SPX Weekly Bear Call Spread Analysis

I’ve seen several trades using RUT options to initiate out of the money credit spreads as of late. However, I just came across a pretty interesting one using SPX options. There was a seller of SPX Mar 27th 2140 Calls at 0.35 who also purchased the SPX Mar 27th 2150 Calls at 0.15 for a net credit of 0.20. As long as the S&P 500 is not over 2140 on the close this coming Friday the credit of 0.20 will result in a profit. The payoff diagram below shows the risk – reward of this trade along with yesterday’s closing SPX level.

SPX PO

There’s something else that is worth mentioning about this SPX Mar 27th 2140 / 2150 Bear Call Spread. This was executed while most of us were sleeping or just before 3:00 am Chicago time during what we at CBOE refer to as the extended hours session (ETH).

Blogging Options: CBOE Morning Update 3.24.15

Stocks look flat on the opening, as CPI and Core Rate each rise 0.2%.  McCormick (MKC) beat estimates, looks to open higher by 4%. NFLX could help NASDAQ.  Overseas markets modestly higher.  10-year 1.904. Housing numbers released after the opening, expected higher. Volatility as an asset class:

Chesapeake (CHK) is up $0.44 to $14.55 in the preopen on Carl Icahn disclosing an increased stake in the company to 73M shares (10.98%), up from 66M shares (9.98%) in December. March weekly call option implied volatility is at 48, April is at 44, July is at 47; compared to its 26-week average of 41.

Whiting Petroleum (WLL) is indicated down $7 to $31.39  on offering of 35M shares of common stock. April call option implied volatility is at 77, May is at 74; compared to its 26-week average of 49.

Sonus (SONS) closed at $13.16 into cutting its Q1 revenue view to $47M-$50M from $74M.  Overall option implied volatility of 46 compares to its 26-week average of 48.

CBOE Crude Oil Volatility Index (OVX) at 49.32 compared to its 50-day moving average of 55.19, WTI Crude oil near $47. CBOE.com/OVX

Equity Options Volume @ CBOE; 907,438 calls, 503,796 puts, 1,411,234 total cboe.com

Options expected to be active @ CBOE:  WLL CHK SONS RHT LULU BBRY OCN FB TSLA

CBOE S&P 500 Skew Index (SKEW) at 127.12. 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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Earnings This Week – 3/23 – 3/27

A more appropriate title for this blog would be “Earnings Later This Week” as there are only four stocks with short dated options reporting earnings this week and they all report either Thursday or Friday.    The list below depicts three years of earnings history with the biggest move higher, lower, average move, and what the stock did last quarter shown for each stock.

Earnings

The Fed Gives A Boost – Weekly Market Outlook

Thanks to a little help from the Federal Reserve on Wednesday, the market broke out of a three-week-old bearish rut, and in the process may have rekindled a bigger uptrend.  In fact, technically speaking, the uptrend is back underway. We’ll handicap the market below.  First, let’s run down last week’s and this week’s economic news.

Economic Data

There’s little doubt as to last week’s economic focal point… the release of the minutes from the most recent FOMC meeting. It was an interesting (and a slightly mixed) message. The Fed dropped the word “patient” from the description of how long it would wait to raise interest rates, and then made a point of saying it was in no hurry to do so given the current state of the economy.

The real curveball, though – and the key reason the U.S. Dollar may have started a pullback – was the long-term interest rate forecast the Federal Reserve’s governors offered.

Though the forecasted average Fed Funds Rate for 2015 and 2016 was only pulled back by about a quarter of a point, that’s a huge difference… and one all the dollar’s recent bulls weren’t expecting. In fact, much of the dollar’s recent rise was driven by an assumption that rates would rise even faster than had been projected. The Fed’s message suggested the opposite was in the cards, rocking the dollar, but prodding a stock market that was growing weary of such a strong greenback.

The Federal Reserve and the dollar weren’t the only items worth talking about on the economic front last week though. We also heard about February’s industrial productivity and capacity utilization data. The Industrial Production Index was up 0.1%, while capacity utilization fell from 79.1% to 78.9%. It’s not trouble yet, though a couple more months of the same could be a real red flag.

We also heard February’s housing starts and building permits data. Though starts fell from a pace of 1.081 million to 897,000, even on a seasonally-adjusted basis we can attribute the lull to a nasty wave of winter weather than ripped across much of the United States. The total number of issued permits actually grew, from 1.06 million to 1.092 million.  Generally speaking, the housing construction trend remains a positive one.

Economic Calendar
PH 32215-econ-data
Source: Briefing.com

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CBOE Mid-Day Update 3.23.15

Volatility as an asset class

Pfizer (PFE) is recently up 95c to $35.22, fresh ten year high, after a Jefferies analyst wrote that the company’s shares are poised to rise significantly over the next one to two years.  Overall option implied volatility of 16 compares to its 26-week average of 17.

