CBOE Mid-Day Update 10.8.14

Volatility as an asset class

Sears Holdings (SHLD) is recently down $4.40 to $25.90 after Bloomberg says vendor to halt shipments. October weekly call option implied volatility is at 170, October is at 107, November is at 94,  December is at 84, March is at 76; compared to its 26-week average of 54.

J.C. Penney (JCP) is recently down 95c to $8.28 on the retailer revising Q3 sales guidance to reflect softer selling than expected during the month of September due to lower levels of clearance compared to last year and the continued difficult retail environment. October weekly call option implied volatility is at 105, October is at 74, November is at 65, January is at 57, February is at 54; compared to its 26-week average of 54.

Chimerix (CMRX) is recently down $2.92 to $30.41 after the Texas Health Presbyterian Hospital Dallas announced that Thomas Eric Duncan succumbed to Ebola. Duncan was being treated with Chimerix’s experimental drug Brincidofovir. October call option implied volatility is at 137, November is at 109, February is at 83; compared to its 3-week average of 78.

CBOE Crude Volatility Index (OVX) is recently up 5.7% to 26.53; WTI Crude future oil down 1.90% to $87.16.

Actives at CBOE:  AAPL TWTR TSLA NFLX PBR AMZN CLF AA BAC

Stocks with increasing volume @ CBOE: TKMR AMD MCP DOW SHLD JCP TSLA CNX CY FRAN CLNY

CBOE Volatility Index (VIX) is recently down 23c to 16.97. Oct 15, 16, 17, 18, 20 and 22 calls active on 355K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently down 88c to 31.40.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 12c to 16.78; compared to its 10-day moving average of 15.93. stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 78c to 262.98 compared to its 50-day moving average of 267.60 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up $1.36 to 866.04 as energy prices decline.

Blogging Options: CBOE Morning Update 10.8.14

Overseas markets soft this morning, while US futures point to a firm opening.  10-year ~2.355%.  ~19,500 VIX Futures trade in early session.  Alcoa leads off the Q3 earnings season after the close. FOMC Minutes released mid-day.  Tekmira, a pharma stock involved in Ebola trials with active stock activity.  Volatility as an asset class:

Yum! Brands (YUM) is up $0.47 to $70.20 in the premarket after reporting Q3 EPS ex-items 87c, consensus 89c. October weekly call option implied volatility is at 71, October is at 37, November is at 26, January is at 20, April is at 21; compared to its 26-week average of 23.

Costco (COST) is higher by $2.63 to $127.90 after reporting Q4 EPS $1.58, consensus $1.52.  October weekly call option implied volatility is at 34, October is at 22, November is at 18 and January is at 17; compared to its 26-week average of 15.

Symantec (SYMC) is up $1.05 to $24.24 in the premarket on the security, backup and availability solutions company is in advanced talks to split company in two, Bloomberg reports. Symantec overall option implied volatility of 26 compares to its 26-week average of 25.

Options expected to be active @ CBOE:  COST YUM GPRO RIO CMRX TKMR SYMC SAP

CBOE Equity Options Volume; 1,039,321 calls, 659,251 puts, 1,698,572 total CBOE.com

S&P 500 Weekly Options (SPXW) closed @ 1935.10 CBOE.com/SPXW

CBOE S&P 500 95-110 Collar Index (CLL) closed @ 646.60: www.cboe.com/CLL

More

CBOE Mid-Day Update 10.7.14

Volatility as an asset class

General Motors (GM) is recently down $1.59 to $32.16 after recalling 46,873 vehicles from 2008-2013. October weekly call option implied volatility is at 22, October is at 26, November is at 26, December is at 25; compared to its 26-week average of 27.

Amazon.com (AMZN) is recently $1.59 to $320.61 as The European Commission has opened an in-depth investigation to examine whether the decision by Luxembourg’s tax authorities with regard to the corporate income tax to be paid by Amazon in Luxembourg comply with the EU rules on state aid.  October weekly call option implied volatility is at 31, October is at 25, November is at 36, December is at 30, January is at 28; compared to its 26-week average of 27.

VIX methodology for Amazon (VXAZN) up 2.7% to at 35.16, above its 50-day moving average of 27.79. cboe.com/VXAZN

CalAmp (CAMP) is recently up $3.84 to $20.36 after the developer and marketer of wireless technology solutions that deliver data indicates revenue and earnings growth declines have bottomed. October call option implied volatility is at 52, November is at 49, December is at 50; compared to its 26-week average of 54.

Actives at CBOE:  AAPL TWTR TSLA NFLX PBR BAC HTZ AA KO MT AMZN

Stocks with increasing volume @ CBOE: IDTI SDT CAKE AGCO SQNM TCS AWI XPO CAMP AVP

CBOE Volatility Index (VIX) is recently up 62c to 16.08. Oct 16, 17, 20 and 25 calls active on 341K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 90c to 30.98.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 77c to 16.08; compared to its 10-day moving average of 15.46. stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 1.68 to 264.84 compared to its 50-day moving average of 267.88 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down $4.84 to 873.26 on slower European economic growth forecasts.

Blogging Options: CBOE Morning Update 10.7.14

US Stock futures modestly lower in pre-market trade.  The IMF cut their global growth forecast from 3.4% to 3.3% in 2014, and from 4% to 3.8% in 2015. European shares off ~1%, as German Industrial Production dropped 4% last month.   JOLTS Report 30 minutes after the opening will be watched closely by traders.   10-year dips to 2.395%.  Volatility as an asset class:

Tekmira (TKMR) is up $1.00 to $25.  This after a Spanish medical worker tested positive for Ebola after treating an Africa-based missionary,  infected with the virus and flown to Madrid. Overall option implied volatility of 89 compares to its 25-week average of 99.

SodaStream (SODA) is down $4.17 to $23.16 on preliminary Q3 revenues missing expectations. Overall option implied volatility of 55 is above its 26-week average of 48.

Container Store (TCS) is down $3.19 to $18.70 in the premarket as Q4 results missed estimates for the second consecutive quarter and lowered guidance. October call option implied volatility is at 105, November is at 60; compared to its 26-week average of 44.

Options expected to be active @ CBOE: AMZN SODA TCS TKMR VIX CMRX BCRX DE RIO

CBOE Equity Options Volume; 996,033 calls, 627,190 puts, 1,623,223 total.

S&P 500 Weekly Options (SPXW) closed @ 1964.80 CBOE.com/SPXW

CBOE S&P 500 95-110 Collar Index (CLL) closed @ 652.05: www.cboe.com/CLL

CBOE S&P 500 Skew Index (SKEW) at 126.96, compared to its 50-day moving average of 131.25. 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 1085.78 compared to its 10-day moving average of 1087.09 cboe.com/BXM

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Do Options Dream of Dancing Underliers?

While doing simulations on volatility and the square root of time I started thinking about what kind of time options experience—calendar time, market time, or something in-between. The CBOE’s VIX® calculations use calendar time, a 365 day year, but most option gurus recommend using a 252 day year for volatility calculations—the typical number of trading days per year in the USA markets.

When it comes to option decay most people, including the gurus, believe that option values decay when the markets are closed—a position I believe conflicts with the 252 day approach to annualizing volatility.

The experimental discovery that led to the current theory of option decay occurred in 1825 when the botanist Robert Brown looked through a microscope at pollen grains suspended in water and noticed they were moving in an irregular pattern. He couldn’t explain the motion but later physicists including Albert Einstein showed it was the result of water molecules randomly colliding with the pollen. This effect was named “Brownian Motion” in honor of Mr. Brown.

If you effectively stop time in Mr. Brown’s experiment (e.g., freeze the sample), the pollen will stop moving. Or if you close a casino for a day (probably a better model for the market) the net worth of the associated gamblers stops dropping.

Defenders of the calendar time approach point out there are many activities / events with broadband impact that can move the value of the underliers while the market is closed. Things like extended trading hours, activity in foreign markets, corporate announcements, geopolitical events, and natural disasters.

However it occurs to me that most noteworthy events that happen outside of market hours tend to be bad news. For example, I’m not expecting to see headlines any time soon stating, “ISIS disbands, ‘We realized it was all a terrible misunderstanding’”, or “Harmless landslide reveals huge cache of gold”.  This tendency towards negative moves is reflected in the average annual growth rate of off market hours for the last 20 years, -0.37% vs +9.59% for market hours.   And bad news tends to make option prices go up…

If option time is still running when the markets are closed I would expect the market’s opening value to be different from the closing value. Below is a quick look at the last 20 years of data:

S&P 500 Returns 1-Jan-1994 through 22-Aug-2014 (5197 market days)

  Market Time

Open to Close

(occurrences)

Market Closed

Close to Open

(occurrences)

No change 0.1% (5) 58% (3046)
Change less than 0.05% 5.2% (270) 81% (4249)
Changes >= 1% 27% (1396) 0.04% (3)

I was surprised how often the market opened at no-change from the previous close (3046 times) and how seldom it has gapped overnight more than 1% (3 times).

So what?

So far my arm-waving arguments give the edge to market time over calendar time, but really, so what?

Practically there are two things where this makes a difference: the dynamics of option decay and the accuracy of implied volatility calculations on soon to expire options.

Option Decay More

Morning Star vs Death Cross – Weekly Market Outlook

Talk about a reversal of fortune! By mid-day Thursday it looked like stocks were finally falling off of a cliff they’d been dangling from for weeks. By the end of the day Friday, the bulls were back in charge, although they’re still on the wrong side of the market’s key make-or-break lines.

Technically speaking, the onus is still on the bulls to prove they’re in charge, while the bears can let the bigger-picture momentum do their talking. On the other hand, as close as the market is to hurdling its key resistance levels, we must dissect the arguments being made from both sides of the table…. which we’ll do, right after a quick look at last week’s major economic announcements.

Economic Data
While there was a truckload of economic news posted last week, all of it paled in comparison to Friday’s update on the current employment (or lack thereof) numbers. Let’s start there, with the overarching data – the unemployment rate fell from 6.1% to 5.9%, and the number of new jobs created reached 248,000. It was good news, though not necessarily as good as those two numbers were touted as being.

For the record, the total number of people with jobs increased by roughly 200,000 people, reaching 146.6 million. Conversely, the number of officially unemployed people fell by about 300,000, to 9.26 million. So, the payroll-creation figure is on target. Still, the actual unemployment rate dip may have been a bit exaggerated by the fact that the total labor force [the figure used as the denominator in the unemployment rate calculation] somehow fell by nearly 100,000 people. The number of people who want jobs but are no longer counted as unemployed also grew, by about 50,000. Adjusting for those changes, the actually unemployment rate would have actually only fallen to 6.0%. Still, any progress at all is progress, which is good for the long-term market.

The only other really meaningful economic data we got last week was September’s consumer confidence score. It dropped more than a little. The Conference Board said September’s confidence reading fell from 93.4 to 86.0. It’s still in a bigger uptrend, but its something to watch closely when we get October’s score late this month.

Just for the record, the Michigan Sentiment Index reading didn’t drop in September. In fact, it advanced to a multi-year high of 84.6. Either way, both sentiment scores remain in long-term uptrends, which bodes bullishly or the long-term market trend.  Everything else is on the following table:
Economic Calendar

PH 100514-econ-data

Source: Briefing.com

The coming week is going to be a light one in terms of economic numbers, and none of what little data we’re getting is likely to be market-moving. In fact, we’re not even going to preview any of it. Of course, it may not matter anyway. This week kicks off Q3 earnings season, so most eyes will be on the beginning of that flow of data. Alcoa (AA) gets the ball officially rolling on Wednesday, after the market closes.

Stock Market Index Analysis

In retrospect, Friday’s big gain was the likely result of Thursday’s intraday reversal effort…. a bar that started out where the market closed Wednesday, made a very deep low, and then rallied back to where it opened. Friday’s advance was simply a follow-on to Thursday’s turnaround. Perhaps more important, the pattern of bars left behind over the course of Wednesday, Thursday, and Friday makes up a key reversal clue that suggests more upside is in store.

We don’t talk about candlestick analysis much, but when it’s merited, we will. As it just so happens, it’s merited now.  Ever heard of a “Morning Star” Japanese Candlestick pattern? It’s a pattern that requires three bars (three days, in this case) to form. The first bar is a tall bearish bar, the second bar is a doji (where the open is essentially the same as the close), and the third bar is a tall bullish day. It’s an indication that the momentum has decidedly shifted from a bearish one to a bullish one, with the middle of the second bar acting as the pivot from a net-bearish to a net-bullish environment. Well, Wednesday, Thursday, and Friday were almost a textbook example of a morning star, suggesting any lingering bearishness has been washed out and the bulls are taking over again. Take a look at the S&P 500 (SPX) (SPY) to see:

S&P 500 & VIX – Daily Chart

PH 100514-sp500-daily

All charts created with TradeStation

So the near-term outlook is now bullish? Not just yet.
Although this isn’t a chart to be dismissed, at this point it wouldn’t hurt to wait and see if the S&P 500 can make it back above its 50-day moving average line at 1975 (and for that matter, back above the 20-day moving average line at 1985) to become fully bullish. The index could do so in two or less days, and if the morning star clue is the real deal, the resulting rally should be much longer and much bigger than that.

