This Week in VXST – 4/18/2014

CBOE has historical data for the CBOE Short-Term Volatility Index going back to the first day of 2011.  This weekend marks the 21st three-day weekend since January 1, 2011.  Those of us that spend lots of time focusing on volatility indexes are very aware that there is a weekend effect that puts downward pressure on indexes like VXST and VIX on the final day of the week.  Also, the downward pressure on VXST is more pronounced than the impact on VIX especially around a long weekend.    Since this is one of those three day weekends and I do not really know what to do with myself when the market is not open I spent some time looking at VXST and what has occurred with the twenty instances that the market has been closed for 3 days.  The results kind of confirm what we already know.

Of the twenty three day weekends since 2011 VXST has closed lower 65% or thirteen times on the day before the long weekend.  That doesn’t sound too significant, but the chance of VXST being lower on any average trading day is closer to 53%.   The startling figure is what happens the first day after the long weekend.  So far there has not been a post three day weekend trading day where VXST did not close higher.  Yes, 100% of the twenty long weekends since 2011 have been followed by VXST closing higher than the close before the weekend.

This is a great fact, but don’t run out and check the calendar for the next three day weekend to get long VXST.  The futures tend to discount or anticipate the rebound in VXST that historically has occurred after the long weekend.  A good example of this shows up below where the April 23rd VXST future closed almost 3 points higher than VXST on Thursday.  There are only two trading days remaining between now and AM settlement for that contract.  The traders already know about the three day weekend and are anticipating a move up for VXST when we get back to work on Monday.

VXST

This Week in Volatility Indexes and ETPs – 4/18/2014

It took five days for the S&P 500 to drop from 1865 to 1815 – this past week the S&P 500 rose from 1815 to 1864 in just four days.   This time last week those of us that comment on the market action each weekend were posting articles and blogs citing the S&P 500 experiencing the worst weekly performance since May 2012.  Well this week we have to search for the last week where the S&P 500 rose over 2.71% (last week’s performance).  To save everyone time is was July 2013.  Just seven days ago everyone was calling for lower equity prices and then end of the stock market run.  Now there is some real silence as this market continues to defy the skeptics also known these days as a permabear.

The four volatility indexes that are based on S&P 500 Index (SPX) option trading dipped last week as the stock market moved to higher levels.  Also, keep in mind that three day weekends have a dampening effect on the performance of VXST and VIX.  Even if we were facing a two day weekend the shift would probably have been pretty dramatic.

VXST - VIX - VXV - VXMT

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Another Historical VIX Comparison

Last night I posted a blog about VIX price action in 2014 and compared it to different levels from 2004 – 2013.  Justin Pulitzer (@justinpulitzer) noted via a tweet that 2008 – 2009 probably skewed the highs on the chart that I produced and discussed last night.  Based on that tweet I was prompted to take a look at average VIX closing prices by day from 2004 through 2013, but excluding 2009.  The result of that update was very interesting (at least to me).  I am well aware that toying around with historical data to prove a point results in the credibility of the argument going to zero.  My argument about VIX not being ‘broken’ is in last night’s blog –

http://www.cboeoptionshub.com/2014/04/16/historical-perspective-current-vix-levels/

Tonight is just about an interesting result in the chart below.  Taking out 2009 for the study results in a line that almost looks like a moving average around this year’s closing prices.  I know humans often look for patters and see patterns where they do not exist, but there may be something to comparing the blue line below, which depicts the 10 day moving average of the average daily closes for VIX over the previous ten years and dropping 2009, and the purple line that shows this year’s closing prices through yesterday.  Beyond VIX trading line with the average of nine of the last ten years, it also seems to have a seasonal pattern that is showing up in both the historical and current data.   The higher red line shows the average daily closing prices for VIX for each date between 2004 and 2013 and including 2013.  As Justin noted in his tweet – the volatility action around the financial crisis did have a huge impact on last night’s chart.

VIX 10 Year Average Excluding 2009 Red Blue Purple

 

The Price of a Good Steak Rises Dramatically

There’s been some media attention in recent days about the fact that beef prices have risen to multi-year highs — articles discussing how the price of a good steak is rising dramatically, for example.

