82, December is at 74; compared to its 26-week average of 56.

Gap (GPS) is recently up $1.19 to $39.04 after reporting October same-store sales fell 3%, giving Q3 EPS guidance that beat estimates. November call option implied volatility is at 33, December is at 30, January is at 27; compared to its 26-week average of 28.

Zynga (ZNGA) is recently up 11c to $2.47 on an upgrade at Needham following the company’s Q3 earnings report. November call option implied volatility is at 65, December is at 66, January is at 60; compared to its 26-week average of 69.

Active options at CBOE: AAPL TWTR TSLA WLT RIG

Options with increasing volume @ CBOE: TWC WMT WLT CTIC CSCO RIG FLSR BABA WFM

VIX methodology for iShares Silver Trust (VXSLV) down 6.7% to $36.61; SLV is up 1.6% to $15.05.

CBOE Volatility Index (VIX) is recently down 1.2% to 13.52; November 20 calls and November 14 puts active on 182K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 36c to 29.09.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 67c to 11.98; compared to its 10-day moving average of 14.07 stks.co/r0CS2
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Weekly Market Commentary 11.7.14

The rally continues to push to new all-time highs in most of the major broad-based indices ($SPX, $OEX, Dow, etc.).  The advance has been so straight and fast that it hasn’t left any support levels in its wake.  The only one was at 2001, so a pullback below 2000 would be negative.
lm 11 7 spx

Equity-only put-call ratios are solidly on buy signals, and they don’t look like they will be reversing anytime soon.  The ratios are dropping steadily on their charts, and as long as they continue to decline, that is bullish for stocks.

Market breadth has stayed positive on the way up, so the breadth oscillators remain on buy signals.

Volatility indices remain calm — drifting sideways to lower.  As
long as $VIX remains flat to lower, stocks will continue to rally.
lm 11 7 vix

In summary, the indicators remain bullish at this time.  Some
negatives are beginning to appear, but there are no confirmed sell signals.

Blogging Options: CBOE Morning Update 11.7.14

Job gains in October lighter than consensus, as 214K new jobs added (~225K to 232K expected).  Jobless rate dropped a tick to 5.8%.  Participation rate ticked up slightly from last month’s 36 year low.  Stocks rallied and are now slightly lower in the first 20 minutes of trading.  VXTYN Futures debut next week, read yesterday’s blog for more details or go to cboe.com for more details.  Volatility as an asset class:

AVG Technologies (AVG) is up $1.88 to $19.50 after a WSJ report announced that the security software maker was approached by potential buyers.  Overall option implied volatility of 35 is near its 26-week average of 37.

Salix (SLXP) is down $48.36 to $90.48 on volume of 4.8 mm shares, after announcing an accounting revision that showed sales of its drugs not as strong as Wall Street’s expectations. November and December call option implied volatility of 58 compares to its 26-week average of 47 according to Track Data, suggesting large near term price movement.

Humana (HUM) is off $4.97 to $134.90 after reporting less than expected Q3 EPS and sees FY15 EPS $8.50-$9.00, consensus $8.83.  November weekly call option implied volatility is at 91, November is at 28, December is at 26, January is at 24; compared to its 26-week average of 29.

CBOE Interest Rate 5 Year Note (FVX) dropped $0.39 to 16.20 after October monthly jobs report

CBOE/CBOT 10yr US Treasury Note Volatility Index (VXTYN) off 0.15 to 5.01. cboe.com/VXTYN

Options expected to be active @ CBOE: DIS FSLR RIG RMTI SLXP ZNGA PBR SHLD CP CSX NSC NVDA FSLR

CBOE Crude Oil Volatility Index (OVX) at 30.34, compared to its 50-day moving average of 24.95 WTI Crude oil trades near $79. CBOE.com/OVX

CBOE S&P 500 Skew Index (SKEW) at 124.93, compared to its 50-day moving average of 128.80. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

CBOE S&P 500 BuyWrite Index (BXM) at 1070.34 compared to its 10-day moving average of 1067.95 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) at 262.76 compared to its 50-day moving average of 264.75 cboe.com/micro/bxd/

‏CBOE Nasdaq-100 Volatility Index (VXN) at 15.68; compared to its 50-day moving average of 17.28.