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VIX Spot Index Now Includes S&P 500 Weekly Options (Part 2)

Today CBOE is beginning its calculations of the spot value of the CBOE Volatility Index® (VIX®) using S&P 500® Index (SPX) options with weekly and standard 3rd Friday expirations that more closely bracket the 30-day target timeframe. While this change is not expected to have a dramatic impact on the spot VIX Index, the change is a more precise enhancement to the VIX as the premier 30-day measure of the expected volatility of the S&P 500 Index.

Please visit the previous (Part 1) Blog on October 3 for an initial discussion of this change.

Below is even more information on the change and on the VIX Index.

  1. PAST HISTORY OF VIX INDEX IS UNCHANGED

The past data history of the VIX Index dating back to 1990 is not changed.

  1. COMPARING THE NEW VIX INDEX AND THE LEGACY VIXMO INDEX TODAY

Beginning today, the legacy spot VIX Index values are being published under the new name CBOE S&P 500 Standard Monthly Only Volatility Index (ticker VIXMO).  Here is a chart comparing the VIXMO (legacy) and new VIX indexes today (October 6th) through 12:47 p.m. Chicago time.  Throughout much of the day, the indexes were within 2/10th of a volatility point from each other.

1110-VIXMO & VIX on Oct 6

3. TERM STRUCTURE

Implied volatilities can vary depending on the expiration dates of options, and the concept of term structure can be very helpful in understanding the calculation of the VIX and the pricing of options in general. CBOE provides an updated term structure chart and table at www.cboe.com/vixterm.  At that page on Oct. 6th at 12:08 p.m. Chicago time, the estimated SPX implied volatilities were – 15.65 for the Oct. 18 expiration date, 15.58 for Nov. 22, 16.24 for Dec. 20, and 16.65 for Jan. 15 expiration date. For most of this year the term structure has been upward sloping.

1111-VIX Term

  1. COMPARISONS TO SPX HISTORIC VOLATILITY AND TO VIX FUTURES PRICES

Some investors have inquired about the recent levels of VIX in relation to the long-term average of VIX (around 20) and to VIX futures prices. While some ask if VIX is low in light of worldwide geopolitical tensions, it is worth noting that the VIX Index usually has been higher than SPX historic volatility in recent months (and arguably the VIX Index is not “low” when compared to SPX historic volatility; see chart below). I also note that the CBOE SKEW Index recently hit a 15-year high, showing that there is demand for protection with out-of-the-money SPX puts. The second chart below shows that in recent months the VIX Index usually has been in contango; the VIX futures often have been higher priced than the spot VIX Index.

1114-Charts VIX & SPX HV & Fut

  1. VOLUME GROWTH FOR S&P 500 WEEKLY OPTIONS

A contributing factor that facilitated the October 6 change is the growth in volume for S&P 500 Weekly options (SPXW), which expire on any Friday of the month other than the third Friday of the month, and are P.M.-settled series. Trading in expiring SPX Weeklys closes at 3:00 p.m. on their expiration date. Average daily volume for S&P 500 Weekly options rose from 65,254 in March 2012 to 272,825 in September 2014. More

CBOE Mid-Day Update 10.6.14

Volatility as an asset class

Intuitive Surgical (ISRG) is recently up $16.45 to $491.66 after Goldman Sachs upgraded the medical device company to Buy. October weekly call option implied volatility is at 39, October is at 33, November is at 36, January is at 31; compared to its 26-week average of 33.

Chimerix (CMRX), up 7% after announcing announced that brincidofovir has been provided for potential use in patients with Ebola Virus Disease. October call option implied volatility is at 75, November is at 89, February is at 85; compared to its 2-week average of 73.

TASER (TASR) is recently down 7c to $15 after announces multiple orders of TASER Smart Weapons. October call option implied volatility is at 57, November is at 59, December is at 55; compared to its 26-week average of 49.

Actives at CBOE:  AAPL TWTR TSLA NFLX PBR BAC RSH C HPQ AMZN CLF

Stocks with increasing volume @ CBOE: GTAT OI SNSS DRTX ADHD BDX GSAT VNDA RIO ISRG

CBOE Volatility Index (VIX) down 82c to 15.37. Oct 15, 16, 18, 20 and 21 calls active on 358K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 17c to 29.76

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 1.82 to 15.66; compared to its 10-day moving average of 15.40. stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 40c to 266.29 compared to its 50-day moving average of 268 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down $1.40 to 877.30 as global stocks extends its rally.

Blogging Options: CBOE Morning Update 10.6.14

US stocks add on to gains in early trade.  Overseas markets higher, catching up to US rally Friday.  10-year 2.43%.  DIS spending over $1B to help European subsidiary, is up $0.40 in early trade.  Volatility as an asset class

HP (HPQ) is up $2.11 to $37.31 in the premarket after announcing plans to separate into two new publicly traded Fortune 50 companies: one comprising HP’s market-leading enterprise technology infrastructure, software and services businesses, which will do business as Hewlett-Packard Enterprise, and one that will comprise HP’s personal systems and printing businesses, which will do business as HP Inc.  October option implied volatility is at 35, November is at 27, December is at 28; compared to its 26-week average of 28.

CareFusion (CFN) is up $11.83 to $58 in the premarket on Becton Dickinson (BDX) purchasing in a $12.2B deal, $58 per share in cash and stock. Overall option implied volatility of 21 compares to its 26-week average of 24.

Options expected to be active @ CBOE:  HPQ EMC VMW IBM GPRO PBR EWZ TLSA MBLY TKMR CFN BDX ADHD

CBOE S&P 500 Skew Index (SKEW) at 122.53, compared to its 50-day moving average of 131.42. 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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Tomorrow’s Spot VIX Calculation Change

As all the VIXophiles out there know, beginning October 6, 2014 there is a small change to how the spot VIX index is going to be determined. Instead of the next two standard option expiration series with at least eight days remaining until expiration, the two SPX or SPX Weekly option series that expire closest to 30 days will be used to determine VIX. Remember that when we say SPX Weeklys this refers to SPX options expiring several weeks into the future, not just the next couple of Fridays. I think when people hear SPX Weeklys going into the VIX calculation that there is some misunderstanding around this change.

Here’s a pretty straightforward example of what is different.  On Friday October 3rd VIX was calculated using standard SPX options expiring on October 17th and November 21st. On Monday October 6th the SPX Weeklys that expire on October 31st and November 7th will be used to determine VIX.  The SPX and/or SPX Weekly options that contribute to the VIX calculation will always have somewhere between 23 and 37 day left to expiration.

Here are some other important things to know –

  • There is no change to the VIX methodology, just the option series being used will not more closely match the 30 day time horizon that VIX was designed to measure.
  • VIX will continue to be a standard 30 day measure of implied volatility determined using S&P 500 index option pricing.
  • There is no change to VIX futures or options pricing or markets.
  • There is no change with respect to how VIX futures and options will be settled.
  • If you are old school or want to keep up with 30 day implied volatility using standard SPX options series as the inputs, CBOE will continue to calculate a 30 day implied volatility measure using standard SPX option series under the ticker VIXMO.

If you have questions – fire away at rhoads@cboe.com – I’ll try to address them in this space in the near future.

Finally, I have a noon Chicago webcast on October 6th where I will discuss volatility trading in the 3rd quarter this year, but also address this small change to determining VIX. You can still register at www.cboe.com/webcasts

Next Week in Weeklys – 10/6/2014

Weeklys CorrectedI knew there would be at least on addition to the Weeklys list (BABA), but was surprised to see a slew of changes –

Additions –

ETF’s – ERX, TQQQ, UPRO

Stocks – ABBV, ACHN, BABA, BRK/B. CBI, EMES, ILMN, JAZZ, KMI, LOCO, SHPG, SYNA, TKMR, YPF

Deletions –

Stocks – AEO, APOL, COF, ITMN, TAP, VVUS

Finally, we are starting to get into earnings season with a handful of stocks with short dated options available for trading reporting this coming week.

 

 

The Week in VIX – 9/29 – 10/3

VIX was up as much as 20% for the week based on Thursday’s high. A bullish stock market reaction to the employment report on Friday turned what looked like a rewarding week for long volatility positions into another quick spike and resumption of lower volatility. Those that took advantage of elevated VIX on Thursday were quickly rewarded by the end of the day Friday (more on this below).

VIX PA

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The Week in CBOE Strategy Indexes – 9/29 – 10/3

The strategy indexes were all lower in line with the S&P 500 last week, but as is the normal when the market drops, the strategies gained ground on the S&P 500.

Strat Charts

For the year all three strategies continue to lag a buy and hold portfolio in the form of the total return for the S&P 500. However, if the S&P 500 is done for the year, as many market pundits seem to be saying, these strategies should overcome the deficit before the end of 2014.

Strat Table

The Week in Russell 2000 and Nasdaq-100 Volatility – 9/29 – 10/3

The Russell 2000 continues to be the underperformer of the broad based US market indexes losing 1.3% last week. I saw a tweet saying that the Russell 2000 was officially in correction mode, but didn’t get around to authenticating the information until this weekend. It appears that during the day on Thursday RUT was more than 10% lower than the closing high of 1208.65 which occurred in early March of this year.   With RUT flirting with correction mode RVX finished the week slightly over 20.

RVX PA

The Nasdaq-100 was lower, but not off as much as the RUT for the week and is strongly outperforming RUT this year. The result continues to be lower implied volatility priced in NDX options than RUT options. VXN did get a little boost last week, but some of that may be attributed to earnings season creeping up on us.

VXN PA

The backwardation in VXN below is another indication that earnings season is upon us and there may be some expectation that VXN will move lower as big components of NDX report in the next couple weeks.

VXN RVX Curve

The Week in Emerging Market Volatility – 9/29 – 10/3

So much for the emerging market sector being a safe place to invest in 2014. EEM Gave up 2.69% last week and is now down fractionally on the year. Much of the blame goes to Brazil.

VXEEM PS

EWZ was down 6.69% last week and is also down slightly for 2014 after being up well into the teens for 2014. A combination of very weak economic numbers putting pressure on Brazilian stocks and the first round of elections in Brazil pushed EWZ well into the 40’s.

VXEWZ

Despite weak emerging markets the VXEEM curve remained in contango. The VXEWZ curve continues to have that shape that has no common name. October futures remain elevated with the contracts that expire after both rounds of national elections settling at more reasonable levels.

VXEWZ VXEEM Curve

The Week in Gold and Oil Volatility – 9/29 – 10/3

Commodity oriented volatility rose last week with OVX putting up a huge week. What is interesting is the reason both GVZ and OVX headed higher. Basically drops in both commodity prices were the catalysts for higher volatility. Note the chart below where GLD finished out the week testing pretty significant support.

Gold Weekly 10032014

The term structure curves both are in slight backwardation which signifies some real nervousness regarding future price action for both gold and oil over the next few weeks. It is very interesting that despite some real hotspots around the world flaring up that both these commodity markets are hitting lows instead of higher levels.

GVZ OVX Curve

The Week in VXST – 9/29 – 10/3

With the pressure on the S&P 500 VXST reached the upper teens last week before finishing the week lower.  At the peak VXST was up 29% on Tuesday.  It is interesting to note that the high for VXST was on Tuesday while VIX reached the high for the week on Thursday.  I would have guessed that VXST would have hit it’s highest point on Thursday if I only looked at the S&P 500 action for the week along with being aware that the monthly employment report was Friday.

VXST PA

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The Week in Volatility Indexes and ETPs – 9/29 – 10/3

The week over week numbers do no justice in depicting what happened in the markets last week. For the second week in a row I’m adding a third curve to the chart below. Thursday saw the peak for VIX last week so the purple line below shows the high for the action in the VXST – VIX – VXV – VXMT curve. Notice that the farther dated volatility measures were higher last week. Could the long term view be that volatility will be returning to historical norms in late 2014 or early 2015?

VXST - VIX - VXV - VXMT

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The Weekly Options News Roundup – 10/3/2014

The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

Up, Up, and Away!
During the month of September, geopolitical events across the globe spurred an increase in market volatility.  Investors turned to options, boosting industry-wide volume by 15 percent from the previous year.