NVIDIA (NVDA) is recently down 65c to $22.02 on Goldman’s downgrade to Sell with a $20 price target. The firm believes the market under-appreciates the risk of the Intel (INTC) license not being renewed and expects GPU growth to decelerate given weakness in PC fundamentals and gaming growth that will normalize at lower levels.  March weekly call option implied volatility is at 32, April is at 26, May is at 24, June is at 25; compared to its 26-week average of 28.

McDonald’s (MCD) is recently up $1.76 to $98.81 on speculation that Glenview Capital might push the company to spin real estate assets into a REIT, Bloomberg, citing an investor letter. March weekly call option implied volatility is at 18, May is at 19, June at 17; compared to its 26-week average of 18.

CBOE Crude Oil Volatility Index (OVX) is recently down 2.7% to 49.54 compared to its 50-day moving average of 49.55 as WTI oil trades near $47.  CBOE.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 1.86% to 21.60 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR TEVA TSLA AMZN RIG NFLX FB MCD

Options with increasing volume @ CBOE: HLF WUBA CBL RTRX GOL SONC SWI CP PGH FNF FTNT

CBOE Volatility Index (VIX) up 2.7% to 13.37, high 13.53, low 13.10, April 22 and 26 calls are active on total volume of 103K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 1% to 25.45.
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Blogging Options: CBOE Morning Update 3.23.15

Stocks bouncing around unchanged this morning, as 3″ of snow greet Chicago commuters.  Oil prices down again, but be aware that front month crude changes months today.  Biogen downgraded before opening. NCAA tourney gets high marks for exciting games this past weekend. Volatility as an asset class:

Global X FTSE Greece 20 ETF (GREK) closed at $10.75 into meeting between the leaders of Greece and Germany to resolve debt issues. Overall option implied volatility of 68 compares to its 26-week average of 58.

Yahoo (YHOO) is up 11c to $45.14 in the preopen on its price target lowered to $61 from $66 at BofA/Merrill  to reflect a lower valuation for the Alibaba (BABA) stake.  March weekly call option implied volatility is at 27, April is at 24, May and July is at 27; compared to its 26-week average of 35.

Alibaba (BABA) is down 20c to $85. March weekly call option implied volatility is at 34, April is at 36, May is at 29, July is at 28; compared to its 26-week average of 34.

CBOE Crude Oil Volatility Index (OVX) at 50.84 compared to its 50-day moving average of 55.22, WTI Crude oil near $45. CBOE.com/OVX

Equity Options Volume @ CBOE; 1,319,315 calls, 756,553 puts, 2,075,868 total cboe.com

Options expected to be active @ CBOE:  GILD PBR LULU THC BIIB NVDA NBG GREK

CBOE S&P 500 Skew Index (SKEW) at 131.09. 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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The Week in Small Cap Stocks – 3/16 – 3/20

Small cap stocks widened the lead against large cap stocks for 2015 as the Russell 2000 was up 2.78% while the Russell 1000 advanced by 1.95% last week. That places the Russell 2000 up 5.12% while the Russell 1000 is now up 2.96% for 2015. The volatility markets diverged a bit from the small cap outperforming large cap stocks as the large cap focused VIX lost 18.63% while the CBOE Russell 2000 Volatility Index (RVX) was down 16.48% for the week. Despite this the RVX / VIX spread remains a low levels when compared to 2014 where the risk perception of small cap stocks was justifiably higher than the risk priced in for having large cap exposure. I say justifiably high as small cap stocks spent most of 2014 underperforming large caps. The chart below depicts the daily spread between RVX and VIX depicted as the ratio of RVX divided by VIX from the first day of 2014 through Friday March 20, 2015.

RVX VIX Spread

At least on trader was very bearish on small cap stocks the day after the Fed announcement this past week. I’ve been writing about out of the money option selling or credit spreads in RUT a lot lately, but this week there is someone that took the other side of the belief that a big drop is not on the horizon. The actual trade, which was executed Thursday was a buy of about 3000 RUT May 950 Puts for 0.65 (as a side note – another 2000 were purchased on Friday for 0.55). On Thursday the Russell 2000 closed around 1255, this means the break-even level for this trade involves a drop of over 32% in just under two months. The payoff diagram below shows that a market crash in the next couple of months may result in a nice profit. Of course a 33% drop in the Russell 2000 would have some side effects on the rest of the world financial world. My position is as a market observer, but I can’t help but root against this trade as if it is successful the damage would be pretty extensive.

RUT PO

 

The Week in VIX – 3/16 – 3/20

Last week VIX experienced the second biggest week over week percentage drop for 2015. The largest move lower occurred the week before the three day Martin Luther King holiday weekend so that one may need to be given an asterisk.   However, VIX going back to the tweens last week should not be ignored as an indication of a new round of equity market complacency sinks in. Someone needs to tell that to the April VIX futures which remain at a pretty high premium (over 3 points) relative to the spot index despite Janet Yellen making the word safe for stocks again last week.