CBOE 3-Month Volatility Index (VXV) at 16.25, compared to its 50-day moving average of 17.28 cboe.com/VXV

CBOE S&P 500 Short-Term Volatility Index (VXST) at 12.65, compared to its 10-day moving average of 14.35. VXST is a market-based gauge of expectations of 9-day stks.co/r0CS2

Velocity Share VIX Short Term ETN (VIIX) at 39.77; compared to its 50-day moving average of 41.97
iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 13c to 29.32.

CBOE Volatility Index (VIX) is slightly higher in the first 25 minutes of trading, up 0.25 to 13.92, compared to its 10-day moving average of 14.77 and its 50-day moving average of 15.59. cboe.com/VIX

CBOE Mini-SPX options (XSP) at 203.10, has weekly expirations CBOE.com/tradeXSP

S&P 500 Weekly Options (SPXW) closed at 2031.20 CBOE.com/SPXW

SPDR S&P 500 ETF Trust (SPY) off 0.15 to $203 as the dollar firmed to near a 4-1/2 year high against a basket of currencies this morning, after the U.S Non-Farm Payrolls number today.

Calls with increasing volume at CBOE yesterday included:

SPY    12/20/2014 204 47K contracts
VXX      12/5/2014  38 15K
QCOM 1/17/2015  70 11K
XLF      1/17/2015  24 10K

10-YEAR U.S. Treasury Note Volatility Index Futures to Launch Next Week

CBOE Futures ExchangeSM (CFE®) confirmed today that it will launch futures trading on the CBOE/CBOT 10-year U.S. Treasury Note Volatility IndexSM (ticker symbol: VXTYN) next week, on Thursday, November 13, 2014.

Futures on the VXTYN® Index offer customers a way to hedge pure interest rate volatility risk based on U.S. government debt with a single product for the first time. The VXTYN Index, on which futures on VXTYN are based, is calculated by applying the CBOE Volatility Index® (VIX® Index) methodology to futures options data from CME Group’s 10-year U.S. Treasury note contract — one of CME Group’s most actively traded interest rate options products.

Potential users of VXTYN futures could include:

  • Mortgage-backed securities investors
  • Large credit managers seeking to hedge against adverse interest rate movements
  • Large bond funds that are naturally long interest rate volatility and are seeking a yield-enhancing mechanism
  • Hedge funds, volatility arbitrage firms and global macro participants seeking to express their views on forthcoming monetary policy events or to capture mis-pricing anomalies between cross-asset volatility (e.g., fixed income versus equity volatility).

“The market for interest rate derivatives, by far the largest asset class in the over-the-counter market, is estimated to be 40 times the size of the equity market in terms of notional value outstanding. We’re excited to tap into this space for the first time with a product that will enable customers to better manage interest rate volatility risk,” CBOE CEO Edward T. Tilly said. “Leading up to the launch of VXTYN futures, we have worked closely with — and received encouraging feedback from — market participants most likely to trade VXTYN futures.

Three Lead Market Makers (LMMs) have been appointed to make markets in VXTYN futures when the contract launches. “We are very pleased to have this strong commitment from these firms early on,” Tilly added. In May 2013, CBOE began calculating and disseminating VXTYN Index values as part of an agreement between CBOE and CME Group.

CBOE Mid-Day Update 11.6.14

Volatility as an asset class

Whole Foods (WFM) is recently up $4.25 to $44.21 after the super market chain’s Q4 profit surpassed analysts’ consensus estimates and it raised its quarterly dividend. November call option implied volatility is at 24, December is at 23, January is at 21; compared to its 26-week average of 33.

Zillow (Z) is recently down $2.49 to $101.28 after the real-estate portal reported Q3 adjusted EPS 15c, compared to consensus 8c. The company reached 86M average monthly unique users during Q3. November call option implied volatility is at 45, December is at 44, January is at 44; compared to its 26-week average of 55.

SolarCity (SCTY) is recently down $2.57 to $51.87 after the solar panel company reported solid Q3 results and guidance. November call option implied volatility is at 58, December is at 62, January is at 51; compared to its 26-week average of 63.