OCC Announces Cleared Contract Volume in September Increased 15% – OCC Press Release
http://bit.ly/1r9G6wb

VIX Index Enhancement
Beginning this Monday, CBOE will include SPX Weeklys options in the calculation of the CBOE Volatility Index.  CBOE’s Matt Moran has details on what this means for the VIX Index.

“VIX Spot Index to Include S&P 500 Weekly Options” – Matt Moran, CBOE Options Hub
http://bit.ly/1vAsZbS

How I Saved on my Insurance
Options are often referred to as an insurance policy for stocks, providing protection against market swings and peace of mind from being able to hedge a position.  It no longer takes 15 minutes to save on your insurance.

“Is Rampant Hedging a Bullish Sign?” – Steven M. Sears, Barron’s
http://on.barrons.com/1vjPcuh

Volatility, as Usual 
It has been a wild week for the market, causing the VIX Index to spike to nearly 18, before declining yet again today.  Historically speaking, the VIX Index still remains low, however.  Is this week’s volatility short-lived or is there more turbulence ahead?

“Volatility Update: Divergence Between Index, Fear Gauge” – JJ Kinahan, Forbes
http://onforb.es/1rELcH1

“VIX Resisting Panic as S&P 500 Rout Erases $320 Billion” – Callie Bost and Joseph Ciolli, Bloomberg
http://bloom.bg/1rIrs2J

“Volatility Captive to Fed” – Markets Media
http://bit.ly/ZAYTeI

VIDEO:
“Why isn’t VIX Higher?” – Jamie Tyrell, optionMONSTER
http://bit.ly/1yBX6VR

“Markets Under Pressure from Rising Volatility” – Michael Palmer, BNN TV (Canada)
http://bit.ly/1ujXYun

Constructive Collaboration
This week, OCC and the exchanges jointly announced the adoption of new risk control standards that aim to protect market participants and strengthen options industry protections.

“OCC and the U.S. Options Exchanges Announce New Risk Control Standards to Strengthen Industry Protections” – OCC Press Release
http://bit.ly/1ujwUv6

“Market Meltdown Curbs Approved by American Options Exchanges” – Sam Mamudi, Bloomberg
http://bloom.bg/1CICYjs

“Trade-Tracking Computer System Will Likely Cost Less Than Expected” – Scott Patterson, The Wall Street Journal
http://on.wsj.com/1mZG1jD

 

Weekly Market Commentary 10.3.14

The stock market, as measured by the Standard & Poors 500 Index ($SPX)
has broken down badly this week.  The decline accelerated after breaking
through minor support at 1965.  The $SPX chart is now in a downtrend.
LM 10 3 14 spx

One more thing re the $SPX chart: It has been 681 trading days
since $SPX last touched the 200-day moving average (on November 20, 2012).
This is a record just waiting to be broken.  Perhaps this will be the time.

Equity-only put-call ratios remain on sell signals.  They are
racing higher on their charts, and that is bearish.

The breadth indicators are on sell signals, but they have reached
severely oversold territory.

Volatility indices are in uptrends, and that is bearish for stocks.
Note the rising blue lines on the chart.
LM 10 3 14 vix

In summary, we don’t have any true buy signals from our indicators, but the
oversold conditions indicate that a short-term rally could take place.
So, we remain intermediate-term bearish (until some true buy signals appear),
but are looking for a short-term bounce now.

VIX Spot Index to Include S&P 500 Weekly Options Beginning Oct. 6th (Part 1)

Beginning Monday, October 6, 2014, CBOE will calculate the spot value of the CBOE Volatility Index® (VIX®) using S&P 500® Index (SPXSM) options with weekly and standard 3rd Friday expirations that more closely bracket the 30-day target timeframe. While this change is not expected to have a dramatic impact on the spot VIX Index (see point 5 below), the change is a more precise enhancement to the VIX as the premier 30-day measure of the expected volatility of the S&P 500 Index.

  1. NO IMPACT ON VIX FUTURES AND OPTIONS

The addition of SPX Weeklys options to the VIX Index calculation will not impact the VIX futures and options contracts.  The final settlement value for VIX futures and options will continue to use the same VIX Index formula and the opening prices of standard (i.e., third-Friday expiration) SPX option series with 30 days to expiration. Furthermore, the October 6 change will not directly impact the fair value calculations for VIX futures and options.

  1. BACKGROUND AND RATIONALE FOR USE OF NEW INPUTS

Since 2003, the VIX Index has been and will be designed to provide a constant, 30-day measure of the expected volatility of the S&P 500 Index. On most days of the month there is no S&P 500 option that expires in exactly 30 days, and so the VIX Index usually uses the expected volatilities for two different SPX options expirations, and then applies a weighting to develop a constant 30-day measure of expected SPX volatility.

Prior to the October 6 change, the VIX Index used nearby and second nearby SPX standard-expiration (third Friday) options with at least 8 days left to expiration, and then weighted them to yield the VIX (spot) Index. On some dates CBOE needed to do an extrapolation to calculate the VIX Index; for example, on Monday, August 11, 2014, the VIX Index used SPX options that expired on September 19 (39 days out) and on October 17 (67 days out), and then applied an extrapolation to develop a 30-day measure of the expected volatility of the S&P 500 Index.

Beginning on October 6, the VIX Index will use S&P 500 options (including SPXW Weekly options) with more than 23 days and less than 37 days to expiration, and then weight them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index. The addition of SPX Weeklys options will allow VIX Index spot values to be calculated with S&P 500 Index option series that more precisely match the 30-day target timeframe for expected volatility that the VIX Index is intended to represent.

As shown in the table below, in the calculations on October 6, the VIX Index will use SPXW options expiring 25 and 32 days out, whereas the legacy VIXMO Index will use SPX options expiring 11 and 46 days out.

000-Table with SPX options used

  1. VIN & VIF – COMPONENT INDEXES

Two indexes that can help in the understanding of the calculation of the VIX Index, and that track the level of implied volatility from single SPX maturities are: (1) CBOE Near-Term VIX Index (VIN), which reflects the nearer term SPX expiration used in VIX calculation, and (2) the CBOE Far-Term VIX Index (VIF), which reflects the farther term SPX expiration used in VIX calculation. In looking at the 2-month end-of-day chart, one could note that there was a day that the difference between the VIN and VIF indexes was more than two volatility points, and that on each day from August 11 through August 14, the VIX was less than both VIN and VIF.  It is expected that after October 6 the spread between VIN and VIF will be tighter, and that the VIX Index value usually will be within the VIN and VIF indexes.

002- VIF VIN VIX

  1. COMPARING PAST AND NEW VERSIONS OF VIX

At the VIX website CBOE provides a detailed spreadsheet for New VIX Intraday Price Comparison – 5/22/14 through 9/16/14. The spreadsheet contains more than 120,000 “new VIX” values for informational purposes, but please note that the official new VIX values (using SPX Weekly options prices) begin dissemination on October 6. The chart below shows the values in the spreadsheet, and the average values were 12.37 for the new VIX and 12.47 for the VIX Index.  The new VIX often was slightly higher than the VIX Index on “extrapolation” dates before the third-Friday expiration of SPX options (e.g., on Monday, August 11), and the VIX Index often was slightly higher than the new VIX around the first of the months.

003- Comparing VIX & New

  1. EARLIER (LEGACY) VERSIONS OF VIX INDEX

On October 6 there will be two earlier (legacy) versions of the VIX Index that will continue to be disseminated –

  • Index Introduced in 2003 — CBOE will continue to calculate and disseminate spot VIX Index values calculated using only standard SPX options. Beginning October 6, 2014, the legacy spot VIX Index values will be published under the new name CBOE S&P 500 Standard Monthly Only Volatility Index (ticker VIXMO).
  • Index Introduced in 1993 – The original version of the VIX Index used S&P 100 (OEX) options in its calculation, and is now known and disseminated as the CBOE S&P 100 Volatility Index (VXO).
  1. MORE INFORMATION

Rising interest in the VIX Index is shown by the fact that this year the average daily volume has grown to more than 188,000 for VIX futures and 640,000for VIX options.

 

For more information on the VIX Index and the October 6 change (including links to Circulars, VIX White Paper (with detailed methodology), Press Release, spreadsheets, and charts), please visit www.cboe.com/VIX. A Part 2 Blog with more charts on this topic will be posted soon at CBOE Options Hub.

 

 

 

Blogging Options: CBOE Morning Update 10.3.14

September Non-Farm Payrolls rose 248K (wide range of estimates, this at the high end).  Unemployment Rate at 5.9% (6.1% August).  August Payrolls revised from 148K to 180K, July revised slightly higher. 10-year up 2 basis points to 2.46%, Gold drops $12, Euro with 125 handle. DJIA Futures look to up 100 point rise on open, S&P Futures up 11 points.  Rick Santelli with a good question: “With jobs averaging gains of 200k plus per month, why Zero interest rates”?  Watch Fed comments next week. Volatility as an asset class:

Companies identified as working on potential Ebola treatments have mixed option implied volatility

Tekmira (TKMR) overall option implied volatility of 92  compares to its 24-week average of 99.

Sarepta (SRPT) overall option implied volatility of 74 compares to its 26-week average of 67.

BioCryst (BCRX) overall option implied volatility of 82 compares to its 26-week average of 85.

NewLink Genetics (NLNK) overall option implied volatility of 148 is above its 26-week average of 101.

Inovio (INO) overall option implied volatility of 62 compares to its 26-week average of 102.

NanoViricides (NNVC) overall option implied volatility of 60 compares to its 26-week average of 74.

Chimerix (CMRX) overall option implied volatility of 74 compares to its 2-week average of 73.

GlaxoSmithKline (GSK) overall option implied volatility of 18 compares to its 26-week average of 16.

Options expected to be active @ CBOE:  SPX VIX VXST GPRO JPM C BAC HAL MYL GLD OXY

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Key Market & VIX Levels To Watch Now

It’s times like these, when the market is very volatile and/or selling off, that it’s helpful to look at some relatively stripped-down big picture charts.  We can see where we stand, what recent history shows us and what key levels of support may come into play.

First, the S&P 500 Index (SPX) (SPY) Daily Chart below, with only a Fibonacci Retracement and 100 day & 200 day simple Moving Averages (MA) on it (all charts captured around 30 minutes before the close on Thursday).

SPX Daily Chart

spx d big picture

[Charts created with TradeStation]

We’ve drawn the big picture trend here on the above chart from the late-2012 low, although the early-2014 low could be used as well.  This supposes that we reached a key high recently, with the SPX intra-day record high level of 2019.26.  The late-2012 low was used because that is last time SPX violated its 200 day MA (it also is right around the 50% Fibonacci Retracement level on the next longer-term chart … held as support nicely there).  Since that time, the SPX has tested and at times mildly violated its 100 day MA 6 previous times (now is the 7th) — each time, it quickly (few days up to a couple weeks) reversed back higher from this support.  On Thursday, we closed well below the 100 day.  The rebounds from this trendline must be taken into account before one becomes too all-out bearish here.

The first key support level below this that jumps out is the 200 day MA — which closed today right around 1900.  Big round numbers are important from a technical, sentiment and psychological perspective — and having the 200 day MA here as well adds to this.  1900 is 2.4% below Thursday’s closing SPX price.  Beyond that, the first Fibonacci Retracement level over this time frame is 1859.75 — which is about  4.4% down from here (certainly within reason if the pullback continues and/or accelerates).

Next up is a big picture SPX Weekly Chart, with a Fibonacci Retracement drawn from the March 2009 infamous ‘666’ bottom to the recent high.  Weekly Williams Percent R (using inputs & settings from the BigTrends method developed by Price Headley) is at the bottom of this chart:

SPX Weekly Chart
spx w big picture

This multi-year chart above shows the strong rally that’s been in place for some time now.  The Fibonacci Retracement on this gives a downside target all the way down at 1700.08 (basically 1700) — again, right around a round number and strike price.  That is 12.6% below current levels, and would certainly qualify as a legit correction in my book.  But before you get too worried about that, take a look at the Percent R readings at the bottom of the chart.  Weekly Percent R has been in strongly bullish mode throughout most all of 2012 to 2014.  Pullbacks on this indicator have been contained by mid-levels around the 50 area — and it moved back from higher from there each time (although it can take a few weeks on this longer time frame perspective).  Additionally, the last 5 drops from extreme bullish readings above 80 (what could be considered a “bullish re-test”) were quickly reversed back higher in line with the market resuming strength — this current Weekly bar is one of those re-tests (although it is a deeper drop in the indicator than the ones earlier in 2014 and in 2013.

