Volatility Panel Discussion at CBOE RMC

The final session at the 2nd Annual CBOE RMC Asia featured a panel discussion hosted by Steven Sears from Barrons.  The participants were:

  • David Dredge from City Financial Investment Company Pte Ltd
  • Richard Johnston from Albourne Partners (Asia) Limited
  • Benoit Meulot from Nine Masts Capital Limited
  • Laurent Poirot from GF Asset Management

Some highlighted quotes from the panel –

“For long volatility strategies you have to have some sort of management plan”

“There is no such thing as a good tail risk trade, there are only good risk management plans”

“When approaching a volatility oriented strategy on behalf of a client we need them to define their objective so we can properly construct a position on their behalf”

“My experience with fund managers who are not familiar with hedging strategies is that they need help from those who understand constructed hedged strategies”

“We are in a market regime change in addition to a political one”

This brought an end to CBOE RMC in Hong Kong and what was interesting to me is that the uncertainty that market participants have going into 2017 is very similar to the attitudes going into 2016.  There was more discussion about being long volatility than I can recall at any RMC over the past five years.

We reconvene in Dana Point, CA on March 8th to continue the discussion around managing risk and market volatility.  Information on that session may be found at www.cboermcus.com

 

Long Volatility Discussion at CBOE RMC

Govert Heijboer from True Partner Advisor and James Murray from NSW Treasury Corporation split the duties for a discussion titled Implementing Long Volatility Exposures for Hedging and Alpha today in Hong Kong.

Murray led off by discussing risk management and the objectives of long volatility risk management strategies.  He noted that there is no free lunch when getting long volatility exposure and strategies are a trade-off between convexity, timing, basis and time decay.  A final thought is that long volatility strategies are a portfolio management tool and should be thought of in the context of a broader portfolio.

Heijboer followed up and noted that long volatility guys seem to be in the minority at conferences like this and being long volatility is like being the underdog.  He noted that this has been the year of the underdogs, naming the Chicago Cubs as a perennial underdog who did good in 2016.

He listed different ways to be long volatility such as owning a variety of options, listed volatility derivatives, or using over the counter solutions.  He rhetorically asked why on earth you would want to be volatility.  He answered his question that volatility works when everything else fails.  As an example he shows the performance of the Eurekahedge CBOE Long Volatility Index from 2008 when it was up over 45% for the year.

As far as implementation he discussed the high negative carry associated with being long volatility.  Both time decay and term structure decay have a negative impact on being long volatility.  To circumvent this cost he suggests an active trading strategy.   His firm focuses mostly on short dated listed equity index options to long volatility exposure.

Short Volatility Strategies Discussed at CBOE RMC

Tanuj Dutt, CFA from Nikko Asset Management and Selim Piot from Barclays Capital teamed up to deliver a session on Implementing Short Volatility Strategies at the 2nd Annual CBOE RMC in Hong Kong today.

Piot led things off by discussing how short volatility strategies may be implemented.  He noted the diversification benefits of substituting a part of equity risk with short volatility exposure and followed that thought stating that a portfolio of short volatility across regions and different asset classes increase the diversification benefits.  He presented either variance swaps or using options and delta hedging as alternatives to gain short volatility exposure.  With listed options he highlighted the price transparency of exchange traded options, but also noted that daily trading is required to delta hedge and there is potential path dependency when using options get short volatility exposure.

Dutt then followed on and his presentation focused on the diversification benefits of volatility exposure.  He noted that he is not a volatility specialist, but is using volatility as an asset class to diversify his portfolio.  His example of how diversification using traditional asset classes may not work in the future used a scenario where bonds sell off and stocks follow the bond market lower.  In this feasible situation being diversified using only those two asset classes would not offer the hoped for results.  He demonstrated that the correlation between stocks and bonds has moved from inverse to positively correlated periodically in the past.

Discussion of Market Dislocations at RMC Asia

The keynote speaker this morning for the 2nd Annual Risk Management Conference Asia was Rebecca Cheong who is Head of Americas Equity Derivatives Strategy for UBS Securities.  She also grew up in Hong Kong so this was a special treat for her as well as the attendees.

Rebecca’s presentation was titled Cross-Asset Dislocations and Market Signal.  She started out discussing the difference between a true Cross-Asset Dislocation and a Temporary Dislocation.  A Temporary Dislocation is short lived and the gap in the market place is usually closed in a very short period of time.  A longer term dislocation is referred to as a Structural Mispricing and she stated these sort of events may last for a longer period of time.