Active options at CBOE: PBR AAPL TSLA AMZN TWTR AMZN

Options with increasing volume @ CBOE: ANN GERN ARCP MCP ACI GNW WFM

VIX methodology for iShares Silver Trust (VXSLV) down 4.2% to $39.29; SLV up 1%

CBOE Volatility Index (VIX) is recently up 1.6% to 14.40; November 17 and 25 calls active on 185K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 25c to 29.99.
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Blogging Options: CBOE Morning Update 11.6.14

ECB leaves rates unchanged, no surprise.  Weekly Jobless Claims dropped, but Challenger reported a jump in layoffs. European shares modestly higher, Asian shares hit by profit takers.  Oil and metals lower again, 10-year 2.36%.  Volatility as an asset class

Tesla (TSLA) is up $4 to $243.97 in the premarket after beating earnings estimates and issuing an optimistic outlook for 2015.  TSLA was up ~$10 until they announced a delay in delivery in one of their cars.  November weekly call option implied volatility is at 159, November is at 63, December is at 52, January is at 45; above its 26-week average of 46.

CBS (CBS) is up $1.25 to $53.75 on a Q3 beat and says it will provide its TV shows to upcoming online TV service, joining Viacom as content providers for the electronic giant’s effort to create its own cloud-based TV. November weekly call option implied volatility is at 71, December is at 42, December is at 34; compared to its 26-week average of 34.

Qualcomm (QCOM) is down $5.02 to $72.18 in the premarket on a Q3 miss and disclosing that it is being investigated over regulatory problems in the U.S. and Europe. November weekly call option implied volatility is at 47, November is at 24, December is at 21, January is at 17; compared to its 26-week average of 21.

CBOE Interest Rate 5 Year Note (FVX) at 16.34 into Oct monthly jobs report @ end of the week

CBOE/CBOT 10yr US Treasury Note Volatility Index (VXTYN) @ 5.41 into Oct Jobs Report cboe.com/VXTYN

Options expected to be active @ CBOE: TSLA CBS SCTY MBI TRIP Z TRLA WFM GLD

Equity options volume on Nov 4, 2014 @ CBOE: 1,015,430 calls, 638,753 puts, 1,654.183 total

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Checking in on Alternatives to Sell in May

Back in April I took a look at alternatives to the old ‘sell in May and go away’ strategy.   Over the course of three blogs I compared receiving a six month return by going to cash with three different strategy indexes compiled and published by CBOE. The three blogs discussing the three alternatives may be found through the links below –

CBOE S&P 500 BuyWrite Index (BXM)

http://www.cboeoptionshub.com/2014/04/22/sell-may-go-away-alternatives-part-1-bxm/

CBOE S&P 500 2% OTM BuyWrite Index (BXY)

http://www.cboeoptionshub.com/2014/04/23/sell-may-go-away-alternatives-part-2-bxy/

CBOE S&P 500 PutWrite Index (PUT)

http://www.cboeoptionshub.com/2014/04/24/sell-may-go-away-alternatives-part-3-put/

There was a slight change to the old sell in May rules with that change involving going to cash at April expiration and going back into the market at October expiration. Since each of the strategy indexes listed above are rebalanced on those dates it made sense to compare BXM, BXY, and PUT to going to cash based on those dates. So now that we are a little past October expiration I wanted to check in on performance gained from holding cash (in the form of a six month CD), the S&P 500’s total return and the returns for each of the respective strategy indexes. The results show up in the table below –

Sell in May

Some years things work and other years they do not. This is one of those years that sell in May would not have worked too well. From April expiration to October expiration the total return for a market (S&P 500) portfolio was just over 2% while a six month CD would have yielded 0.4%. The strategy indexes were all down slightly so even cash would have done a little better than BXM, BXY, or PUT. Come April I’ll be checking in again on this and watch over the summer to see if the strategy indexes can regain their luster as a substitute for the ‘go away’ part of ‘sell in May and go away’.

 

Dividend Play in Apple Marks the End of the Golden Goose

Apple options have led single stocks for several years now, with recent average daily volume near one million contracts and 9.5million contracts of open interest – a full 7.4% of single-stock total OI. On many days nearly 10% of all the single stock flow is in AAPL- leaving the other 3693 listings in the dust!

henry 1    11 5 14

Apple call volume today is well into record territory with 3.6 million contracts trading by mid-afternoon (Editors Note: Preliminary AAPL option volume today showed over 5 million contracts traded). The prior record was 2.64million contracts, set in August when shares were near $95.00. While the recent all-time high in AAPL plays a part in today’s surge, the primary driver of volume is the ‘dividend play’ strategy that has been a controversial topic among option professionals for years. With AAPL shares climbing 12.5% in the past few weeks, the majority of the 5.4M calls currently outstanding are currently in the money. Of these, nearly 1.5M contracts are deep enough to qualify for early exercise (based on dividend(s) exceeding time value). If call holders exercise everything, the proceeds are near $40million.