Final chart below is the CBOE Volatility Index (VIX) (VXX) Daily with only horizontal key levels on it.  The VIX measures the implied volatility of SPX options — but also has uses as a measure of sentiment among traders & investors.  VIX tends to spike higher on market weakness, uncertainty and when traders are bearish.  When everyone is scrambling to buy Puts as protection and to bet on downside, the VIX will tend to spike higher, from supply/demand and other factors.  A sidenote rule of thumb on the VIX is that it basically is saying how much the market could go up or down on a % basis over the 12 months.

VIX Daily Chart
vix big picture

Here above we see that the VIX has reached a key level around 17.50 (again, round numbers are important).  Over the past 2 years, spikes in the VIX have generally been capped at 17.5 or 20 — when these levels have been breached, they have tended to quickly reverse lower in line with the market stabilizing and/or rallying.  So what this is showing us here is that option traders are mildly alarmed currently, but not showing a great deal of fear or panic (at least yet).

More

CBOE Mid-Day Update 10.2.14

Volatility as an asset class

VIX methodology for Goldman Sachs (VXGS) up 1.2% to 24.79, below its 50-day moving average of 19.80. cboe.com/VXGS

VIX methodology for Apple (VXAPL) up 2% to 28.79, below its 50-day moving average of 25.88. cboe.com/VXAPL

VIX methodology for Amazon (VXAZN) up 3.1% to at 35.30, above its 50-day moving average of 27.65. cboe.com/VXAZN

VIX methodology for Google (VXGOG) up 4% to 27.89, above its 50-day moving average of 21.72. cboe.com/VXGOG

VIX methodology for IBM (VXIBM) up 0.8% to 23.03, above its 50-day moving average of 17.52.  cboe.com/VXIBM

Actives at CBOE:  AAPL TWTR TSLA NFLX PBR AA WLT HD RIG

Stocks with increasing volume @ CBOE: MYL OIS PTEN HD WLT CVX GTAT SCTY

CBOE Volatility Index (VIX) up 11c to 16.42. Oct 20, 24 and 25 calls active on 223K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures ETN (VXX) is recently up 45c to 32.33

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 5.7% to 17.63; compared to its 10-day moving average of 15.05. stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 1.01 to 262.43 compared to its 50-day moving average of 268.15 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down $4.66 to 864.66 as European shares declined on speculation central-bank stimulus will fail to help the area’s economy.

Blogging Options: CBOE Morning Update 10.2.14

Mr. Draghi keeps ECB rates unchanged.  European and Asian shares lower, oil off 1.5%.  US stock futures mixed to lower after getting hit hard yesterday.  22K VIX Futures change hands in early session after 250K trade yesterday.  US September employment report tomorrow. Volatility as an asset class:

CBOE Crude Oil Volatility Index (OVX) at 22.38, above 50-day moving average of 18.59. WTI Crude oil trades below $92. CBOE.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) @ 22.45, above 50-day moving average of 17.16. cboe.com/micro/VIXETF/VXXLE/

Energy Select Sector SPDR (XLE) October call option implied volatility is at 22, November and December is at 20; compared to its 26-week average of 15.

Oil Services Holders Trust (OIH) October weekly call option implied volatility is at 49, October is at 26, November is at 24, January is at 22; compared to its 26-week average of 18.

United States Oil Fund (USO) October weekly call option implied volatility is at 24, October is at 20, November is at 21, December is at 19; compared to its 26-week average of 17.

Options expected to be active @ CBOE: AAPL FB TSLA TWTR AMZN

Equity Options Volume @ CBOE; 1,040,041 call, 815,545 puts, 1,855,586 total

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Strong Long-Term Performance for CBOE’s BXY and PUT Indexes

Can index-option-writing strategies have relatively strong performance even when the VIX has dipped below the 16 level?  As shown in charts below, over the past quarter-century both CBOE S&P 500 PutWrite Index (PUT) and CBOE S&P 500 2% OTM Buy-Write Index (BXY) have had relatively strong returns and lower volatility when compared to some key “traditional” benchmark indexes.

mm 1 Indexes 1988 thru Sep 30

 mm 2 Return SD thru Sep 30

SOURCES OF RETURN

 In the past some investors (who are relatively new to options) have asked me how options-writing strategies can have higher returns and lower volatility if the markets are efficiently priced and if VIX is below 16 (and the amount of gross premiums generated might be lower). I have raised these questions with some experienced option writing managers, and was told that a key source of strong risk-adjusted returns for index-option-writing strategies is the fact that S&P 500 implied volatility usually has been higher than historic or realized volatility.

So far in 2014, the average daily closing values have been 13.5 for VIX, and 9.96 for 20-trading-day historic volatility of the S&P 500. As shown in the line chart above, since mid-1988, (1) two index-option-writing indexes (BXY and PUT) both rose more than 1350% (due in part to the fact that there usually has been a risk premium with the strategy of selling richly priced index options), but (2) the CBOE S&P 500 95-110 Collar Index (CLL) rose only 462%. The CLL Index buys SPX put options and sells SPX call options; the purchase of index put options can lessen left-tail risk, but purchases of protective puts might not boost long-term returns if the puts are expensively priced.

In 2014 some observers have asked if the VIX has been low relative to worldwide geopolitical concerns, but it is worth noting that the comparative historic volatility for the S&P 500 generally has been even lower than the VIX this year.  To read papers and disclosures on options-based benchmark indexes and pricing of index options, please visit www.cboe.com/benchmarks.     mm 3 SP vol in 2014 thru Sep 30

CBOE Mid-Day Update 10.1.14

Volatility as an asset class

General Motors (GM) is recently up 84c to $32.78 after reaffirming near-term financial targets and reporting September U.S. sales up 19.4% to 223,437 vehicles. General Motors weekly volatility elevated into CEO unveiling financial strategy. October weekly call option implied volatility is at 38, October is at 26, November is at 24, December is at 22; compared to its 26-week average of 27.

Ford (F) is recently down 15c to $14.64 after reporting September U.S. sales down 2.7% to 180,175 vehicles. October weekly call option implied is at 37, October is at 27, November is at 23, December is at 27 and January is 21; compared to its 26-week average of 22.

Honda (HMC) Honda reports September U.S. sales up 12% to 118,223 units. Overall option implied of 19 is near its 26-week average of 20.

Actives at CBOE:  AAPL TWTR TSLA NFLX PBR C AVP NFLX RIG

Stocks with increasing volume @ CBOE: AVP GTAT NBG OXY CGA ANGI CVC WMGI MSB COG DF PII BCOR RAX

CBOE Volatility Index (VIX) up 11c to 16.42. Oct 20, 24 and 25 calls active on 223K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 53c to 31.70.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 8c to 16.84; compared to its 10-day moving average of 14.40. stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 2.31 to 264.51 compared to its 50-day moving average of 268.34 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down $6.54 to 874.68 as U.S. factory growth slowing more than expected.

Short-Term Volatility and the Employment Report

Today begins a new month and that means one thing to traders, the employment number is just around the corner. Friday we’ll get the latest data from the Labor Department at 7:30 Chicago time. Depending on the number VIX and S&P 500 futures will jump in one direction or another. Also, everyone on the business networks will discuss what they think number means for the economy and the financial markets and traders will trade the reaction.

Along with quarterly GDP reports and periodic FOMC statements, the jobs reports ranks very high in importance for getting a read on the economy. This monthly employment situation report is significant for a few reasons. First, it is an early view on the previous month’s economic activity. Friday’s report will cover the employment situation in the United States for the month of September. Also, businesses hire based on what they perceive as a future need. Hiring can be seen as a positive for the economy based on current and anticipated business conditions. Finally, any inflationary pressures may show up first in the employment report. Some components of the report discuss labor costs and an increase in the cost of hiring or retaining employees may be an early sign that prices are about to rise.

We could almost say that the employment report is like a monthly earnings report for the overall economy. Option traders know that when a company is preparing to report earnings the implied volatility of those options will move up into the earnings report. If the employment report is an earnings report for the overall economy then the S&P 500 may be considered the underlying market. Putting those two things together we can say that near term implied volatility as indicated by S&P 500 (SPX) index option prices. There is no better measure of short term SPX volatility available than the CBOE Short-Term Volatility Index (VXST). This being said, I decided to take a look at VXST before and after employment reports.   The table below shows what the S&P 500 did on the day of the employment report along with VXST the day before and day after.

VXST Earnings

Notice that VXST has dropped on eight of the nine employment reports this year.  The number that was released on April 4th resulted in a big drop in the S&P 500 and a rise of 0.65 points for VXST.   Admittedly, the S&P 500 has been higher six of those nine reports, but even when there is a small drop in the S&P 500 VXST drops as well. It is a short history, but a telling one. If you are positioning yourself in short term SPX options before the number you may want to take into account the possibility of a drop in implied volatility this coming Friday. Even better you may want to take a look at VXST futures or options and see if those markets offer any opportunities based on your view of the market’s reaction to September’s employment situation.

More information on VXST can be found at www.cboe.com/vxstms

Blogging Options: CBOE Morning Update 10.1.14

ADP Private Job Report showed a growth of 213K jobs in August, slightly above last month’s 203K jobs. BLS Employment Report Friday the big number to watch this week.  Traders talking about fat-finger trade in Japan, most of which was cancelled.  17mm options change hands yesterday with CBOE doing ~4,7mm.  SPX traded 800K, volume fell off slightly in VIX to ~340K.  CBOE did 25K of 110K in BABA options.  JNJ & EBAY downgraded before opening.  10-year descends towards 2.45%, as stock futures soften.   Volatility as an asset class:

A patient being treated at a Dallas hospital has tested positive for Ebola confirms the CDC, a disease that has killed 3,000 people in West Africa.

Companies that are developing treatments for the Ebola virus include have mixed option implied volatility.

Tekmira (TKMR) overall option implied volatility of 89 compares to its 24-week average of 97.

Sarepta (SRPT) overall option implied volatility of 68 compares to its 26-week average of 67.

BioCryst (BCRX) overall option implied volatility of 88 compares to its 26-week average of 85.

Options expected to be active @ CBOE: TKMR SRPT BCRX ANGI DAL UAL AAL LUV JBLU LUV SAVE ALGT ALK

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Would I Do Calendar Spreads with Volatility Rising?

Would I do Calendar Spreads with Volatility rising?

Yes, if they were Weekly’s. Looking at SPX, let’s consider buying one (Oct 24 expiration)1975 strike Put, and Selling 1 (Oct 10 expiration) 1975 put. The long is around 24 days from expiration and the short is about 10 days from expiration. The cost or debit with SPX around 1975 is around $865 for 1 contract. The trade is relatively neutral with SPX around $1975. The positive theta is $37 daily and the Vega is 71. The Calendar is positive theta because our short option is decaying quicker than the long option because it expires quicker. The ratio of theta to Vega is approximately 2:1, this means if Implied Volatility decreases 1 point the trade will lose approximately $75 from Vega. 2 Days of theta will make up for this.

Contrasting this with a farther out Calendar consisting of selling November and buying December, things are much different. If I buy 1 December 1975 Put and sell 1 November 1975 Put, the debit is around $1200. The theta is 6 and the Vega is 71. The Theta /Vega ratio is around 12:1. This means if Implied Volatility decreases 1 Point, the Vega tells us we will lose around $71. It would take about 12 quiet days for theta to make this back.

Conclusion: As Implied Volatility levels increase, I get concerned that it might drop back down. We currently are over 16 in VIX from the 10-11 level not too long ago. If the market goes up and Volatility decreases over the next few days, being closer in with my duration on Calendars will make life much easier to bear!

Keep Your Focus in an Uncertain Market

Some day when the markets drop severely nobody wants to be left holding the bag.  And while the collapse in 2008/09 is still very fresh in our minds we have to recognize that event was an outlier.  For some it seemed rather surreal – how could the markets lose it?  Yet the pain was REAL and felt across the investment world.  Even with the SPX up 200% from those deep lows in March 2009 there has been hesitancy along the way.  Unless you just bought at some point and closed your eyes and ears then you might not have even racked up enough gains to cover those deep losses.   Every situation is different of course, and as a trader I am always ‘on the edge’ looking for the next big move within an uptrend or downtrend.

The feeling I get today is everyone is on edge.  As the Fed shifts into a new control phase of less accommodation and soon to raise rates (hawkish posture) we still have investors and traders trying to squeeze out the gains before the trend changes.  Of course, who will tell us that is going to happen?  The pundits, experts and gurus who seem to ALWAYS tells us the exact wrong time?  The MARKET always tells us.    The assumption of course is the markets will turn down as the Fed removes their stimulus, in place for nearly five years.  Yet, I would argue that while this action is hawkish it is not necessarily the death of equities as some would believe.  Are stock market gains the result of aggressive Fed policy?