But there is additional food inflation going on currently in a wide variety of areas — and this is the kind of inflation that affects the majority of people directly, and one which the Fed seems a bit oblivious about in their reported price inflation data.  Also affects the restaurant and packaged goods industries — some more than others.

Just for example, see the following 5 charts:  (the first 4 are from zerohedge.com, the 5th is from wsj.com and is only a projection of price increases)

Pork Prices Chart

mw Pork-prices_0

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Blogging Options: CBOE Morning Update 4.17.14

Expiration Thursday.   Weekly jobless Claims better than expected.  GS misses on earnings but bullish comments push shares higher. No news in Ukraine is good news for markets.

IBM (IBM) is down $8.10 to $188.30 in the premarket after meeting earnings estimates of $2.54 per share but reporting its lowest quarterly revenue total in five years. April call option implied volatility is at 35, May is at 22, June is at 16; compared to its 26-week average of 19.

Google (GOOG) is down $11.04 to $545.50 after the web search company reported Q1 revenue increased 22% from the previous year, but EPS & Revenue missed. April call option implied volatility is at 93, May is at 34, June is at 29, September is at 24; compared to its 26-week average of 23.

American Express (AXP) is trading mixed to lower $0.70 in the premarket after saying Q1 earnings rose due to expense controls and higher revenue. Overall option implied volatility of 25 is above its 26-week average of 21.

Options expected to be active @ CBOE: AAPL FB HON MS NFLX GOOG IBM AXP

CBOE S&P 500 PutWrite Index (PUT) at 1409.13, compared to its 10-day MA of 1398.87 and its 50-day moving average of 1392.88. cboe.com/PUT

CBOE S&P 500 BuyWrite Index (BXM) at 1047.82, compared to its 10-day moving average of 1039.20 cboe.com/BXM

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A Historical Perspective on Current VIX Levels

With all the talk about VIX not acting right (I don’t use the word broken) you would think that someone had written a book criticizing the fear index.  My feeling has been that VIX is doing what it is supposed to do and that is measure the implied volatility of index options that are listed on the S&P 500.  In the past sustained higher volatility has been associated with a bearish equity market.  Since the stock market has not experienced any sort of sustained downtrend or even a substantial one day drop in several months VIX has remained low.  Also, VIX has remained low and the very resilient stock market continues to overcome all obstacles and make a push to higher highs.  I almost expect traders on exchange floors to start chanting Rudy over and over again based on the market’s resilience in the face of so much adversity whenever the S&P 500 sets a new record.

On my extensive to do list was to create the chart that appears below.  This chart shows a 10 day moving average of four different data points.  The upper line (red) represents the high for VIX on each respective day over the past ten years (2004 – 2013), the middle line (green) is the average closing price for each day over the last ten years, and the bottom line (blue) is the low price for each date on the chart over this same ten year period.  Tucked in there between the green and blue lines is the closing price for VIX from January 2, 2014 through April 16, 2014 represented by the purple line.  Again all these lines are 10 day moving averages as some outlier days honestly made the chart very difficult to read until I smoothed things out a bit.

VIX 10 Year Comparison - Updated

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Blogging Options: CBOE Mid-day Update 4.16.14

Volatility as an asset class

Yelp (YELP) is recently up $2.02 to $65.08 after the company that connects people with local businesses was upgraded by Citigroup to Buy from Hold. April weekly call option implied volatility is at 70, May is at 79, August is at 69; compared to its 26-week average of 63.

U.S. Bancorp (USB) is recently down 52c to $40.49 after reporting Q1 results that matched expectations. May, June and September call option implied volatility is at 15; compared to its 26-week average of 17.

VIX methodology for Google (VXGOG) -6.8% to 33.05 into Q1 cboe.com/VXGOG

VIX methodology for IBM (VXIBM) @ 0.5% to 26.38 into Q1 cboe.com/VXIBM

VIX methodology for Goldman Sachs (VXGS) -3.6% to 24.97 into Q1 cboe.com/VXGS

Actives at CBOE: AAPL C TSLA VLO YHOO AMZN FB BAC TWTR GILD

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Blogging Options: CBOE Morning Update 4.16.14

Housing Starts with a slight miss, economic news out of China somewhat murky.  After yesterdays wild ride, overseas markets higher, as are US futures. Industrial Production and Cap Use released shortly.  Options Expiration tomorrow with Good Friday trading holiday.