Henry 2   11 5 14

In this strategy a relatively small number of professionals join forces to effectively ‘harvest’ the dividend amount left by long call holders who do not exercise by buying massive blocks of calls and exercising them immediately. Each trader buys and sells the same quantity of any given contract, but is careful to mark each buy ‘opening’ so they can exercise the longs at the end of the day. Currently OCC clears option purchases first, then assignments, followed by option sales, which leaves the loophole for assignment of newly purchased calls despite the offsetting short. The play effectively inflates the pool of exercised calls to nearly 100% of total open interest, which is what most of the pre-existing shorts will find themselves assigned. The pros will also be assigned on nearly 100% of their short, but their massive position size works out to a significant quantity of unexercised short calls, which result in profits when their value declines by the dividend amount.

Typically, not every long call holder exercises when they should for reasons that include ignorance of the dividend, insufficient capital and intentional non-exercise to avoid regulatory reporting thresholds. Historical data shows that about 30% of AAPL calls are not exercised each quarter, which works out to significant dollars for traders able to implement the dividend play.

Henry 3   11 5 14

Today, with the highest level of eligible call open interest (not split adjusted) on record, we see that nearly $12M may be up for grabs to dividend traders, and call volume has spiked accordingly. However, today is likely to mark the death of the AAPL dividend Golden Goose for some traders, as the SEC recently approved clearing changes that will close the loophole by clearing buys and sells before assignments. This change is expected to take effect later this month and is likely to benefit smaller traders, who may begin to see less than 100% assignment ratios on their short positions in the future.

Writer has no holdings in AAPL.  A version of this story was previously published by TheStreet.com at http://www.thestreet.com/options-profits

CBOE Mid-Day Update 11.5.14

Volatility as an asset class

Nu Skin Enterprises (NUS) is recently down $7.03 to $42.53 after the nutrition company announced a less than expected Q4 outlook. November weekly call option implied volatility is at 100, November is at 55, December is at 63, January is at 50, March is at 54; compared to its 26-week average of 35.

Time Warner (TWX) is recently up $2.15 to $77.12 after reporting Q3 revenue $6.24B, compared to consensus $6.16B and reported Turner and Home Box Office both grew subscription revenues 10%. November weekly call option implied volatility is at 38, November is at 24, December is at 22, January is at 23; compared to its 26-week average of 24.

Mondelez (MDLZ) is recently $2.10 to $37.13 on seeing FY14 adjusted operating income growth of approximately 10% and FY14 adjusted operating income margin of approximately 13%.  November call option implied volatility is at 23, December is at 19, January is at 18; compared to its 26-week average of 20.

Options with increasing volume at CBOE: JNS INFN SAFM THC GREK AVG OAS PBPB BRKR RCAP ZAGG BSFT

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 3.7% to 26.72, WTI below $77 www.cboe.com/micro/VIXETF/VXXLE/

VIX methodology for iShares Silver Trust (VXSLV) +9% to $39.56; SLV -3.1%

CBOE Volatility Index (VIX) is recently down 2.1% to 14.58; November 23 calls and November 14 puts active on 80K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 21c to 30.40.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 77c to 14.04; compared to its 10-day moving average of 14.76 stks.co/r0CS2
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Blogging Options: CBOE Morning Update 11.05.14

US stock futures higher on Republican Senate victory last night. Some voters in Chicago finished voting at 3:00am due to new voting rules implemented at the last minute. Those in line for 5 to 8 hours get our admiration.  Illinois elected a Republican Governor in a big upset.  Talking heads on the business channels will be discussing which stocks will benefit with the change in the Upper Chamber in DC.  Watch VIX.  Volatility as an asset class:

EOG Resources (EOG) is up $5.13 to $95.41 in the premarket after the energy company reported solid Q3 results and raised FY14 crude oil, condensate production growth target to 31% from 29%. November weekly call option implied volatility is at 52, November is at 42, December is at 37, January is at 36; compared to its 26-week average of 28.