I would say yes for the most part, but then corporate profits are at record highs.  That may be the result of easy money but businesses still have to PERFORM, and in a positive environment that has taken place.  So, the Fed easy money policy was as much a psychological crutch than it was actual stimulus.  Chair Yellen and former Chair Bernanke are both on record several times saying monetary policy is not a driver of growth, yet they stop short of saying it was a psychological tool – meant to create a positive environment and shore up confidence.  Clearly policy has had an effect on investors/traders minds.

But the next move?  I defer to the charts and technicals for the answer as they guide me into the next time-frame.  The charts help me stay focused on the message of the markets.

b lang 9 29

 

On the SPX chart we see the potential formation of a top on September 19 and with some confirmation to the downside but that seems only corrective in nature.  Further, the trend line is still intact but it falls down to about 1950, an area of fibonacci support and the 100 ma (an area where the markets tested this year and bounced sharply).

Distribution has been high as institutional selling is noted by the high volume bars on down days, yet like previous times the market catches its footing.  We’ve seen potential tops and top calls on numerous occasions only to fail, this bull market has fooled so many.  I will follow the trends and patterns that have worked in the past to find the right combination.

Bob Lang, Senior Market Strategist, trades various option trading newsletter Explosive Options. Check out the updated site & chat room. 

Blogging Options: CBOE Mid-day Update 9.30.14

Volatility as an asset class

Walgreen (WAG) is recently down 51c to $59.09 on Q4 revenue rising 6.2%. October weekly call option implied volatility of 30, October is at 23, November is at 22, January is at 21; compared to its 26-week average of 24.

Cintas (CTAS) is recently up $4.98 to %70.95 on Q4 earnings rising 41%.  October call option implied volatility is at 19, November is at 18, January is at 15; compared to its 26-week average of 19.

Intuit (INTU) is recently up 90c to $88.70 a positive FY14 outlook and setting up for a good FY15. October call option implied volatility is at 31, November is at 24, January is at 20; compared to its 26-week average of 21.

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Blogging Options: CBOE Morning Update 9.30.14

Window Dressing Day.  EBay and PayPal hog the spotlight this morning and shift focus to tech stocks.  Hong Kong shares off another 1.25% on continued unrest.  BABA options got off to a good start with CBOE trading over 33k of 122k contracts.  Average option volume day yesterday, but VIX futures traded 228k.   Case-Shiller Home Prices far under expectations. Volatility as an asset class:

eBay (EBAY) is up $5.20 to $57.95 in the premarket on PayPal being separated into a new company. October weekly call option implied volatility is at 29, October is at 32, November is at 29, January is at 26; compared to its 26-week average of 26.

Ford (F) is trading down 16c to $14.95 in the premarket a day after lowering its profit target for year.  October weekly call option implied is at 60, October is at 28, November and December is at 27 and January is 25; compared to its 26-week average of 22.

Move, Inc. (MOVE) is up $5.66 to $20.95 in the premarket on News Corp (NWS) acquiring the operator of Australian residential property website, for $950M, $21 per share. Overall option implied volatility of 43 is below its 26-week average of 52.

Options expected to be active @ CBOE: EBAY BABA F AA MBLY DFS MA V COF AXP GDOT AXP

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A Brief Look at the First Day of Option Trading for BABA

The first trading option trading day for Alibaba (BABA – 88.75) is in the books and it was quite a day. Over 122,000 contracts traded which means BABA was the 10th most actively traded equity option market. Activity was pretty balanced between calls and puts with 53% of the volume on the call side and 47% in put options. For the moment the near dated series is the standard October contracts and the 87.50 and 90.00 strike calls and puts all finished the day with implied volatilities in the 33 to 34 range.   Finally, note the table below that shows the high-low range for BABA’s stock for each day since going public.

BABA Range

I found it interesting that the narrowest range for the stock coincided with the first day of trading for options on BABA.  Despite implied volatility in the mid 30’s, I came across several straddle and strangle buyers today. One example – BABA was at 89.05 this morning, a trader came in and paid 7.40 for the BABA Dec 90 Puts and 6.50 for the BABA Dec 90 Calls or a net 13.90 for the Dec 90 Straddle.

Warning Alarm Or Healthy Pullback? – Weekly Market Outlook 9.29.14

The BigTrends TrendScore is a daily reading on the bullish/ bearish level of various market assets – it uses the S&P 500 Index (SPX) (SPY) as a proxy for the broad market.  The SPY Trend-Score fell out of the bullish range for the first time since early/mid August on last Thursday, but did close back into bullish territory on Friday.

To some degree, the overbought market was due for a dip, and the floor was finally cracked with Thursday’s big selloff.  Despite Friday’s bounce, some technical damage was done to the charts.

We’ll look at the bigger-picture damage that was done last week and what’s likely ahead for stocks in a second. Let’s get the bigger picture economic news out of the way first.

Economic Data

Last week may not have been loaded with economic numbers, but the few numbers we got were all pretty important.

It was a particularly big week for real estate and construction.  Though existing home sales fell from a pace of 5.14 million to 5.05 million per year, new home sales picked up their pace.  In August, new homes sold at an annual pace of 504,000, versus only 427,000 the month before.  Home prices ticked a little higher too, though only a little.  The FHFA says that in July, home prices inched 0.1% higher from June’s average.

Broadly speaking, the real estate market remains basically healthy, but the pace of growth we were enjoying two years ago is no longer in place.  Right now, forward progress from housing – all facets of it – is tougher to muster.

You also likely heard that durable orders plunged 18.2% in August.  It sounds dire, but it’s data that can likely be completely ignored.  Why?  A closer look at the details will easily explain the two key reasons the dip means very little.

First and foremost, the plunge was almost entirely due to a major pullback in transportation (planes, trains, automobiles) orders, which are inherently volatile.  Take them out of the equation, and what you have is a 0.7% improvement in durable orders last month.

The second reason we can ignore the sizeable plunge in orders for August: It was only an offset from July’s record-breaking surge in transportation orders.  All told, transportation orders jumped 22.5% in July.  Since this data is presented as month-to-month change, there wasn’t even a prayer of a good showing this time around.  Again though, it doesn’t matter.

A similar concept applies to Q2’s third and final GDP growth estimate.  The previous quarter’s gross domestic product grew by 4.6%, on an annualized basis.  However, Q1’s GDP actually fell by 2.9%.  Any growth at all was going to be a big number by comparison.

GDP Growth – Quarterly Chart

LM 92814-gdp

Source:  Bureau of Economic Analysis at www.bea.gov.

Finally, though it’s only half the data we’ll get for August on the sentiment front, the Michigan Sentiment Index moved to a new 13-month high in August, and is still going strong.  As long as optimism continues to rise, so too will the long-term market trend.  [That's not necessarily so for the short-term trend.]  The Michigan Sentiment Index reading hit 84.6 last month.

We won’t get August’s consumer confidence reading from the Conference Board until Tuesday, but it’s in a long-term uptrend as well.  Everything else is on the following grid:

Economic Calendar

LM 92614-econ-data

Source:  Briefing.com

The coming week will be a busy one, though not much of it will matter until Friday when we get August’s job numbers.  More

CBOE Mid-Day Update 9.29.14

Volatility as an asset class

Alibaba (BABA) is recently down $1.44 to $89.03. October 90, 95 and 100 calls are active at the CBOE on the first day of options trading. October call option implied volatility is at 38, November is at 39, December is at 38, January is at 37.

GoPro (GPRO) is recently up $6.39 to $88.26 after revealing new HERO4 camera line-up. October weekly call option implied volatility is at 71, October is at 81, December is at 77, January is at 79; compared to its 10-week average of 57.

DreamWorks Animation (DWA) is recently up $4.88 to $27.26 after movie and television show producer was said to be in talks to be acquired by the Japanese telecom company Softbank (SFTBF), according to The Hollywood Reporter. October call option implied volatility is at 58, November is at 51, December is at 44; compared to its 26-week average of 36.

Actives at CBOE:  AAPL TWTR TSLA NFLX GILD AMZN BIDU GPRO PBR

Stocks with increasing volume @ CBOE: JNS RGEN ALIM TIBX ATHL DWA ASNA PSDV BGC

CBOE Volatility Index (VIX) up $1 to 15.93. Oct 17, 19 and 23 calls active on 472K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up $1.21 to 30.59.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 1.66 to 16.70; compared to its 10-day moving average of 13.61. stks.co/r0CS2
CBOE DJIA BuyWrite Index (BXD) down $1.03 to 266.67 compared to its 50-day moving average of 268.55 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down $4.40 to 880.90 on Hong Kong protests resulting in geopolitical concerns.

Blogging Options: CBOE Morning Update 9.29.14

US Futures down sharply, with DJIA futures off 145 points and S&P 500 futures lower by16 points.  VIX Futures have traded ~26 K contracts in the early session this morning.   Asian markets off 1.5% to 2% on unrest in Hong Kong – a reported 100k protesters in streets yesterday,  Personal Income for August higher by 0.3%, Spending up 0.5%.  NABA announced that Q4 growth in US is expected to come in at 3%, off from 3.1%.  10-year yield drops to 2.488%.  Air traffic in US expected to be disrupted for next three weeks.  Volatility as an asset class:

Athlon Energy is up $11.40 to $58.13 in the premarket on Encana (ECA) acquiring the Texas based energy company for $5.93B, $58.50 per share. Overall volatility of 39 is at its 26-week average of 28.

EnCana (ECA) overall volatility of 30 is near its 26-week average of 28.

TIBCO Software (TIBX) is up $4.08 to $23.63 on Vista Equity Partners acquiring for $4.3B, $24 per share in cash. Overall option implied volatility of 50 is above its 26-week average of 36.

Options expected to be active @ CBOE: TIBX ECA ATHL DWA CALM PSDV WAG

Alibaba (BABA) options begins trading today at CBOE

CBOE S&P 500 Skew Index (SKEW) at 130.49, compared to its 50-day moving average of 132.46. 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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Next Week in Weeklys – 9/29/2014

A better title for this blog may have been, “Next Week in Weeklys – Cliff’s Notes Version”

There were no additions to the Weeklys list last week and there is only one company reporting earnings this coming week that has short dated options available for trading. Walgreens (WAG) is scheduled to report earnings Tuesday before the market opens. Over the past three years the largest move to the upside off earnings has been 5.44% while the biggest price drop has been 6.27%. The average of the absolute values of moves off earnings has been 3.56%. Finally, last quarter the stock dropped only 1.70%.

This Week in VIX – 9/26/2014

VIX was higher on the week, peaking out well over 16 on Thursday before working back down to14.85 to end the week. There were lots of grumblings about VIX being nowhere near the high of the day on the close on Thursday despite the S&P 500 finishing up very near the low of the day. I’ve heard that this could be taken as a signal that the stock market was not expected to follow through on the downside on Friday and that may be true. Also, keep in mind for probably two years whenever VIX moves up, it comes back down fairly quickly. This pattern continues to repeat itself, but much more quickly than it did a few months ago.

VIX PA

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This Week in Emerging Market Volatility – 9/26/2014

Both EEM and EWZ were down well over 2% last week as several equity markets gave back 2014 gains. VXEEM was up 2.89 or over 16% in reaction to equity market weakness.

VXEEM PA

VXEWZ, on the other hand was up 6.66% on the week. VXEWZ has been at elevated levels and should remain elevated until national elections are completed next month. These elections can (and are predicted to) go two rounds which may result in uncertainty until the end of October.

VXEWZ PA

The VXEEM curve got pretty flat which I always take as real uncertainty with respect to the next direction for the underlying market. VXEWZ continues to display a shape with no real common term. Basically there is an expectation of a return to lower volatility after the uncertainty of the election is out of the way, hence the much lower November and December futures prices.

VXEEM VXEWZ

This Week in CBOE Strategy Indexes – 9/26/2014

The strategy indexes were all lower last week in sync with the S&P 500 dropping well over 1%.   They all took it on the chin Thursday and rebounded some on Friday. BXM, BXY, and PUT also did a little better than the S&P 500 total return last week, which is exactly what one would expect when the stock market is under pressure.Strat Charts

For the year the total return for the S&P 500 continues to outperform the three strategy indexes. They all gained ground, but did not overtake buy and hold for 2014.

