Weekend Review – 2/23/2014

Barron’s –

Steven Sears column leads off with a topic that covers two big area of interest for me, retailers and earnings.  I love studying how stocks react to earnings relative to what the option market is expecting and in my buy side days I covered the retailing industry.   Specifically he discusses earnings for Target (TGT – 56.24) which is set to report numbers Wednesday before the open.  He cites Goldman Sachs as noting that the average move for TGT stock the day after earnings having been 3.5% over their past eight earnings releases.  I post earnings history for stocks with weeklys, but my method looks back twelve quarters so my number is a bit lower at 2.27% (The Next Week in Weeklys Column contains these numbers).  The options were pricing in a move of 3.9% (higher or lower) late last week which is above both Goldman and my numbers.  Apparently Goldman Sachs believes we could get a big move based on earnings as Target has a lot to discuss relative to recent earnings and their 2014 outlook.  I’ll be watching this closely and may blog an update to pricing for TGT options on Tuesday before the numbers come out.

Options Action –

I thought there was no show last week due to the long weekend.  I am the first person to admit when they make a mistake and it turns out the show is being preempted by the Olympics.   As soon as all the snowboarding and luge medals have been awarded the guys will be back!

 

Other stuff I found of interest –

I was at the Trader’s Expo in NY earlier this week and had one of the best times I’ve ever had in New York.  One of the attendees suggested I watch an old Avengers Episode from 1965 called Dial M for Murder.  The plot is great – investors in London are killing off CEO’s of companies after buying put options on the stocks (over the counter of course).  Since I never miss an opportunity to see Dianna Rigg as Emma Peel I watched it over the internet.  Google it to find a workable link for a lesson on put options.

I am finishing up Pricing the Future: Finance, Physics, and the 300-year Journey to the Black-Scholes Equation by George Szpiro which was suggested reading by former CBOE CEO Bill Brodsky.  If I am not writing I’m reading and this book was difficult for someone that loves history and the markets to put down –

http://www.amazon.com/Pricing-Future-300-year-Black-Scholes-Equation/dp/0465022480/ref=sr_1_1?ie=UTF8&qid=1393088965&sr=8-1&keywords=300+years+of+options

A nice article on VIX holding in the mid-teens by Mark Sebastian –

http://www.optionpit.com/blog/vix-continues-hold-firm

A Bloomberg article on intraday VIX moves versus the S&P 500

http://www.bloomberg.com/news/2014-02-20/vix-swings-widen-versus-s-p-500-as-volatility-etn-trading-jumps.html

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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