TripAdvisor (TRIP) is down $10.84 to $72.93 following weaker than expected Q3 results. November weekly call option implied volatility is at 113, December is at 65, December is at 47, January is at 37; compares to its 26-week average of 45.

FireEye (FEYE) is down $6.10 to $28.15 after the cyber security company increased research spending to expand its customer base. November weekly call option implied volatility is at 158, November is at 77, December is at 62, March is at 52; compared to its 26-week average of 64.

CBOE Interest Rate 5 Year Note (FVX) at 16.34 into Oct monthly jobs report @ end of the week.

Options expected to be active @ CBOE:  TSLA CBS FEYE TRIP Z WFM BABA PBR NUS ZNGA FB.

Equity options volume on Nov 4, 2014 @ CBOE: 1,019,783 calls, 679,470 puts, 1,699,253 total

CBOE Crude Oil Volatility Index (OVX) at 33.13, compared to its 50-day moving average of 24.38 WTI Crude oil trades below $77. CBOE.com/OVX

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Record Index Options Volume in October Reflects Demand for Risk Management Tools

In my discussions with institutional investors I often hear questions and comments about market liquidity and capacity, particularly in times of market volatility. To help answer these questions I often turn to data on contract volume, and I note that much of the volume for index options is related to portfolio or risk management strategies.

In October the average daily volume (ADV) numbers — (1) for S&P 500® (SPX) options rose to all-time record of 1,306,801 in Oct. (up 58% over the previous month), and (2) for VIX options rose to 852,402 (up 53% over previous month).

4441-SPX & VIX option a d v thr Oct

A recent CBOE press release noted a number of new records in October –

“CBOE’s October volume totaled an all-time high for any month – 144.55 million contracts – surpassing the previous record of 144.03 million contacts from August 2011. ADV was a record 6.28 million contracts, a 26-percent increase from October 2013 and a 35-percent increase from September 2014. Index options ADV was a record 2.29 million contracts, a 31-percent increase from October 2013 and a 56-percent increase from September 2014. Index options volume set a new single-day record on October 15, with 4.75 million contracts traded. In S&P 500 Index (SPX) options, October ADV was a record 1.31 million contracts, and on October 15, SPX options set a new daily volume record with 2.69 million contracts traded. …”

VOLATILITY INDEXES IN OCTOBER

Below are four line charts that show October price movements for a total of six volatility indexes. Futures and options are offered for five of the volatility indexes, and futures on the VXTYN Index are expected to be launched this month (subject to regulatory review).

The closing values of the VIX rose from 14.46 on October 6, to 29.26 on October 16.  As shown in the first chart below, the VIX November 2014 futures usually were in contango the first and last weeks of October, and were in backwardation on mid-October.

4442-SPX & VIX VXEWZ  in Oct

The CBOE Brazil ETF Volatility Index (VXEWZ) fell from its all-time daily closing high of 72.83 on October 20, to 31.30 after the presidential election. The CBOE Short-Term Volatility Index (VXST) hit a daily closing high of 31.12 on October 15.

The daily closing highs in October were 37.23 for the CBOE Crude Oil ETF Volatility Index (OVX) and 21.54 (on Halloween) for the CBOE Gold ETF Volatility Index (GVZ).

4443-OVX GVZ VXTYN Oct

VXTYN INDEX AND INTEREST RATE VOLATILITY

The CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) rose 22.3% on October 15 as worldwide stock markets were rattled mid-month.   An October 17 story at Bloomberg.com reported that –

“Treasuries surged, with volatility climbing the most since the “taper tantrum” of 2013, as speculation that slowing global growth may restrain the U.S. economy led traders to raise bets the Federal Reserve will delay interest-rate increases.”

MORE INFORMATION

For information how options strategies can help manage portfolio risk, please visit http://www.cboe.com/Strategies.

CBOE Mid-Day Update 11.4.14

Volatility as an asset class

Herbalife (HLF) is recently down $11 to $44.89 after the nutrition company reported weaker than expected Q3 results and estimated that its sales would decline in Q4. November weekly call option implied volatility is at 114, November is at 108, December is at 92, January is at 94; compared to its 26-week average of 53.

Michael Kors (KORS) is recently $6.25 to $71.80 following less than expected earnings and guidance from the luxury accessory designer.  November weekly call option implied volatility is at 42, November is at 34, December is at 31, January is at 29, February is at 31; compared to its 26-week average of 35.