Strat Table

Finally, if you missed the blog from last week, then be sure to check out the overview of a White Paper I recently authored in conjunction with Mark Sebastian of Option Pit.  We took a look at BXY over the last 25 years plus and analyzed applying leverage to the this systematic covered call strategy –

New White Paper Discusses Leveraged BuyWrite Approach

This Week in Russell 2000 and Nasdaq-100 Volatility – 9/26/2014

I flipped a coin and decided to start with the Russell 2000 (RUT) volatility action last week. I was 50 – 50 on what to begin with as I found both RVX and VXN price action equally of interest last week, but not for the same reasons.   The poor RUT lost 2.41% last week which puts the small cap index down 3.81% for 2014. Also this year RVX has been elevated relative to recent history and the two other tradable broad based volatility indexes (VXN and VIX). The 12% gain in RVX last week was actually much less than the move higher in VIX and VXN.   As mentioned RVX is at elevated levels to the VIX and VXN so there a higher base when determining the price move. However, RVX rose 2.15 points while VIX was up 2.74 and VXN moved up 3.05 points. Remember implied volatility is an anticipatory measure and the higher level of RVX can be taken as an indication that RUT will drop more than the S&P 500 or Nadaq-100 (NDX) if there is any weakness in the US markets.

RVX PA

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This Week in Volatility Indexes and ETPs – 9/26/2014

This is one of those weekends where I get to add a 3rd curve into the mix below. Thursday, as all of us that were not under a rock know, was a hectic day for the equity market. Hectic days in the stock market result in green days for volatility. The purple line below shows the closing VXST – VIX – VXV – VXMT curve on Thursday as well as the week over week curves. Note the change from Thursday to Friday was a pretty orderly one, but also note that VXST remained at a slight premium to VIX. Two thoughts on that premium – 1) traders are still concerned we aren’t out of the weeds quite yet or 2) VXST remained high as this coming Friday is the employment report.

VXST VIX VXV VXMT Curve

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The Weekly Options News Roundup – 9/26/2014

Your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

Trader Insight
Many experts in the options space began their careers as traders on the CBOE trading floor.  Tom Sosnoff, one such trader, now operates the educational website tastytrade.com.  In this Q&A with Barron’s, he offers thoughts on various trading scenarios.

“Five Questions You Must Consider” – Steven Sears, Barron’s
http://on.barrons.com/1wJJGCw 

VIX is Still an Asset
Volatility doesn’t necessarily need to be viewed as something that’s negative, it can, in fact, be a source of opportunity.

“Volatility as an Asset Class” – Markets Media
http://bit.ly/1oj7RCS

“Volatility Update: Listen To The Little Guys?” – JJ Kinahan, Forbes
http://onforb.es/1CoaSKd

“Taking Stock of Risk in a High-SKEW Environment” – Adam Warner, Schaeffer’s Investment Research
http://bit.ly/1Dz245P

Job Well Done
After 32 years of service in the options industry, Michael Cahill, CEO of the Options Clearing Corporation, will retire at the end of the year.  Mr. Cahill has made immeasurable contributions to the growth and success of the options industry as a whole.

“Options Clearing Corp CEO to Retire” – Lynne Marek, Crain’s Chicago Business
http://bit.ly/1pd3f1c

“U.S. options clearinghouse CEO to retire after year in top spot” – Tom Polansek, Reuters
http://reut.rs/1psDJ78

 

BABA, It’s Option Time – Monday

CBOE has received permission from the OCC  to list Alibaba Group Holding (BABA, ~ $89) options next Monday, Sep. 29th .  Here’s  what you need to know:

Strikes:               75 – 100
Increments:         5-point
Cycle:                  January
LEAPS:                  Yes
Penny Pricing:    No
Weekly’s:            Yes

American Style options like all other stocks, trading hours will also be standard – 8:30am until 3:00pm Central time.

Thanks, and may you have 1,001 good tales to tell about trading BABA options.

Marty

Weekly Market Commentary 9.26.14

$SPX broke below the bottom of the previous trading range).
That is, $SPX closed well below the previous support in the 1978-1985 area.
If it can close below 1978 again today, that would confirm the downside
breakout and would generate a confirmed sell signal for the intermediate-term.

spx LM 9 26

Equity-only put-call ratios have been on sell signals for nearly two weeks.  As long
as these ratios are trending higher, that is bearish for the broad market.

The breadth indicators have returned to sell signals with a vengeance,
and they have plunged to very oversold levels.

Volatility indices have risen sharply.  This has generated sell signals
for the broad market as well.  Moreover, the trend of volatility is rising,
and that is also bearish.

LM 9 26 vix

At this time, all of the indicators are bearish, and $SPX has broken down. If $SPX closes below the 1978 breakdown level again on Friday, that will confirm an intermediate-term sell signal.

 

Blogging Options: CBOE Morning Update 9.26.14

2Q GDP came in as expected at 4.6%.  U of M Sentiment later this morning.  Bill Gross leaving PIMCO has talking heads excited this morning.  Good option volume yesterday as CBOE traded ~6mm of 20mm contracts traded.  BABA expected to begin option trading Monday.  Commodities unchanged in early pre-market trade, Asian shares mixed to lower, European shares up modestly.  Volatility as an asset class:

Micron (MU) is up $1.80 to $33.50 in the premarket following a solid Q4 report and said it is entering a new phase of growth. September weekly call option implied volatility is at 152, October weekly is at 65, October is at 46, November is at 41, January is at 39; compared to its 26-week average of 38.

Nike (NKE) is up $5.75 to $85.50  on better than expected Q1 results benefiting from World Cup gear sales and a bullish update to FY15 guidance on global momentum and gross margin gains. September weekly option implied volatility is at 75, October weekly is at 35, January is at 20; compared to its 26-week average of 21.

Diamond Foods (DMND) closed at $26.62 into reporting Q4 revenue $219.1M, compared to consensus $208.41M. October call option implied volatility is at 48, November is at 36, December is at 38; compared to its 26-week average of 37.

Options expected to be active @ CBOE: NKE BBRY JBL AAPL MU RPRX TKMR GPRO

Alibaba (BABA) options should begin trading on September 29 @ CBOE

More

Weekly Weekly’s for 9.25.14

It’s big week for weekly options!  I’m Angela Miles covering weekly options expiring this Friday and next Friday.

Apple shares are trading around a 3 point range this week. Options contracts are trading briskly. Apple confirms pulling its IOS 8 software update, which is causing some iPhone users to lose their cell service. There are also customer complaints the new iPhone 6 plus is bending in their pockets. There is HUGE options volume in AAPL today. Earlier today while I was on the CBOE trading floor, more than 205,000 contracts traded early. One of the most active strikes: 100 calls with 20,000 contracts trading in the strike. It looks like a bulk buy of those contracts. Put activity includes the 87 and 89 strikes. Going into next week’s weekly action. Vol is at 32%. The calls are generating interest in the 100, 101 and 105 strikes. Some traders are already setting up for Apple’s earnings by building positions in the 102 calls and 101 puts in the traditional October contracts.

Yahoo is once again in play. The tech company has a 1-year lock on its remaining shares in Alibaba. Yahoo still has a 15% stake in BABA after selling part if its stake once Alibaba IPOed last week, YHOO is trading around $39 and traders are using the options to trade like stock with most of the action centering around the 39 strike price. Call options in the weeklys going into Friday are active in the 39 and 40 lines, puts at 39. Next week calls are active at 41. Reaching into November the 41 calls are moving along with 40 and 45 puts with an implied volatitily of 36. Similar to Apple traders are taking early positions into Yahoo’s earnings.
Netflix is active this week. As the stock trades around $448 dollars calls and puts are in demand. Call players are in the 455 strike and put buyers at 445. Next week gets really interesting with way out-of-the money puts active at 407 and 410 in NFLX.

Gopro is on a roll.  Shares have more than tripled since its IPO in late June. Traders are coming for puts at the 74 and 75 strikes. On the call side, GPRO 80 call contracts are attracting buyers. Next week gets call-heavy for Gopro with 78, 79 and 80 lines in play. An indication momentum traders believe Gopro could still be trading around $80 next week. In weekly’s paper 2 weeks from now however, puts are active at 75 and 80 with an implied vol of 115%. Translation: puts are expensive in Gopro. It may be a tough to borrow stock or the “shorts” taking positions.

Micron earnings are expected after the close. The 32 straddle is pricing in at $2.20. There are more calls than puts trading in the weeklys.

Nike also reports earnings today with more puts than calls trading. The NKE 80 straddle is pricing in at $3.25.
Blackberry turns in earnings Friday. On Wednesday, the company released its first smartphone in a couple years. if you are a Blackberry fan you will be glad to know there is a double keyboard on the Passport phone. The 11 strike on the call side appears to be popular. The 10 straddle price is 95 cents (~9% move?).

There’s a Takeover chatter stock worth mentioning. It’s Yelp. And, 75 strike call buyers are popping up going into Friday’s expiration.

The Russell 2,000 is extra busy today as technicians call the chart “toppy”. There’s a bit of panic tone as traders take positions in the 109, 110 and 111 puts in IWM.

That’s it for now.   Feel free to follow me on Twitter @AngieMiles

 

CBOE Mid-Day Update 9.25.14

Volatility as an asset class

CBOE Volatility Index NASDAQ 100 (VXN) recently up 16.8% to 17.81; compared to its 10-day moving average of 15.19, 50-day moving average of 14.28.  NASDAQ 100 down 1.8%.

CBOE DJIA Volatility Index (VXD) is recently up 17.4% to 14.10; compared to 10-day moving average of 12.35, 50-day moving average of 12.43.  Dow Jones down 1.3%.

CBOE Russell 2000 Volatility Index (RVX) is recently up 8.8% to 20.64; compared to 10-day moving average of 18.58, 50-day moving average of 18.37.  IWM down 1.5%.

CBOE 100 Volatility Index (VXO) is recently up 24.7% to 14.58; compared to its 10-day moving average of 11.82, 50-day moving average of 11.88.   OEX down 1.3% to 880.82.

CBOE S&P 500 3-month Volatility Index (VXV) is recently up 8.6% to 16.50; compared to its 10-day moving average of 15.17, 50-day moving average of 14.73

CBOE Crude Volatility Index (OVX) is recently up 2.8% to 20.35; WTI Crude future oil up 0.30% to $93.08.

CBOE Gold Volatility Index (GVZ) is recently up 3.5% to $17.82. Gold  near year low, down 0.07% to $1,2618  cboe.com/GVZ

CBOE EuroCurrency Volatility Index (EVZ) is recently down 7.7% to $7.69.

Actives at CBOE:  AAPL SUNE TWTR YHOO TSLA WLT C NFLX GILD BAC PBR

Stocks with increasing volume @ CBOE: HIL JBL CE DMND PGH BWLD AES ABG MT DLPH EW

CBOE Volatility Index (VIX) up 19.3% to 15.83. Oct 13, 15, 20 and 22 calls active on 255K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 6.2% to 30.05.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 34.2% to 17.22; compared to its 10-day moving average of 13.40. stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 1.1% to 266.08 compared to its 50-day moving average of 268.69 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down 1.3% to 880.84 on rate concerns

New White Paper Discusses Leveraged BuyWrite Approach

Over the summer I teamed up with Mark Sebastian from Option Pit and Hannah Chody, the Options Institute summer intern, to conduct a study on applying leverage to systematic buywrite strategies. The result was a white paper titled – A Leveraged Portfolio Management Approach Applying the CBOE S&P 500 2% OTM BuyWrite Index.

Some highlights from the paper –

  • The CBOE S&P 500 2% OTM BuyWrite Index (BXY) has outperformed the total return for the S&P 500 on both a risk adjusted and absolute basis over the last 25 plus years.
  • Applying leverage to BXY can enhance performance while still encountering a risk profile lower than a buy and hold portfolio
  • A demonstration on how portfolio managers may implement a leveraged version of BXY

The full paper in PDF format is available for download at – White Paper

 

Blogging Options: CBOE Morning Update 9.25.14

Durable Goods Orders fell 18% due to aircraft orders being jammed into previous month, Core Rate in-line.  Weekly Jobless rose 18K but still under 300K.  10-year drops to 2.54% yield.  Markets soft prep-opening.  Volatility as an asset class:

Apple (AAPL) is off $1 to $100.75  in the premarket into a software glitch.  September weekly call option implied volatility is at 20, October weekly is at 19, October is at 20, December is at 24, January is at 23; compared to its 26-week average of 25.

VIX methodology for Apple (VXAPL) closed @ 23.53, compared to its 10-day moving average of 24.28. cboe.com/VXAPL
Jabil Circuit (JBL) is up $0.65 to $21.50 after reporting Q4 results and fiscal 2015 guidance. October call option implied volatility is at 34, December is at 29, January is at 28, compared to its 26-week average of 28.

Active Equity Options @ CBOE; 988,521 call, 625,336 put, 1,613,857 total.  CBOE.com

Options expected to be active @ CBOE: NKE BBRY JBL AAPL

CBOE S&P 500 Skew Index (SKEW) at 126.90, above 50-day moving average of 132.54. 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-Date 9.24.14

Volatility as an asset class

Accenture (ACN) is recently down 66c to $78.93 on Q4 profit rising 4.5%. September weekly call option implied volatility is at 22, October weekly is at 16, November is at 13, January is at 15; compared to its 26-week average of 20.