Volatility as an asset class

Yahoo! (YHOO) is up $2.49 to $36.80 in the premarket after reporting Q1 EPS of $0.38, $0.01 better than the analyst estimates. Also, Alibaba, the fast growing e-commerce giant in which Yahoo owns a 24% stake, said revenue surged 66% year-over-year to $3B. April call option implied volatility is at 76, May is at 46, June is at 39; compared to its 26-week average of 35.

Intel (INTC) is down $0.07 to $26.70 after reporting a 4.8% decline in Q1 profit. April call option implied volatility is at 41, May is at 21, June and October is at 19; compared to its 26-week average of 21.

Bank of America (BAC) is down $0.16 to $16.24 in the premarket, Q1 earnings hurt by resolving more mortgage issues. Overall option implied volatility of 26 is at its 26-week average.

Options expected to be active @ CBOE: BAC TWTR YHOO INTC FB PLUG GE TSLA

CBOE S&P 500 PutWrite Index (PUT) at 1396.30, compared to its 10-day MA of 1399.52 and its 50-day moving average of 1391.08. cboe.com/PUT

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Gamma of Volatility Gets Pasted – For Now

It looked real ugly this morning toward noon.  From what I could tell there was enough decent news to push stocks higher pre-open and then the flood gates of selling opened, hitting the momentum stocks particularly hard.  The on again/off again saga of the Russians camping out in the Ukraine is putting the market into a tizzy.  A near term weak market gets downright ugly when the liquidity dries up after countries start shooting at each other.

Putin’s incursion into Ukraine is looking like a big babushka doll trying to corral one of the little dolls back into place.  The Ukraine is not quite ready to hop back in so we keep watching.  This is a War Market, short term as it might be.  The players stay on the sidelines until something happens one way or another.  The low liquidity can cause big swings since the uncertainty of a shooting war is so random.

LivevolX (r) www.livevol.com

Look at the short term vol of vol in VXX.  With VXX trading over $46 things looked bad as short term vol of vol spiked.  By the end of the day, it tanked as the nastiness did not quite materialize.  Note, as we move into the close the vol products are not tanking.  Around a 16% VIX is feeling fair value until the War Market ends.  Your guess is as good as mine when that happens, but if things calm down watch out on the upside.

The Trade

I am adding to Emerging Market longs by selling put spreads and wheel-type trade in EDC and EWZ that are OTM.  If the VIX can’t go down, we can see more of the same tomorrow.   Disclosure- positions in EDC, EWZ.      ATG

BABUSKAS

CBOE Mid-Day Update 4.15.14

US stocks rallied, sold off and are currently sharply unchanged.  Option volume at 12:30 CDT was ~13.6mm, 3.925mm at CBOE.  SPX and VIX traded over 550k, SPY with 1.65mm contracts. Some slightly better Q1 Earnings news being overshadowed by shots allegedly fired in Ukraine.  NASDAQ still weak. 10-year at 2.62%.

Potash (POT) is up $0.82 to $34.71 on speculation that BHP Billiton (BHP) may again make a bid to take over the company after failing in a prior buyout attempt in 2010, according to the Globe & Mail. April, May and June call option implied volatility of 23 is near its 26-week average.

Zebra Technologies (ZBRA) is down $7.68 to $60.59 after agreeing to acquire Motorola Solution’s (MSI) enterprise unit for $3.4B.  May call option implied volatility is at 37, August is at 34, November is at 30; compared to its 26-week average of 24.

Comerica (CMA) is off 0.43 to $47.67 after reporting Q1 EPS 73c, consensus 72c.  May call option implied volatility is at 20, July and October is at 21; compared to its 26-week average of 23.

Actives at CBOE:  AAPL C TSLA KO NFLX AMZN FB MSFT BAC TWTR

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