She turned the discussion to addressing market signals that may be discerned from volatility.  A couple of examples of dislocations were if SPX options are cheap relative to individual stock option pricing or if it is inexpensive to hedge emerging markets as an asset class but is expensive to hedge individual countries.

A final point that Rebecca addressed in her presentation involved the impact of volatility oriented ETPs on the VIX futures markets.  She noted that in cases of large moves in VIX futures there may be a further impact on the pricing as the ETPs are forced to rebalance at the end of the trading day.

2016 CBOE Risk Management Conference Asia

2016 CBOE Risk Management Conference Asia
Options Hub Blog
Edward Tilly Remarks
Thursday, December 1, 2016

CEO Edward Tilly on CBOE Innovation and Bats Acquisition      

Kicking off the start of Day Two of CBOE RMC Asia 2016 in Hong Kong, CBOE Holdings CEO Edward Tilly updated conference attendees on CBOE Holdings’ planned acquisition of Bats Global Markets and on CBOE’s ongoing development of new products, services and tools.

Tilly noted that industry participants’ response to the Bats acquisition has been positive. They “appreciate the anticipated benefits of combining Bats’ U.S. and European equities, ETF trading and global FX platform, with CBOE’s wide array of options and volatility products,” he said.

“We believe the acquisition has the potential to significantly expand and diversify our product line and broaden our reach,” he added. CBOE plans to incorporate the functionality of both technology platforms and migrate it onto the proprietary Bats system.  “It is our aim to make your trading experience more efficient and user-friendly by writing to a single, state-of-the-art technology platform.”

“CBOE is an industry leader in innovation and our focus on bringing new products, services and tools to the marketplace will not change,” Tilly told attendees. As for existing products, investors continue to turn to CBOE’s flagship S&P 500® (SPX) and CBOE Volatility Index® (VIX® Index) products, using CBOE SPX options for exposure to the broad U.S. market, and the CBOE VIX Index as a proxy for global equity market volatility.

Given the global appeal of these products, expanding access to SPX and VIX trading has been a top priority for CBOE, Tilly said.  During extended trading hours, VIX futures trade nearly 24 hours a day, while SPX and VIX options are available for a 6 hour and 15 minute extended session, beginning at  2:00 a.m. Chicago time.  Volume in extended trading hours has been building steadily and tends to peak around major news events such as the U.K.’s Brexit vote in June and the U.S. Presidential election in November.

In other index product news, Tilly noted that CBOE’s partnerships with MSCI and FTSE Russell have added a significant international dimension to CBOE’s index option complex.  CBOE and these strategic partners are working to launch new products, educate customers on their uses and, in the case of MSCI, expand data distribution.

Tilly also noted CBOE offers a broad array of other products, including benchmark indexes designed to track the performance of investment strategies that use options or volatility products to help manage risk and enhance yield.

CBOE now publishes data on more than 30 such strategy benchmark indexes, including the CBOE S&P 500 Smile Index, which was announced in October, and four indexes CBOE developed in collaboration with Eurekahedge, a Singapore-based hedge fund research company.  The CBOE-Eurekahedge benchmarks measure the performance of hedge funds that employ distinct volatility-based investment strategies.  Tilly said that third party white papers analyzing the performance of CBOE’s strategy benchmarks are used by fund managers and advisors to demonstrate to their customers how options can be used effectively in an investment portfolio.

Tilly wound up his remarks by reaching out to CBOE’S Asian clients and investors. He pledged CBOE’s ongoing dedication to investor education, much of which was been executed by the CBOE Options Institute, which has seen growing participation from Asian market participants. Last year, CBOE partnered with the Singapore Exchange to launch the Options Institute at SGX, the first international extension of CBOE’s educational facility.

In addition, CBOE Futures Exchange (CFE) received Registered Market Operator approval in Singapore in August. That followed approval in Taiwan to have the VIX futures contract designated as an eligible futures contract for Taiwanese traders.  Korea also was given foreign jurisdiction for CFE trading earlier this year.

Currently there are 18 CFE-approved foreign jurisdictions, and Tilly said the exchange is seeking approvals in additional countries. Through a foreign trader incentive program, CFE rebates certain fees for traders at proprietary trading firms that have not previously traded on CFE — and who are located in approved foreign jurisdictions.  CFE is planning to extend its foreign trader incentive program, with some potential modifications, into 2017.