KB Homes (KBH) is recently down $1.10 to $15.87 after Q3 results missed expectations. October call option implied volatility is at 31, November is at 29, January is at 29, April is at 28; compared to its 26-week average of 33.

Royal Bank of Scotland (RBS) is recently up 13c to $11.82 after its subsidiary Citizens Financial (CFG) priced 140M shares at $21.50. CFG is recently trading at $22.55.  RBS overall option implied volatility of 30 is at its 26-week average.

Actives at CBOE:  AAPL SUNE TWTR YHOO TSLA WLT C NFLX CVX

Stocks with increasing volume @ CBOE: IPXL AMLP MVIS AL NBIX VNQ NTKR TER WPZ EV

CBOE Volatility Index (VIX) down 6.4% to 13.97. Oct 15, 17 and 21 calls active on 325K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 1.7% to 28.73.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 11.6% to 13.79; compared to its 10-day moving average of 12.99. stks.co/r0CS2

CBOE DJIA Volatility Index (VXD) down 7.1% to 12.44; compared to its 10-day moving average of 12.21.

CBOE Nasdaq-100 Volatility Index (VXN) down 5.3% to 15.59; compared to its 50-day moving average of 14.20.

CBOE DJIA BuyWrite Index (BXD) up 1.20 to 268.08 compared to its 50-day moving average of 268.77 cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently up 3.32 to 889.64 as new-home sales rose to a six-year high.

Blogging Options: CBOE Morning Update 9.24.14

US pre-market flat this morning.  Asian stocks mixed to lower, European shares higher.  August Housing Sales out shortly.  BABA gains ~$1 in pre-market.  Several FED Heads giving talks today, first two said somewhat contrary statements but by mid-day we’ll get that sorted out.  Volume on CBOE good yesterday.  Volatility as an asset class:

Bed Bath and Beyond (BBBY) is up $3.20 to $65.70 in the premarket after the company’s Q2 sales beat expectation. September weekly call option implied volatility is at 89, October is at 29, November is at 27, January is at 25; compared to its 26-week average of 25 according.

Starz (STRZA) is up $1.77 to $3.351 on hiring an investment bank to shop the pay TV service for a sale, Wall Street Journal reports. Overall option implied volatility of 27 is near its 26-week average of 29.

General Motors (GM) closed at $33.22 into China president Matthew Tsien said that he anticipates the company’s sales in the country to exceed 3M cars for the second consecutive time in FY14, according to Reuters. Overall option implied volatility of 22 is near its 26-week average of 24.

Active Equity Options @ CBOE; 1,038,232 call, 681,676 put, 1,719,908 total

Options expected to be active @ CBOE: BBBY ACN BBRY ACOR CCL

CBOE S&P 500 Skew Index (SKEW) at 139.85, above 50-day moving average of 132.74. SKEW (nice article by Matt Moran on this blog yesterday about 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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Risk Management is Critical To Survival in Trading Options and Stocks

Got a ‘Chip and a Chair’?  Then You’re Still in the Game!

There is a great story of luck and persistence about  Jack ‘Treetop’ Strauss.   A towering figure, Strauss was an accomplished poker pro.  In 1982 he was playing in the World Series of Poker, having made his third final table of his career (he finished second to legend Johnny Moss in 1971).  So as legend has it, during the second day of the tournament he was heads up (one – one) in a huge pot and after the last card was dealt he pushed all of his chips into the pot on a bluff.  His opponent called and it appeared Strauss was finished, but as he stood up and put on his coat and readied to leave he noticed a chip underneath a napkin.  Since he did not declare ‘all in’ during the hand the officials allowed him to stay and play the ONE chip — Jack was back in the game!

He sat back down after removing his coat, moved all-in and won the next hand, and the next — about five in a row.  Two days later he had amassed a huge stack and ended up beating Dewey Tomko in a heads up battle to win the title.  His improbable victory gave rise to the phrase above about a chip and a chair.

I bring you this story as a way to understand you should never put yourself in a position to be out of the game.  Now, clearly Strauss had luck on his side as his result should have been terminal.  But his luck turned into amazing results, and he is forever enshrined on the wall of winners in Vegas – regardless of how he got there.

When we are trading options we often forget the rules we established before the game starts.  Risk management, control and position sizing is my number one rule in trading.  We CANNOT forget that putting our money at risk makes us vulnerable to market moves and emotional swings.  In order to combat we must establish rules of risk tolerance that allow us to stay in the game. NEVER do we ever go ‘all in’ on a play – options, futures, stock or whatever the instrument.

When the juices are flowing and we’re in the heat of the battle we often lose our memory of the established rules.  It happens, I totally get it – happens to even the professionals (unless you trade a black box method or algorithm).  But if you ALWAYS remember to have some dry powder (cash available) you will keep yourself out of assuming the precarious position of ‘hope and pray’.  In my explosiveoptions.net service we advocate no more than 2% per trade (that doesn’t seem like much, but we do many trades and the leverage gained from options is outstanding).  This allows us to participate and not put our entire sum at risk on any trade that can have an adverse affect.

All option and stock traders should establish rules to manage their accounts accordingly.  Discipline and control trump all else in this game of survival, and isn’t what investing/trading is all about?  No guarantees.  There is an element of chance in trading (because the future is unknown) and in poker – but unlike the table game we do NOT have to make extreme bets like ‘all in’ to be successful.   Strauss got lucky to find a chip, but that is highly unlikely to happen to you.  Be true to your rules and you’ll live to fight another day. Note:  I will have a very special webinar on September 25 covering risk in options trading – do not miss this important session.

BL 9 23 poker

CBOE SKEW Index Hits 146.08 – Highest Value Since 1998 Shows Demand for Portfolio Protection

In a recent column on Bloomberg.com, Callie Bost wrote —

“After three years of non-stop gains in the U.S. stock market, investors are loading up on insurance at the first sign of trouble. … Concern that the losses will worsen has increased demand for shorter-dated, out-of-the-money options designed to protect a portfolio’s value. The Chicago Board Options Exchange’s SKEW Index, which tracks expectations for an outsized drop in U.S. stocks known as tail risk, reached 146.08 Sept. 19, the highest level since October 1998. … The gauge has averaged 129.77 over the past 12 months, compared with a mean of 122.82 during the past five years …”

CHARTS WITH SKEW AND VIX INDEXES

Here are line charts with comparisons of daily closing values for the CBOE SKEW and VIX indexes since 1990 and in 2014.mm 1 SKEW  VIX since 1990

I recently attended the Morningstar ETFs conference, and keynote speaker Russ Koesterich of Blackrock noted that –

  • It is difficult to find attractively priced “traditional” assets;
  • Even though geopolitical risk is up, volatility can be attractively priced, and volatility is an asset class.

Some observers recently have asked if the CBOE Volatility Index® (VIX®) has been somewhat low in 2014 considering the level of worldwide geopolitical uncertainties and nervousness in 2014. So far in 2014, the average daily closing values were 13.5 for the VIX Index, 10.2 for the (30-trading-day) historic volatility of the S&P 500 Index, and 130 for the SKEW Index. During the years 1990 through 2013, the average daily closing values were 20.2 for VIX and 117.2 for SKEW.  So while the VIX recently has been below its long-term average, it is worth noting that the historic volatility of the SPX usually has been even lower than the VIX, and in 2014 the SKEW Index has been about 13 points above its long-term average. So in 2014 one might infer that the demand for out-of-the-money SPX puts (and disaster insurance) probably has increased relative to demand for at-the-money SPX options.

 mm 2 SKEW  VIX in 2014

 

 

 

 

 

 

CBOE SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence. The value of SKEW increases with the expected tail risk of S&P 500 returns. If there were no tail risk expectations and concerns, SKEW would be close to 100.

TOP TWELVE DAYS FOR CBOE SKEW INDEX SINCE 1990

The historical data set for the CBOE SKEW Index begins in January 1990.  Below is a list with the twelve days with the highest closing values for SKEW.  Note that 8 of the 12 days occurred in 2014.

16-Oct-1998   146.22
19-Sep-2014   146.08
20-Jun-2014   143.26
20-Dec-2013   143.20
21-Jun-1990   142.57
_3-Jul-2014    142.28
18-Sep-2014   142.10
16-Mar-2006   142.02
18-Jul-2014    141.19
_2-Jul-2014    140.37
14-Jul-2014    139.94
22-Sep-2014   139.85

VOLATILITY SKEW CHART

For this volatility skew chart comparing the implied volatility for AAPL, USO, and SPX, note that the slope of the curve is much more pronounced for SPX.  This volatility skew chart can be an important tool for investors who are considering options buying or selling strategies at various strike prices.

mm 3 Vol Skew

To learn more about the SKEW and VIX indexes, please visit www.cboe.com/volatility.

 

CBOE Mid-Day Volatility 9.23.14

Volatility as an asset class

Carmax (KMX) is recently down $4.97 to $47.84 after posting sluggish Q2 used unit sales in comparable stores. October call option implied volatility is at 24, January is at 23, April is at 24; compared to its 26-week average of 27.

Salix (SLXP) is recently up $8.62 to $168.45 after The Wall Street Journal reported that Allergan _MG_0821(AGN) is in advanced talks on a deal to buy the company. October call option implied volatility is at 61, November is at 51, January is at 42; compared to its 26-week average of 45.

Actives at CBOE:  AAPL YHOO TSLA TWTR PBR NFLX BAC AMZN

Stocks with increasing volume @ CBOE: HIL GFI NYCB KMX PSDV SLXP DSX CBL URA

CBOE Volatility Index (VIX) up 2.8% to 14.07. Oct 19 and 20 calls active on 161K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 2.1% to 28.76.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 4.4% to 14.04; compared to its 10-day moving average of 12.73. stks.co/r0CS2

CBOE DJIA Volatility Index (VXD) up 4.1% to 12.57; compared to its 10-day moving average of 12.12.

CBOE Nasdaq-100 Volatility Index (VXN) up 1.7% to 15.78; compared to its 50-day moving average of 14.16.

CBOE DJIA BuyWrite Index (BXD) down 49c to 268.90 compared to its 50-day moving average of 268.82
cboe.com/micro/bxd/

S&P 100 Options (OEX) recently is recently down 1.12 to 889.94 on Euro zone growth slowing.

Blogging Options: CBOE Morning Update 9.23.14

Happy Autumnal Equinox. European stocks lead US markets lower this morning after falling ~1%+.  Airstrikes in Syria also have traders and investors on edge. Oil and gold higher, grains mixed. A few economic reports later this morning.  how ’bout them Bears!  Volatility as an asset class:

CF Industries Holdings (CF) is up $12.22 to $268.74 in the premarket after the U.S. fertilizer company confirmed that it is in preliminary discussions with Yara International ASA (YARIY) regarding a potential merger of equal’s transaction. Overall option implied volatility of 20 below its 26-week average of 24.

Herbalife (HLF) is higher by $1.10 to $41.31 after shares trading at a 15-month low on September 22. September weekly call option implied volatility is at 119, October weekly is at 87, October is at 74, November is at 72, January is at 65; compared to its 26-week average of 52.

Teucrium Corn Fund (CORN) is off $0.15 to $23.39 as corn trades near four-year lows. Overall option implied volatility of 23 is near its 26-week average of 24.

CBOE Gold Volatility Index (GVZ) closed at 16.44, above its 50-day moving average of 14.56.  cboe.com/GVZ

Options expected to be active @ CBOE: YHOO CF HLF AZN TKMR SHPG COV BKW

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CBOE Mid-Day Update 9.22.14

Volatility as an asset class

S&P 100 Options (OEX) recently is recently down 6.17 to 890.94 on weak U.S. existing home sales in August and China finance minister indicating the country will not increase stimulus measures.

CBOE Volatility Index (VIX) up 14.8% to 13.90. Oct 20 and November 15 calls active on 129K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 3.9% to 28.29.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 31.8% to 13.72; compared to its 10-day moving average of 12.68. stks.co/r0CS2

CBOE DJIA Volatility Index (VXD) up 10.9% to 12.23; compared to its 10-day moving average of 12.12.

CBOE Nasdaq-100 Volatility Index (VXN) up 14.2% to 15.76; compared to its 50-day moving average of 14.12.