Sprint (S) is recently down $1.06 to $5.16 to after cut its full-year EBITDA guidance. November weekly call option implied volatility is at 84, November and December is at 54, January is at 51, May is at 48; compared to its 26-week average of 50.

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

Options with increasing volume at CBOE: ARCP GERN X LVS

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 9.7% to 27.95, WTI below $77 www.cboe.com/micro/VIXETF/VXXLE/

CBOE Volatility Index (VIX) is recently up 3.5% to 15.24; November 19 calls and November 15 puts active on 202K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 45c to 31.26.
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This Week in Weeklys – Part 2 – November 5 – 7

I’m still playing catch up so let’s just say better late than never…

The table below contains stocks with Weeklys available for trading that report earnings Wednesday, Thursday, and Friday this week.  Max is the biggest stock price rise the day after earnings over the last three years and min is the biggest drop over the same time period.  Abs Avg is the average move without taking the direction of that move into account.  Last Q is what the stock did last quarter.

Earnigns Part 2

 

Blogging Options: CBOE Morning Update 11.4.14

Exports slowed this past month, with imports unchanged.  Oil fell to 4-year low.  Stocks and Treasuries fell modestly.  Volatility as an asset class

Alibaba (BABA) gained $1,42 to $103.22 on Q3 revenue and growth in line with expectations. November weekly call option implied volatility is at 96, November is at 50, December is at 42, January is at 37; compared to its 4-week average of 39.

AIG (AIG) opened modestly lower at $53.20, off $0.60 on Q3 net income rising 1% to $2.2B. November weekly call option implied volatility is at 38, November is at 22, December is at 19, January is at 20; compared to its 26-week average of 22.

CBOE Interest Rate 5 Year Note (FVX) at 16.34 into Oct monthly jobs report @ end of the week

Options expected to be active @ CBOE:  BABA HLF NUS S RIG JPM MSFT HLT PBR KORS VALE RIG YHOO  PCLN

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CBOE Mid-Day Update 11.3.14

Volatility as an asset class

American Realty Capital Properties (ARCP) is recently down 58c to $8.28 after RCS Capital (RCAP) terminated its agreement to acquire Cole Capital Partners and Cole Capital Advisors from the company. November call option implied volatility is at 79, December is at 76, January is at 72; compared to its 26-week average of 24.

Hilton (HLT) is recently up 1c to $25.25 after commencing 90M share offering for Blackstone (BX). November call option implied volatility is at 31, December is at 30, January is at 29; compared to its 26-week average of 25.

Geron (GERN) is recently up 68c to $2.91 after announcing removal of full clinical hold on Imetelstat IND. November call option implied volatility is at 105, December is at 113, January is a 106; compared to its 26-week average of 93.

Alibaba (BABA) November weekly 102 straddle priced for 7% move into Q3

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

Stocks with increasing volume @ CBOE:  ARCP KORS PCLN GERN SAPE DOV LH ARCP NOR GGB GRA TPH NBS BABA

CBOE Volatility Index (VIX) is recently up 4.8% to 14.70; November 17 and 20 calls active on 149K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 13c to 30.44.
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Blogging Options: CBOE Morning Update 11.3.14

US election on front burner today through Wednesday.  Futures mostly flat, crude ~$81 (gas under $3 per gallon at some stations in Chicago), 10-year 2.34%.  Media stocks report quarterly earnings mid-week.  Sapient gets bid this morning.  Volatility as an asset class:

Alibaba (BABA) is up $0.65 to $99.25 in the premarket, the release of Q3 results is expected today. November weekly call option implied volatility is at 66, November is at 48, December is at 42, January is at 37; compared to its 4-week average of 39.

Proshares UltraShort Barc 20 Year Treasury (TBT) is down 5c to $52.89 into the October monthly jobs report at the end of the week. November weekly call option implied volatility is at 32, November is at 25, December is at 23; compared to its 26-week average of 22.

Covance (CVD) is up $22.16 to $103 in the premarket, as LabCorp (LH) set to acquire it for $5.6B. Covance shareholders will receive $75.76 in cash and 0.2686 LabCorp shares for each Covance share they own.  Overall option implied volatility of 31 is above its 26-week average of 28.