Tilly concluded by encouraging attendees to share their thoughts and questions with the CBOE team.  Many of the new product and service innovations created by CBOE in the past were first discussed at RMC.

# # #

Cautionary Statements Regarding Forward-Looking Information
This communication contains certain statements regarding intentions, beliefs and expectations or predictions for the future of CBOE Holdings, Inc. (“CBOE”) and Bats Global Markets, Inc. (“Bats”), which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks,” “projects” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “would,” “could,” “may” or variations of such words and similar expressions are intended to identify such forward-looking statements, which are not statements of historical fact or guarantees or assurances of future performance. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. 

 Actual results could differ materially from those projected or forecast in the forward-looking statements.  The factors that could cause actual results to differ materially include, without limitation, the following risks, uncertainties or assumptions:  the satisfaction of the conditions precedent to the consummation of the proposed transaction, including, without limitation, the receipt of stockholder and regulatory approvals (including clearance by antitrust authorities necessary to complete the proposed transaction) on the terms desired or anticipated; unanticipated difficulties or expenditures relating to the proposed transaction, including, without limitation, difficulties that result in the failure to realize expected synergies, efficiencies and cost savings from the proposed transaction within the expected time period (if at all), whether in connection with integration, combining trading platforms, broadening distribution of offerings or otherwise; CBOE’s ability to maintain an investment grade credit rating and obtain financing on the anticipated terms and schedule; risks relating to the value of CBOE’s shares to be issued in the transaction; disruptions of CBOE’s and Bats’ current plans, operations and relationships with market participants caused by the announcement and pendency of the proposed transaction; potential difficulties in CBOE’s and Bats’ ability to retain employees as a result of the announcement and pendency of the proposed transaction; legal proceedings that may be instituted against CBOE and Bats following announcement of the proposed transaction; and other factors described in CBOE’s annual report on Form 10-K for the fiscal year ended December 31, 2015, which was filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2016, CBOE’s quarterly report for the quarterly period ended September 30, 2016, which was filed with the SEC on November 8, 2016, CBOE’s quarterly report for the quarterly period ended June 30, 2016, which was filed with the SEC on August 2, 2016, Bats’ final prospectus, which was filed with the SEC pursuant to Rule 424(b) on April 15, 2016, Bats’ quarterly report for the quarterly period ended June 30, 2016, which was filed with the SEC on August 5, 2016, Bats’ quarterly report for the quarterly period ended September 30, 2016, which was filed with the SEC on November 8, 2016, and other filings made by CBOE and Bats from time to time with the SEC.  The factors described in such SEC filings include, without limitation:  the loss of CBOE’s rights to exclusively list and trade certain index options and futures products; economic, political and market conditions; compliance with legal and regulatory obligations (and changes thereto), including obligations under agreements with regulatory agencies and potential conflicts between self-regulatory responsibilities and for-profit status; increasing competition in the industries in which CBOE and Bats operate; CBOE’s and Bats’ ability to operate their respective businesses without violating the intellectual property rights of others and the costs associated with protecting their respective intellectual property rights; decreases in trading volumes or a shift in the mix of products traded on CBOE’s or Bats’ exchanges; each of CBOE’s and Bats’ ability to accommodate trading volume and transaction traffic, including significant increases, without failure or degradation of performance of their respective systems; CBOE’s and Bats’ ability to protect their respective systems and communication networks from security risks and breaches; the ability to manage CBOE’s and Bats’ growth and strategic acquisitions or alliances effectively, including the ability to realize the anticipated benefits of past acquisitions; the ability to adapt successfully to technological changes to meet customers’ needs and developments in the marketplace; and the impact of legal and regulatory changes and proceedings, whether or not related to the proposed transaction. 

 Neither CBOE nor Bats undertakes, and each of them expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 Additional Information Regarding the Transaction and Where to Find It
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.  This communication is being made in respect of the proposed merger transaction involving CBOE, Bats, CBOE Corporation and CBOE V, LLC. The issuance of shares of CBOE common stock in connection with the proposed merger will be submitted to the stockholders of CBOE for their consideration, and the proposed merger will be submitted to the stockholders of Bats for their consideration. In connection therewith, CBOE filed with the SEC on November 18, 2016 a Registration Statement on Form S-4 that included a preliminary joint proxy statement/prospectus, and each of the companies may be filing with the SEC other documents regarding the proposed transaction. CBOE and Bats will mail the definitive joint proxy statement/prospectus to CBOE stockholders and Bats stockholders, when it is available. BEFORE MAKING ANY VOTING OR ANY INVESTMENT DECISION, INVESTORS AND SECURITY HOLDERS OF CBOE AND/OR BATS ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the definitive joint proxy statement/prospectus, any amendments or supplements thereto and other documents containing important information about each of CBOE and Bats, as such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by CBOE will be available free of charge on CBOE’s website at http://ir.cboe.com/financial-information/sec-filings.aspx under the heading “SEC Filings” or by contacting CBOE’s Investor Relations Department at (312) 786-7136. Copies of the documents filed with the SEC by Bats will be available free of charge on Bats’ website at http://www.bats.com/investor_relations/financials/ under the heading “SEC Filings” or by contacting Bats’ Investor Relations Department at (913) 815-7132.