Actives at CBOE:  AAPL YHOO TSLA TWTR PBR CLF WLT AMZN HPQ NQ C

Stocks with increasing volume @ CBOE: TA CLX SIAL REN BWA ANET CRR MILL IWO EROC

CBOE DJIA BuyWrite Index (BXD) down .88c to 268.67 compared to its 50-day moving average of 268.86 cboe.com/micro/bxd/

Long-Term Uptrend Remains Intact – Weekly Market Outlook

While Friday wasn’t a particularly great day for stocks, the week itself was a winner on the heels a Goldilocks assessment from Janet Yellen and her cohorts at the Federal Reserve.  While the economy isn’t yet strong enough to end the bond-buying program cold turkey, it’s also not weak enough that the Fed doesn’t see the end of low interest rates somewhere on the horizon.  The “just right” situation of not-too-hot and not-too-cold means Yellen is going to be proactively stimulative…. which has been the lifeblood for stocks for a long while now, and will continue to be for at least several more months.

On the other hand, while the long-term, economic-based undertow may be bullish, a couple of short-term red flags began waving again on Friday; a small pullback still may be in the cards.

We’ll weigh the odds after running down last week’s key economic numbers (and previewing this week’s).

Economic Data

First and foremost, though there’s no chart of it, the Federal Reserve essentially said it plans to maintain the status-quo in terms of quantitative easing.  That is, Janet Yellen and the rest of the Fed’s governors see enough economic growth in place to continue tapering its bond-buyback program, but doesn’t see growth so strong there’ a need to raise the Fed’s foundational interest rate from 0.25%.  At the current pace, the bond-buying will end altogether in October, and though Yellen has been a little cryptic about the term “considerable time” when discussing how much longer it could be until she’s forced to raise rates, most experts believe it won’t happen until sometime between March and July (and some are even saying the dovish Yellen will wait until after July in 2015).

That wasn’t the only thing going on last week in terms of important economic data.  For instance, we heard August’s industrial production and capacity utilization figures on Monday of last week.  They weren’t great.  They weren’t bad, mind you, and it’s too soon to ring the alarm bells.  But, industrial production fell 0.1% last month, and capacity utilization slumped from 79.1% to 78.8%.  One month does not make a trend, but new trends start with that first small step.

At least part of the reason Janet Yellen remains so comfortable keeping interest rates at unusual lows is, there’s still no worry of rampant inflation.  The annualized consumer inflation rate fell for a fourth straight month in August, to 1.7%.  Producer inflation has also remained tepid.

Finally, last week we kicked off a string of important real estate and construction data, beginning with housing starts and building permits on Thursday.  They weren’t awful, but they sure weren’t great.  Starts fell from a pace of 1.117 million to 956,000.  Permits slumped from a pace of 1.057 million to 998,000.  Both figures fell short of expectations too.

Real Estate Trends Chart

PH 92114-real-estate

Source: Census Bureau

Clearly we’ve got a lot more real estate data to consider, most of which will be unveiled this week.  And, there’s a strong likelihood that at least some of this slow-down can be the result of builders wrapping up projects for the year before bad weather becomes a burden.

Everything else is on the following table.

Economic Calendar

PH 92114-econ-data

Source:  Briefing.com

The coming week is a light one, obviously, though an important one for real estate and construction.  In fact, most of the data we’re getting is hard-hitting stuff even if a great deal of it – like Q2’s GDP and the Michigan Sentiment reading – have already been previewed and aren’t apt to move much (if any) from prior levels.

Stock Market Index Analysis More

Blogging Options: CBOE Morning Update 9.22.14

Stocks open weaker,  YHOO downgraded by two analysts, off $1.50, despite BABA stake.  BABA lower by $3 on heavy volume.  BABA options tentatively listed next Monday. Existing Home Sales in August drop 1.1% (higher by 0.9% expected) weighing on market.  Volatility as an asset clas:s

Dresser-Rand (DRC) is up $2.00 to $81.91 in early trading,  on Siemens (SIEGY) acquiring the oils equipment maker $7.6B for $83 per share in cash. Overall option implied volatility of 31 is at its 26-week average.

Sigma-Aldrich Corporation (SIAL) is up $34.63 to $137 on the life sciences company being purchased by Merck KGaA (MKGAY) for $17B ($140 per share in cash).  Overall option implied volatility of 14 is at its 26-week average.

EMC (EMC) is higher by $0.35 to $29.88 on The WSJ reporting the company is considering options that could include merging with a rival. September weekly call option implied volatility is at 25, October is at 22, November is at 21, April is at 20; compared to its 26-week average of 21.

CBOE Gold Volatility Index (GVZ) is up $0.45 at 17.35, above its 50-day moving average of 14.50 as gold near 4-year low. cboe.com/GVZ

Options expected to be active @ CBOE: YHOO DRC SIEGY MKGAY SIAL EMC CLX

CBOE S&P 500 BuyWrite Index (BXM) is off 2.92 to 1100, compared to its 10-day moving average of 1106.89 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) is lower by $0.35 at 269.23 compared to its 50-day moving average of 268.86 cboe.com/micro/bxd/
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Next Week in Weeklys – 9/22/2014

I checked the list and there were no additions or subtractions from the list of indexes, exchange traded funds (and notes), and stocks that have short dated options available for trading.  The earnings list is fairly light as well, but based on history there are a few names that might offer up some interesting short term moves next week.

As a refresher, all the data in this table is based on the last twelve quarters (three years).  The max and min are the biggest single day upside and downside moves in reaction to the earnings announcements.  Abs avg refers to the average of the absolute value of the previous one day price changes – it is the average magnitude of price moves based on earnings which straddle buyer and sellers often take a look at.

Weeklys

 

 

This Week in VIX – 9/19/2014

The S&P 500 put up another record high last week and VIX dropped. However, it is worth noting that the intraday low in VIX this past week (11.52) was a bit higher than the recent dips associated with new S&P 500 highs.  Maybe, like many of the permabears in the world, I’m stretching while looking for a crack in the armor that is the US stock market.  But when reviewing data I was truly surprised to see that we did not break 11.00 and that just four weeks ago there was a lower low in VIX.

VIX PA

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This Week in Emerging Market Volatility – 9/19/2014

Emerging markets continued to feel some pressure last week with EEM losing 0.75% and EWZ down just a tad. The volatility markets for EEM and EWZ had completely different stories.  First VXEEM dropped 13% last week even though the underlying market was down 0.75%.  We often see VIX influence VXEEM and I’m going with that one for last week.

VXEEM PA

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This Week in Russell 2000 and Nasdaq-100 Volatility – 9/19/2014

The NASDAQ-100 followed the S&P 500’s lead this week and rose about three quarters of a percent. For the year the NDX has been the place to be with a 14% plus year which compares favorably to the S&P 500’s rise of 8.77%.  The strong tech heavy index has resulted in low VXN for 2014, both on an absolute and relative to the S&P 500 basis, however, this past week VXN held up a little more than VIX dropping about 6% while VIX was down 9%.  Expect VXN to remain a little higher for the next few weeks as we go through earnings season for the third quarter.  VXN has a bit of a higher floor when some of the larger components have an earnings report on the horizon.

VXN PA

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This Week in VXST – 9/19/2014

A couple of weeks ago (9/12 to be exact) VXST was a tad lower than VIX despite a pretty tough week for the S&P 500. It appeared that VXST relative to VIX indicated a lack of fear and I talked about how the market has been lulled into complacency due to the S&P 500 continuously rebounding from any weakness.  That happened again this week and VXST reacted by putting up a 10 handle before the week was over.

VXST PA  More

This Week in Gold and Oil Volatility – 9/19/2014

Between gold and oil, oil is not getting much love so I’m going to talk about oil volatility. Oil futures (November) appear to be putting in a 90.00 to 95.00 range and the US Oil fund is grinding around as well.  If a new price range, that appears to have very little geo political risk priced in, holds expect OVX to languish around in the high teens.

OVX PA

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This Week in Volatility Indexes and ETPs – 9/19/2014

The volatility indexes that are based on the S&P 500 fell back into order as the S&P 500 rebounded to another all-time high.  I am not a guru, do not claim to be (actually who does that?), but did note in this space that despite a tough beginning to September the volatility indexes were not showing the market had any fear.  Again they seemed to anticipate the stock market continuing higher and got it right.

VXST VIX VXV VXMT CURVE

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This Week in CBOE Strategy Indexes – 9/19/2014

Friday was the third Friday in September which is standard option expiration date for most option players, but for those of us that watch the CBOE strategy indexes it also means roll date.

First the September SPX settlement came in pretty high, relative to history and the price action yesterday, at 2022.46. This settlement level resulted in a tough day for both BXM and BXY which were respectively short the 1955 and 1995 SPX calls.  Both BXM and BXY lost about half a percent yesterday while the S&P 500 was down just 5 basis points.

Strat Charts

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The Weekly Options News Roundup – 9/19/2014

Your weekly recap of CBOE features, options industry news and VIX and volatility-related articles from print, broadcast and online and social media outlets.

Applause, Applause
Global Capital magazine held its annual Global Derivatives Awards ceremony in London Thursday evening, handing out several financial industry awards.  CBOE is honored to be named “Equities Exchange of the Year,” as Global Capital cited CBOE’s impact on the global industry through product innovation and its continued development of the volatility space.

“CBOE Wins “Equities Exchange of the Year” Award” – CBOE press release
http://bit.ly/1uM7N49

The Zacks Analyst Blog Highlights: CBOE Holdings, CME Group, Intercontinental Exchange, Amazon.com and Facebook – CNBC.com
http://cnb.cx/1txQx2h

VIX A-HA Moment
The market is still in a state of low volatility, and yes, VIX can still work well within a portfolio.  Insights into how to use the VIX in this market environment remain a hot topic.

“Fed Bringing Stock Turbulence to Traders as VIX Climbs”- Callie Bost and Jeff Kearns, Bloomberg
http://bloom.bg/1s6qrVy

“Transfixed by the VIX: How the Popular Gauge Works” – Larry Shover, Fox Business
http://fxn.ws/1BU9H4W

“Short Sellers Fleeing Inverse VIX Fund After 24% Rally” – Joseph Ciolli, Bloomberg
http://bloom.bg/1s3OWml

“Why You Probably Don’t Need to Buy VIX Calls Right Now – Adam Warner, Schaeffer’s Investment Research
http://bit.ly/1o906zi

“There’s No Fear in the Markets: Time to Worry?” – Jenny Cosgrave, CNBC.com
http://cnb.cx/1rRkvK2

VXTYN Fixed-Income Volatility Products Based on VIX
CBOE Futures Exchange (CFE) plans to launch futures on the CBOE/CBOT 10-year Treasury Note Volatility Index (VXTYN) on November 13.

“A Hedge Against Rate Volatility” – John Hintze, Global Association of Risk Professionals magazine,
http://bit.ly/XKRVlE

Slán go fóill, Dublin
CBOE was pleased to host another successful Risk Management Conference Europe earlier this month in Ireland.  See the “Ten Takeaways” from this year’s event and make plans to join us this March for the next CBOE RMC.  Yes, Dublin, we sure hope to see you later.

“Ten Takeaways from CBOE RMC Europe” – Russell Rhoads, CBOE Options Hub.com
http://www.cboeoptionshub.com/2014/09/16/ten-takeaways-cboe-rmc-europe/

Weekly Market Commentary 9.19.14

Early this week, $SPX closed at a new relative low, and many of the
indicators appeared to be turning bearish (for example, $VIX closed
above 14).  However, prices have rallied since then, and $SPX made
a marginal new all-time high today — both intraday and closing.  Is this
probe upwards more effective than the probe downwards was a few
days ago?  It’s hard to say, but a further close at new highs
would solidify an upside breakout.
9 19

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CBOE Mid-Day Update 9.19.14

Volatility as an asset class

Yahoo (YHOO) is recently down 95c to $41.18 on Alibaba (BABA) going public in a 320.1M share IPO priced at $68.  BABA is recently trading at $92.64.  September weekly call option implied volatility is at 60, October weekly is at 53, October is at 46,  November is at 40, January is at 34; compared to its 26-week average of 35.

Online Commerce Company’s option implied volatility is mixed to low on the Alibaba IPO.

Facebook (FB) October call option implied volatility is at 26; compared to its 26-week average of 38.

Baidu (BIDU) October call option implied volatility is at 35; compared to its 26-week average of 36.

Google (GOOG) October call option implied volatility is at 22; compared to its 26-week average of 22.

Amazon.com (AMZN) October call option implied volatility is at 25; compared to its 26-week average of 29.

eBay (EBAY) October call option implied volatility is at 30; compared to its 26-week average of 27.

Actives at CBOE: AAPL KO C TWTR TSLA AMZN BIDU YHOO

Stocks with increasing volume @ CBOE: SDRL CNQR PDLI BUD NI BDX NWSA VMC PFE ESI

CBOE DJIA BuyWrite Index (BXD) at 270.88, compared to its 50-day moving average of 268.84 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 2.5% to 12.23. Oct 16. 18 and November 20 calls active on 588K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 0.2% to 27.24.
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