CBOE Mid-Day Update 7.24.14

Volatility as an asset class

Ford (F) is recently up 19c to $17.97 on Q2 profit increasing 6% to $1.3B.  July weekly call option implied volatility is at 24, August is at 18, September and October is at 17; compared to its 26-week average of 23.

Under Armour (UA) is recently up $9.53 to $70.16 on Q2 net revenue growth of 34%.  August call option implied volatility is at 30, August is at 27, January is at 26; compared to its 26-week average of 34.

United Continental (UAL) is recently up $1.28 to $47.28 on better than expected Q2 results.  August call option implied volatility is at 33, September is at 24, January is at 28; compared to its 26-week average of 42.
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VIX methodology for Amazon (VXAZN) up 0.9% to  37.16, above its 50-day  of moving average of 31.22 into the release of Q2.

Actives at CBOE:  AAPL FB GILD MMM BIDU TSLA NFLX TWTR GILD

Stocks with increasing volume @ CBOE:  BBRY  FTNT DPS UIS MXWL DEO CRI BC FFIV WYN

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 11c to 10.72; compared to its 10-day
moving average of 11.74. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 22c 271.50, compared to its 50-day moving average of 267.61 cboe.com/micro/bxd/
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Blogging Options: CBOE Morning Update 7.24.14

Ford up $0.30, GM drops $0.70 and CAT falls ~$3 as earnings keep rolling in this morning.  AMR Group declares first dividend in 34 years.  Weekly Claims fall again.  Overseas markets drift higher.  Volatility as an asset class:

Qualcomm (QCOM) is down $3.83 to $77.76  in the premarket after the chip manufacturer reported a 42% increase in Q3 results, however said its licensing and patents was encountering “significant challenges” in China. July weekly call option implied volatility is at 58, August is at 20, October and January is at 17; compared to its 26-week average of 20.

Gilead (GILD) is up $0.92 to $91.26 after reporting Q2 EPS $2.36, compared to consensus $1.79 and said its new hepatitis C treatment, Sovaldi, had $3.48B in Q2 sales. July weekly call option implied volatility is at 77, August is at 39, September is at 31, November is at 31; compared to its 26-week average of 33.

Facebook (FB) is higher by $6.00 to $77.25 in the premarket after the social-media giant reported that Q2 profit more than doubled and revenue topped estimates for the ninth straight quarter. The social media company said about 62% of its ad revenue comes from mobile devices. July weekly call option implied volatility is at 108, August is at 45, September is at 39, December is at 37; compared to its 26-week average of 42.

Options expected to be active @ CBOE:  FB POT F GM LLY QCOM GILD DNKN HOT GM CAT F AAL BMY LLY HSY UA

CBOE S&P 500 BuyWrite Index (BXM) at 1097.08, compared to its 10-day moving average of 1089.57 cboe.com/BXM

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CBOE Options Institute Visits Shanghai Exchanges

In preparation for the commencement of options trading in China, the Shanghai Stock Exchange and the Shanghai Futures Exchange have been sending various groups of exchange staff, brokers and market makers to The Options Institute at CBOE for basic- to intermediate-level education on options strategies and options pricing. In the last 18 months, 10 classes with over 500 total students have been given at CBOE in Chicago.

But now is the time for the “show to go on the road.” This week (July 21-25), Jim Bittman, Director of Program Development, Debra Peters, Vice-President and Director of the Options Institute at CBOE and Eugene Zheng from our Corporate Planning group have been in Shanghai giving educational seminars.   Earlier this week they gave a 2-day basic seminar to Exchange staff and Chinese regulators,  and today through Friday are giving a 3-day advanced class for market makers.  Jim tells us that the attendance at these all-day sessions has been tremendous and the participants  have been very engaged.

An attendee of a three-week  educational session in Chicago this past January stopped by yesterday and asked Jim about the “Polar Vortex”, and if Chicago’s weather has moderated.  Jim assured him it had.

Jim will post a recap of his, Deb’s and Eugene’s impressions of the  soon to be launched Chinese options market here next week.

Below is a picture of guests from Shanghai in The Options Institute last month.

oi class shang pic

Toll, Building a Strong Foundation

I’m looking at the buy side in Toll Bros. Inc (TOL $36, up $0.57).  On the daily chart below you can see that the recent low was made at the confluence of a .618 retracement of one major swing and the 1.272 extension of another.  One more price relationship comes in at the $34.78 – $34.92 area (aka price cluster zone) which was a 100% projection of a prior decline of $1.58 projected from another swing high.  The second swing ended up being very similar at $1.48. This is illustrated on the daily chart below.

cb 7 23 tol

 

Now if price continues to hold above this key price cluster low, the initial upside target comes in at the $38.36 area.  I will consider myself wrong the trade if the $34.78 area is taken out instead.
This week the last for TOL Weekly options.  With a 2-3 week projection, regular Aug. expiration would be the time-frame to target.