 Participants in the Solicitation
CBOE, Bats, their respective directors and executive officers, certain other members of CBOE’s and Bats’ respective management and certain of CBOE’s and Bats’ respective employees may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of CBOE is set forth in its proxy statement for its 2016 annual meeting of stockholders, which was filed with the SEC on April 6, 2016, and its annual report on Form 10-K for the fiscal year ended December 31, 2015, which was filed with the SEC on February 19, 2016, and information about the directors and executive officers of Bats is set forth in its final prospectus, which was filed with the SEC on April 15, 2016.  Each of these documents can be obtained free of charge from the sources indicated above. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the definitive joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

 

 

Asked at RMC – What’s Implied from Implied Volatilities?

The final session on Day 1 of this year’s CBOE Risk Management Conference in Hong Kong posed the question, “What’s Implied from Implied Volatilities and Volatility Products?”  This session was a combination of talks from William Chan, Head of Asia Pacific Equity Derivatives Research for Bank of America Merrill Lynch and Tim Edwards, Senior Director of Index Investment Strategy for S&P Dow Jones Indices.

Edwards kicked the session off by discussing VIX and noting that there is not much of a difference between VIX and realized volatility.  He also noted there is a strong relationship between realized volatility and subsequent volatility.  That being said he noted that the volatility market or VIX missed the mark with the US election, but we all know VIX wasn’t the only one guessing wrong with respect to the outcome of the election.

Before hanging things over there were a few takeaways offered from Edwards’ presentation.  He noted that the forward looking aspects of VIX are easy to infer using known tendencies in realized volatility and expected premiums.  He also pointed out there are several VIX indices covering all major asset classes and most regions of the world.  Finally, he pointed out that VIX is driven by more than just market volatility.

Chan’s section started out talking about the impact of event risk on implied volatilities.  He demonstrated this using earnings announcements and the impact on individual stock option implied volatility.  Basically it rises dramatically into earnings and then drops dramatically after the announcement.  He also noted the S&P 500 (SPX) option market was pricing in a 3% move the day after the US election.  The result was a 1.1% move, but an intraday move between up 6% and down 5%.

He spent a fair amount of time discussing listed volatility derivatives and aspects of non-US oriented volatility.  He finished with a look at the current level of VIX relative to other risk factors and left us with a warning that VIX is not discounting global macro risk as one would think it should be considering pending disruptions.

Wide Variety of CBOE Benchmark Indexes Discussed at RMC

Matt Moran and Bruce Traan, both from CBOE, delivered the second session at this year’s CBOE Risk Management Conference in Hong Kong.  Bruce kicked things off with a discussion titled “New Developments in Options and Volatility-Based Benchmarks”.  Matt followed with “Options and Volatility Based Benchmark Indexes”.

Bruce noted that demand for passive investing is growing and smart-beta is the fastest growing segment of passive investing.  He highlighted a variety of new strategy indexes being calculated and quoted at CBOE.  This list includes the CBOE S&P 500® “Smile” Index, CBOE Target Outcome Indexes, CBOE SMA Large Cap Index, CBOE Stabilis Index, and a number of BuyWrite on ETF Asset Classes (TLT, USO, GLD, SLV).

With respect to the Buffer Protect Index series Bruce noted that the education process is more about demonstrating outcomes than how a strategy is constructed with options.  Investors are more accepting of seeing an outcome than being bogged down with the details of what option trades are needed to create the final result.