VIX Futures

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The Week in Volatility Indexes and ETPs – 3/16 – 3/20

I’m repeating the alteration I did last week to the term structure chart below. Instead of a week over week comparison I show the closing levels for VXST, VIX, VXV, and VXMT relative to the average levels in 2014. Note that near term volatility has thrown in the towel, but concern about a potential downturn for the equity market persists in the three and six month time frames. VIX Curves

Longer dated volatility is still elevated, despite dropping last week in sync with VXST and VIX. A 2.66% rally in the S&P 500 will do that to any equity market volatility index. What also took it on the chin were the long oriented volatility exchange traded funds. VXX and the unleveraged funds lost over 8% and the two leveraged long funds, UVXY and TVIX, both gave up over 16%. This leads me to a massive trade I came across from Friday which is discussed just below the following table.

VIX Table

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The Weekly Options News Roundup – 3/20/2015

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.

Gail Osten: A Life and Legacy
It is with deepest regret that we share the passing of our friend and colleague, Gail Osten.  Gail was Director of Corporate Communications at CBOE the past seven years.  Her time at CBOE capped off a distinguished career in the exchange industry as described in the attached lead article in today’s John Lothian Newsletter.

“Think Positive: Gail Osten Leaves Fond Memories” – Jim Kharouf, John Lothian News
http://bit.ly/1FMzL5r

VIX FIX: Confidence or Complacency
The Fed held off on raising interest rates…. for now.  Investors, breathing a sigh of relief, caused the VIX Index to dip below 13.  Does this number in the VIX signal a market that is confident or complacent?

“VIX Stress Thermometer Registering Little of Stock Market Chill” – Oliver Renick, Bloomberg
http://bloom.bg/1Lx8Gbj

“Is VIX Signaling Complacency – or Sell-Off Fatigue?” – Adam Warner, Schaeffer’s Investment Research
http://bit.ly/1FJyrQG

“Traders Rush into VIX ETFs Ahead of FOMC Meeting” – Chris Dieterich
http://on.barrons.com/1xBWMRO

“Equity Traders Looking for Stock Liquidity Can Find It in the Options Market” – Gary Stone and John Gardner, Automated Trader
http://bit.ly/1Gv5xSW

 

CBOE Mid-Day Update 3.20.15

Volatility as an asset class

KB Home (KBH) is recently up 99c to $15.06 on better than expected Q1 results and sees sequential margin improvement in remaining 2015 quarters. April call option implied volatility is at 96, April is at 43, July is at 37; compared to its 26-week average of 35.

Starbucks (SBUX) is recently up 43c to $98.17 after shares traded at fresh life high of $98.90. March weekly call option implied volatility is at 19, April is at 24, May is at 20, July is at 19; compared to its 26-week average of 22.

Target (TGT) is recently up $1.11 to $81.71 after shares traded at fresh life high of $81.76.  March weekly call option implied volatility is at 15, April and May is at 16, July is at 17; compared to its 26-week average of 20.

CBOE Crude Oil Volatility Index (OVX) is recently down 6.7% to 50.23 compared to its 50-day moving average of 55.21 as oil trades near its lowest level since March of 2009.  CBOE.com/OVX

CBOE Interest Rate 5 Year Note (FVX) is recently down 3.1% to 14.31 as treasury, bond and bunds rally.

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 5.7% to 22.04 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TWTR MNKD FB TSLA C GILD NFLX CELG

Options with increasing volume @ CBOE: CVC NWL CTRP PTEN ACM FIVE PRTA WGO ADSK MFRM

CBOE Volatility Index (VIX) down 8.6% to 12.86, high 13.53, low 12.59, April 22, 25 and 26 calls are active on total volume of 203K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 3.3% to 25.28.
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CBOE Bracketology Round 1 – VXST Index Rose 122.6% in One Week

One of the most intriguing features of volatility indexes is that they can have sharp upside moves in times when “traditional” indexes fall in value. For example, during the week of Dec. 12, 2014, the S&P 500® (SPX) and MSCI EAFE® indexes both dropped 3.5%, while the CBOE Short-Term Volatility Index (VXST) rose 122.6% and the CBOE Volatility Index® (VIX®) rose 78.3%. Both of the brackets below show the biggest one-calendar-week upside moves (in % terms) for 8 tradable volatility indexes over the past 4 years. B-1 vol index fut one-week

All of the eight volatility indexes in the chart above have both futures and options contacts (except that the VXTYN does not have options). Please note that the volatility index futures often will not move as much as the spot volatility index, and that the underlying for VIX futures and options is the expected, or forward, value of VIX at expiration, rather than the current, or spot VIX Index value.