 

CBOE Mid-Day Update 7.23.14

Volatility as an asset class

Boeing (BA) is recently down $3.21 to $126.53 after raising 2014 EPS outlook, however renewed concerns on the KC-46 tanker program and a $425M charge on Pegasus jets. July weekly call option implied volatility is at 23, August is at 18, October is at 15; compared to its 26-week average of 21.

Biogen (BIIB) is recently up $34.71 to $338.69 after raising its 2014 profit forecast. July weekly call option implied volatility is at 43, August is at 29, September is at 26, January is at 30; compared to its 26-week average of 33.

Intuitive Surgical (ISRG) is recently up $56.37 to $448.53 after the robotic medical device company reported better than expected Q2 results. July weekly call option implied volatility is at 47, August is at 32, September and January is at 28; compared to its 26-week average of 36.

Actives at CBOE:  AAPL MSFT C TSLA NFLX TWTR GILD AA

Stocks with increasing volume @ CBOE: XLNX FTNT INO PBYI FOLD TLM CBAK ELY JNPR INFN

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 54c to 11; compared to its 10-day moving average of 11.89. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 22c 271.28, compared to its 50-day moving average of 267.47 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 29c to 11.95. VIX August 15 and 19 calls are active on 138K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 20c to 28.14.
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Three Gray Swans – Week of Jul 28 – Aug 1

Next week is a dream week for those that look for new information to be digested by the markets. When I say new information being digested I’m really saying increased volatility based on major economic announcements. We have the two biggies – FOMC and Non-Farm Payrolls – coming out. Since the title is Three Gray Swans I’m going to add the ADP Employment Change report as a third event to watch next week. I’m adding this one due to the close association with the big employment number that comes out on Friday.

ADP Employment Change – Wednesday at 7:15 Chicago Time

The ADP National Employment Report (ADP Report) is considered a preview to the official number that is released on Friday before the stock market opens. Last month the ADP report indicated that 281,000 nonfarm private sector jobs were added in June which was much higher than expectations. Two days later the Labor Department reported that 288,000 nonfarm jobs were added in June that was also an upside surprise. Before I get emails about clarifying the differences between the Labor Department and ADP job counts, I am aware they are slightly different – the important aspect is that they both were higher than expected last month. This topping of the Labor Department count resulted even after estimates were raised between the ADP release and the official Labor Department number. The point is that the ADP number did a great job forecasting a higher government jobs number last month so it will probably get some extra attention next week.

If you are more interested in the ADP report you can visit – www.adpemploymentreport.com

FOMC Announcement – Wednesday at 1:00 Chicago Time

It has been a long time since there has been any question about what the rate decision will be and there are no questions about the target level remaining unchanged at 0.25%. These days the FOMC announcement is more about what is contained in the statement which is supposed to be a clear update on monetary policy. I’ll leave that debate to the guys that like to talk over each other on CNBC.   The element of the statement that I always scan down to comes toward the end where any potential risks to the economy are discussed and how the members voted. The potential risks will summarize what the members of the Federal Open Markets Committee are concerned about. I think it is safe to say that what they are focused on should also be a focus for investors and traders. The voting section will note any members that did not agree with the rate decision and potentially the reason this member did not agree with the majority of voters. That too can give some insight into the mindset of the committee and some concerns about the economy going forward.

Nonfarm Payrolls – Friday at 7:30 Chicago Time

If it were not for the FOMC meeting this week the slew of monthly data that comes from the Labor Department would be the primary focus next week. However, because of FOMC it may take on more importance. There have been grumblings that an acceleration of employment and wage growth could be an early sign of inflation. If that message is included in the FOMC statement Friday’s employment report may have a heightened level of importance.

CBOE at Public Funds Summit This Week

CBOE is working the 3-day Opal Public Funds Summit East in Rhode Island this week. About 250 financial professionals, including four state treasurers and dozens of trustees of public pension funds, have been in attendance.  At the CBOE exhibit table, available educational literature includes fact sheets on CBOE benchmark indexes, on CBOE volatility indexes (including VXTYN), and research papers by Hewitt EnnisKnupp, Cambridge Associates, Asset Consulting Group, and other leading firms.

Mike Warsh, Director of Institutional Business Development at CBOE, spoke on a panel and noted that some previous speakers already discussed use of options, and that plan sponsors are exploring use of options through programs that engage in tail risk hedging or selling index options to enhance income. To help plan sponsors learn more about prudent use of options, Mike noted that CBOE (1) has created a number of benchmark indexes, including BXM, BXY, and PUT, (2) is delivering customized presentations on use of options to key plan sponsors, and (3) will host the 31st Annual Risk Management Conference (RMC) in California in March 2015.