A relatively new partnership exists between CBOE and Social Market Analytics (SMA).  SMA quantitatively measures social media activity on Twitter and determines if the tenor with respect to a stock is positive or negative.  CBOE now quotes two CBOE SMA Large Cap Indexes which measure the return of a hypothetical portfolio of 25 stocks with that have positive scores using SMA’s methodology.  The two indexes only differ in that one rebalances daily and the other rebalances once a week.  Both indexes have had pretty good performance as seen in the chart below.

smlc-performance

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Dan Passarelli Discusses Getting a Volatility Edge

The first presentation at the 2nd Annual Asian version of CBOE’s Risk Management Conference featured an informative tutorial from Dan Passarelli of Market Taker Mentoring.  Dan’s talk was titled Directional Options Strategies and Trade Management.

He kicked things off with a quick review of the option greeks and then dove into directional strategies.  He emphasized that trades can start with a directional outlook, but there are other factors that come into play with respect to an option trade.  A factor he specifically notes is and option’s implied volatility.  It is very possible for a trader to get the direction correct with respect to the underlying market, but have a trade not work as well as hoped due to a change in implied volatility.

With a focus on volatility as a screen for option trades Dan notes that traders will use screens to identify options that are pricing in low volatility.  A recent situation with shares of Facebook (FB) was used as demonstration of an option trade that gains an edge due to low implied volatility.  The chart below was lifted from his presentation and it shows that FB 30-day implied volatility is near the lower end of the recent range.  This may be interpreted as the options being cheap and with a directional outlook a trader may have an edge through buying an option with low implied volatility.

dp-fb-iv-chart

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Election Night Option Liquidity

CBOE’s Extended Trading Hours (ETH) options session reached a significant milestone in the wake of the surprising U.S. election results, surpassing 100,000 contracts for the first time on November 9.

CBOE introduced the ETH options session in 2015 on our SPX and VIX products. The primary motivation for offering these products during off-market hours was to provide market participants with the opportunity to react to global events at the time of those events taking place, rather than having to wait until the regular trading hours open at 8:30 AM Chicago time.

ETH option hours are 2:00AM – 8:15AM Chicago time / 8:00AM – 2:15PM London time.

The U.S. election results were precisely the type of event that ETH was designed for. As election results rolled in from east to west, market participants found that there was abundant liquidity in both SPX options and VIX options.

The chart below shows total options volume traded during ETH on November 9 (108,015 contracts) as well as the volume per trade, throughout the course of the session. Some of the larger trades are highlighted.

November 9, 2016 ETH Options Volume

eth-election-volume

Some other interesting statistics from the November 9 ETH session:

  • 66,797 VIX options traded and 41,218 SPX options traded.
  • There were over 2,000 trades, with an average trade size of 52 contracts
    • There were 43 trades for 500 contracts or greater
    • There were 203 trades with contracts sizes between 100-500
  • More than 60% of the volume was traded as a spread
  • A full range of strikes and maturities traded:
    • Expirations between November 9, 2016 – December 21, 2018
    • SPX strikes ranging from 1300 – 2600
    • VIX strikes ranging from 12 – 45
  • Some of the volume was executed via AIM (CBOE’s paired order mechanism)
  • CBOE has three dedicated market makers in ETH for both SPX options and VIX options who are required to stream continuous bids and offers throughout the session:
    • SPX options:
      • Chicago Trading Corp
      • IMC
      • Belvedere Trading
    • VIX options:
      • Chicago Trading Corp
      • Consolidated Trading
      • Sumo Capital

VIX Futures ETH

In addition to the successful ETH options session, CFE also set a record for VIX futures volume during ETH on November 9. CFE traded 263,663 VIX futures during ETH on November 9, representing over 40% of the total CFE volume for that day.

VIX futures began trading 24 hours per day, five days per week in 2014. On a typical trading day, more than 10% of VIX futures volume trades during extended trading hours.

BigTrends.com Weekly Market Outlook – Will The Rally Sputter Here?

The volume may not have been great behind the shortened trading week’s gains, but a gain in a gain nonetheless. And, this one was particularly noteworthy in that all the major indices made their way into record high territory…. at a time when they weren’t supposed to.

Can it last? That’s the $64,000 question. From a momentum and technical perspective, the picture is bullish – yes, there’s reason to expect more upside from here. But there is reason to believe the rally may sputter soon and possibly roll over to the downside.  This week is going to be interesting.

We’ll look at the risks and rewards below, after taking a look at the bevy of economic news unveiled last week, and previewing this week’s economic news.

Economic Data

Last week was an especially bug week for real estate news, with October’s existing-home sales report coming on Tuesday, and new-home sales being posted on Wednesday. Both were good. Sales of existing homes ticked higher, from 5.49 million to a multi-year high of 5.6 million. New home sales slumped a bit, from a pace of 574,000 to 563,000. Still, the bigger trend of new home sales remains pointed upward.