CBOE Interest Rate 5 Year Note (FVX) at 16.13 into Oct monthly jobs report @ end of the week
Options expected to be active @ CBOE:  BABA SAPE LH CVD SOHU

Equity options volume on Oct 31, 2014 @ CBOE: 1,611,418 calls, 810,601 puts, 2,422,019 total

CBOE Crude Oil Volatility Index (OVX) at 30.52, compared to its 50-day moving average of 23.48 WTI Crude oil trades near $81. CBOE.com/OVX

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The Week in Emerging Market Volatility – 10/27 – 10/31

This time last week Brazil chose to keep the same president for the next four years. Leading up to the election VXEWZ rose into the low 70’s and set record for the highest close. Do keep in mind VXEWZ data goes back to 2011 so ‘history’ is not that long. This past week the Brazilian market was all over the place, dropping on Monday as the business community was not thrilled with the status quo in leadership. By the end of the week EWZ had rallied based on an interest rate hike, buy VXEWZ remained relatively high considering the election has passed.

VXEWZ PA

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The Week in Russell 2000 and Nasdaq-100 Volatility – 10/27 – 10/31

Last week the Russell 2000 managed to get back to green on the year which for those of you that don’t speak trader mean the index is now positive for 2014. That’s a bit of a positive for those with small cap exposure, but kind of tough when the S&P 500 is up over 9% and the Nasdaq-100 has gained almost 16% for the year. With the price rise, RVX dropped, but only by about 7% which was much less than VXN (11.82%) and VIX (12.91%) last week.   The point here – the risk perception for small caps remains high relative to other market sectors.

RVX PA

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The Week in Volatility Indexes and ETPs – 10/27 – 10/31

This time is different. I learned early in my career that when you hear those words you should take the other side of whatever statement comes next. However, this time when the S&P 500 made a new all-time high things were definitely different in the volatility markets. Check out the curve below for an indication of what I’m talking about.

VXST - VIX - VXV - VXMT

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The Week in VXST – 10/27 – 10/31

The S&P 500 did what it has done for some time and rebounded to new highs. VXST reacted by dropping 6.5% and finishing the week at 13.80. However, when we look back VXST at 13.80 shows some real concern about the equity market continuing higher. The last new high for the S&P 500 was on September 18th when we closed at 2011 – on that day VXST finished at 11.05. The higher VXST makes me think the number of diehard bulls is waning despite another record of the S&P 500.

VXST PA

Taking a look at the curve shows some normal with quite a spread being maintained by the near term (2 day until expiration) future versus the index. On the option side open interest is heaviest for the Nov 5th 15 Call, Nov 5th 20 Call and Nov 5th 22 Call.

VXST Curve

The Weekly Options News Roundup – 10/31/14

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.

Volatility Playbook
Volatility in the market has been a constant reality over the past two months with triple-digit swings occurring regularly.  Investors, as a result, are utilizing options as insurance.

“Stocks: How to Play Defense “ – John Wasik, The Wall Street Journal
http://on.wsj.com/105SYgU

“How to Play a Chaotic Market” – Steven M. Sears, Barron’s
http://on.barrons.com/1xFjtF0

“Volatility Sellers of the World Unite and Take Over” – Chris Dieterich, Barron’s
http://on.barrons.com/1u9D1EE

VIX is Calmer…For Now
The CBOE Volatility Index has receded, down from last week’s highs and now hovering around the 14.  However, the wild ride may not be over.  Because of looming economic indicators, the VIX Index levels may be headed higher (again).

“Even As Volatility Continues, Sentiment Indicators Stagnate”- Rick Pendergraft, Moneynews
http://nws.mx/1wImEfW

“Hedge Fund VIX Wagers Tip Toward Turbulence After Selloff” – Callie Bost, Bloomberg
http://bloom.bg/1wNX2kj

More Volume to Come?
“A Tabb report recently surveyed more than 40 buy-side firms, with 70% expecting their listed futures trading volumes to increase over the next 12 months. This was down to a combination of increasing volatility and shift towards OTC alternatives.”

“Exchange-Traded Derivatives Trading Set to Soar” – Matthew Simon, The Trade
http://bit.ly/13kEP1y

“Q3 Options Volume Hits One Billion Contracts, Tabb Reports”– John D’Antona Jr., Traders Magazine
http://bit.ly/1rG0buO

A Fighting Chance
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