Tim Barron, Senior Vice President and Chief Investment Officer, Segal RogersCasey said that plans probably still should be invested in equities, and that now could be a good time to explore the use of hedging tools because hedging costs are relatively low.

John Longo, Chief Investment Officer and Portfolio Manager, Acertus Capital, noted that his firm has funds that use options for portfolio management.

To read more about options-based benchmark indexes and related research papers, please visit www.cboe.com/benchmarks.

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Blogging Options: CBOE Morning Update 7.23.14

Boeing beat and tweaked guidance higher, Pepsi up $1.80 and also gives upbeat guidance. Overseas markets higher, metals off. 10-year stuck in a tight range near 2.46%.  Chicago Bears report to training camp today.  I’m not sure summer has arrived in Chicago yet.  Weather perfect for sweet corn this year.  Volatility as an asset class:

Apple (AAPL) is higher by $0.50 to $95.22 in the premarket on Q2 profit growth of 12% and strong sales. July weekly call option implied volatility is at 68, August is at 28, September is at 24, October and January is at 23; compared to its 26-week average of 26.

Microsoft (MSFT) is up $0.82 to $45.65 on Q4 profit declining 7.1% as the company acquiring Nokia’s (NOK) money losing cellphone business. July weekly call option implied volatility is at 57, August is at 29, October is at 20; compared to its 26-week average of 20.

Puma Biotechnology (PBYI) is up $151  (that’s right, and they have no products in the marketplace at this time – it’s a breast cancer drug)  after reporting positive top line results from Phase III PB272 trial. August call option implied volatility is at 142, September is at 116 December is at 97; compared to its 26-week average of 98.

Options expected to be active @ CBOE:  MSFT AAPL AMZN WHR ISRG QCOM BRCM PBYI XLNX JNPR

CBOE SKEW INDEX (SKEW) at 136.37, above 50-day MA of 130.77. 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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CBOE Mid-Day Update 6.22.14

Volatility as an asset class

Coca-Cola (KO) is recently down $1.26 to $41.13 on the beverage company sees structural items hurting second half EPS by 2c. July weekly call option implied volatility is at 18, August is at 10, September and January is at 11; compared to its 26-week average of 15.

Harley-Davidson (HOG) is recently down $4.04 to $63.02 after the heavy weight motorcycle company reported a 30% rise in profit on disappointing retail sales. August call option implied volatility is at 21, November is at 20; compared to its 26-week average of 24.

Polaris (PII) is recently up $12.97 to $146.14 on Q2 EPS increasing 26% to $1.42 on 20% sales growth. August call option implied volatility is at 24, December is at 21; compared to its 26-week average of 24.

Actives at CBOE:  AAPL MCD AA KO BIDU AMAT BIDU AMAT TSLA GILD C TWTR AMZN

Stocks with increasing volume @ CBOE:  YPF AA SBAC KS EDU PII GALT EJ AXL HLF

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down $1.44 to 11.51; compared to its 10-day moving average of 11.84. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 62c 271.50, compared to its 50-day moving average of 267.34 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 86c to 11.95. VIX August 13 and 14 calls are active on 165K contracts @ CBOE cboe.com/VIX
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Blogging Options: CBOE Morning Update 7.22.14

Average option volume day yesterday as ~19mm contracts trade.  SPX showed 590k and VIX with 355k.  VIX Futures with 174k.  Six DJIA components report Q2 results today.  KO off $1 on narrow miss, VZ up $0.40. DD up fractionally on light volume.   CPI rose 0.3% in June (2.1% ytd) Core up 0.1%. Volatility as an asset class:

Netflix (NFLX) is down $1.43 to $450.66 in the premarket after reporting solid Q2 results with continued international subscription strength. July weekly call option implied volatility is at 117, August is at 50, September is at 41,  December is at 40; compared to its 26-week average of 44.

Chipotle Mexican Grill (CMG) is up $62.48 to $652.40 on better than expected Q2 results last night. July weekly call option implied volatility is at 92, August is at 45, September is at 33, December is at 28; compared to its 26-week average of 32.

McDonald’s (MCD) is down $2.55 to $95 in the premarket on Q2 EPS $1.40, compared to consensus $1.44. July weekly call option implied volatility is at 23, August is at 14, September is at 13, and December is at 12; compared to its 26-week average of 14 according to Track Data, suggesting large near term price movement into the expected release of Q2 on July 22.

Options expected to be active @ CBOE: HLF MSFT AAPL AMZN ARMH NFLX CMG TXN KO DPZ UTX MCD PLUG AAPL FCEL FB

CBOE SKEW INDEX (SKEW) at 138.75, above 50-day MA of 130.55. 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 1093.08, compared to its 10-day moving average of 1086.92 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) at 270.77, compared to its 50-day moving average of 267.18 cboe.com/micro/bxd/

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