New & Existing Home Sales Chart

1

Source: Thomson Reuters

Though not charted, note that the FHFA Housing Price Index edged up in September as well, extending a multi-year uptrend.

Last week also dished out a pretty impressive durable orders figure… even without factoring in transportation orders. Ex-transportation, orders grew 1.0%, and were up a hefty 4.8% with transportation ordered factored in. October’s orders were a welcome improvement following a lackluster September report. More important, we’ve seen a pretty solid streak of year-over-year improvement.

Durable Orders, Year-Over-Year Growth Chart

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Source: Thomson Reuters

Everything else is on the following grid:

Economic Calendar

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Metals and Mining: Buyers Transition to New Groups

Over the past several years we have seen selling pressure intensify in metals and mining names as policy directives shifted away from this group. Not only was less money invested in coal, copper, materials and the like but costly regulations put some of these companies against the wall, and in many cases out of business totally. Stocks like Cliffs Natural, Freeport McMoran and US Steel are a shadow of their former selves. Once boasting robust stock prices and strong balance sheets, these and many others have been gasping for air, slicing costs and jobs in order to survive.

Sadly, many companies did not make the cut and went away. Overseas companies such as BH Billiton and Rio Tinto were crushed under the intense distribution over many years. But with a shift in the administration many of the fears that have come about due to high cost and renewable energy may have disappeared, so no surprise these stocks and many others have seen a resurgence.

Take a look at the XME weekly chart below, and notice the powerful move over the 200 week moving average, which has been above the price for years.

Why the sudden interest in names often tossed to the side of the road? For one thing, with a Trump administration there is the anticipation of more jobs created in areas that have been devastated since the Obama administration took over in 2009. During the Presidential campaign Hillary Clinton was quoted as saying, “We’re going to put a lot of coal miners and coal companies out of business” In just a few short weeks some stocks have run up 70-100% in impressive fashion.

While those returns are robust, let’s be reminded these stocks have been under long term distribution for years, not months or days. What does that mean exactly? It’s not an ‘all clear’ signal yet, but we certainly like to see broad participation from stocks that have been latent for years.

The market does not lie to us. The action we have seen of late in these names is amazingly strong, but on very good turnover. Price levels that had been strong resistance are being sliced through like a hot knife through butter. This is institutional buying, and we like to follow the institutions in markets – whether they are coming in or out. Will this trend continue? It’s hard to argue against momentum and strong trends.

Earnings Week of 11/28 – 12/2

As always the data below is based on the last three years of earnings results unless the ticker is in italics.  The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings.  Finally, double check the earnings dates as not all were confirmed.

earnings-fixed-again

Weekend Review – VIX Options and Futures – 11/21 – 11/25

VIX managed to threaten to break below 12 this past Friday as all seems right in the world.  Who would have thought all being right in the world would involve Donald Trump as our current president elect?  Before the hate mail comes, I’m neutral on this topic, the point I’m trying to make is who would have thought VIX would be so low just a couple of weeks after his upset victory?  Last week we experienced the slightest VIX curve move that I can recall.  However, when VIX is quiet, that’s when we may need to be keeping a sharp eye out for the next volatility event.

vix-curve-table

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Weekend Review – Volatility Indexes and ETPs – 11/21 – 11/25

The VXST – VIX – VXV – VXMT curve mostly shifted lower this past week with VXST being the exception.  We give VXST a pass as far as information goes since holiday weeks tend to put pressure on a measure of 9-day volatility.vxst-vix-vxv-vxmt

My eye first went to TYVIX when looking this table over.  Bond volatility has been elevated as that market has taken center stage since the election.  TYVIX didn’t do a whole lot last week, but that is deceiving as it remains at the high end of the 2016 range.

vxx-table

SVXY had a great week rising about 4% and is approaching up 70% on the year.  Ever since the end of a very volatile election there has been very low volatility for the equity markets which has benefited SVXY greatly and the fund is up 14.4%.

vxx-svxy-uvyx-chart

The holiday week seemed prime for low volatility and one trader put on a one-week trade that got it right.  Last Friday, the 18th, with VXX at 29.05 there was a buyer of the VXX Nov 25th 30 Puts for 1.38.  I know, it’s not too exciting, but with VXX finishing the day today at 27.82 that non-exciting put purchase was 2.18 in the money.  Not bad for one week of work.

vxx-po