Will the CBOE Equity VIX® on Amazon (VXAZN) experience a one-day drop of more than 30% this week? The VXAZN Index fell more than 30% on 3 different days in the past year. Below is some relevant info.
Last Friday reporter Tricia Duryee wrote a piece that appeared in wsj.com and that noted —
“… Amazon stock hit a 52-week high [on Jan. 25] in anticipation of a strong earnings report on Tuesday, boosted by a spike in holiday spending. … According to comScore’s final tally for the November-December shopping season, online spending in the U.S. totaled $42.3 billion, which was a 14 percent increase over 2011, but fell short of its expectations. …”
The abstract for a 1996 academic article noted that —
“We study the implied volatility behavior of call options around scheduled news announcement days. Implied volatilities increase significantly during the pre-event period and reach a maximum on the eve of the news announcement. After the news release, implied volatility drops sharply and gradually moves back to its long-run level. Only on the event date are movements in the price of the underlying significantly larger than expected. These results confirm the theoretical results of Merton (1973).”
The Impact of Firm Specific News on Implied Volatilities, by Monique W.M. Dondersa and Ton C.F. Vorst. Journal of Banking & Finance, (November 1996), Pages 1447–1461.
The CBOE Equity VIX® on Amazon (VXAZN) is designed to measure the expected volatility of AMZN stock.
The data history for the VXAZN Index goes back to June 2010. A link to spreadsheets is at www.cboe.com/VXAZN
The dates for Amazon’s earnings announcements in 2012 were Jan. 31, April 26, July 26, and Oct. 25.
Below are the four days in which the VXAZN Index had changes (up or down) of more than 27%; it is interesting to note that all four of the down days were the day after earnings announcements.
For more information on options strategies that could be considered as implied volatility is changing, please visit http://www.cboe.com/Strategies/Default.aspx
ONE-YEAR CHARTS ON VXAZN AND AMZN