The second bracket below shows eight more volatility indexes. There are futures on the VXN Index, but the rest of the indexes in the second bracket do not currently have futures or options.While many of these volatility indexes are not tradable, they still can serve as valuable indicators of investor sentiment.  More

Weekly Market Commentary 3.20.15

In figure 1, the support at 2040 and the resistance at the recent all-time highs of 2120 are marked as a trading range.  Until $SPX breaks out of that range, it really doesn’t have a trend in place.  To support that conclusion, the indicators are somewhat mixed.

LM 3 20 15 spx

Equity-only put-call ratios have remained on sell signals during this latest rally.

Breadth hasn’t been terrific during this rally, but it was strong enough to pull the “stocks only” oscillator into a mildly overbought state.  However, the “stocks only” oscillator has returned to a sell signal.

Finally, volatility indices and derivatives have painted a more bullish picture.  As a result, I have marked a trading range area, showing that $VIX 13-17 corresponds roughly to $SPX 2040-2120.  Hence, as long as $VIX remains below 17, the market can rally.

LM 3 20 15 vix

In summary, the oversold rally has returned $SPX to a more or less neutral state. Intermediate-term traders and trend followers would want to await the next $SPX breakout from its trading range as the determinant of a more well-defined intermediate term trend.

Blogging Options: CBOE Morning Update 3.20.15

Happy Triple Witch Friday.   Spring officially arrives right after the close today.  European debt talks have some optimistic, DAX up 1%.  Commodities flat, DRI up $2.50 on good Quarter.  For those following the NCAA tournament, Matt Moran from CBOE will post his “Volatility Bracketology” here at the CBOE Hub later this morning, it’s a good one.  For those entering picks in an office pool, we heard that less than 0.1% of entrants had the first eight games picked correctly.  Ouch.  Volatility as an asset class:

Nike (NKE) is higher by $4.68 to $103.01 in the preopen on better than expected Q3 results and outlook. Overall option implied volatility of 31 compares to its 26-week average of 23.

Biogen Idec (BIIB) is up $26.30 to $459.95 after reporting statistically significant data from study of Aducanumab Phase 1b. March call option implied volatility is at 155, March weekly is at 64, April at 43, May is at 41; compared to its 26-week average of 34.

Tiffany (TIF) is down $2.87 to $83.55 in the preopen after reporting Q3 results and saying it facing challenges from global economic uncertainties. March call option implied volatility is at 67, April is at 31, May is at 26, August is at 25; compared to its 26-week average of 26.

CBOE Crude Oil Volatility Index (OVX) at 53.82 compared to its 50-day moving average of 55.27, WTI Crude oil near $43. CBOE.com/OVX

Equity Options Volume @ CBOE; 987,129 calls, 583,905 puts, 1,571,034 total cboe.com

Options expected to be active @ CBOE:  BIIB NKE TIF YOKU DRI HON FDX

CBOE S&P 500 Skew Index (SKEW) at 127.95. 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 95-110 Collar Index CLL @ 677.40 www.cboe.com/CLL

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CBOE Mid-Day Update 3.19.15

Fairly heave option volume mid-day as traders and investors digest removal of “patient” from FED comments, which was expected. SPX traded ~700K contracts, while VIX with 200K and VIX Futures 71K.  Sounds of basketballs bouncing reverberate around trading floors and desks across the US.  GS down $2, PCLN lower by $6.  Volatility as an asset class:  (We’ll miss you Gail Osten – Those we held in our arms for a little while, we hold in our hearts forever).

Facebook (FB) is up $1.90 to $82.83 after shares traded at fresh life high of $82.88. March weekly call option implied volatility is at 25, April is at 23, May is at 30; compared to its 26-week average of 32.

Lennar (LEN) is down $0.81 to $48.91 after reporting an increase in Q1 deliveries and prices. March call option implied volatility is at 41, April is at 26, May is at 25; compared to its 26-week average of 31.

Nucor (NUE) is down $3.38 to $45.92 after the steel company cut its Q1 EPS guidance to 10c-15c, compared to consensus 40c. March weekly call option implied volatility is at 31, April is at 28, May is at 26; compared to its 26-week average of 25.

CBOE Crude Oil Volatility Index (OVX) is up 0.6% to 53.96 compared to its 50-day moving average of 55.27 as oil trades near its lowest level since March of 2009.  CBOE.com/OVX

CBOE Interest Rate 5 Year Note (FVX) is up 2.9% to 14.62 a day after the Fed dropped its pledge to “be patient”.

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 3% to 23.80 cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL TSLA TWTR FB AMAT C GILD BAC NFLX

Options with increasing volume @ CBOE: RAD FOLD RTRX CFG ROVI PII NUE WSM TIF CTAS GES

CBOE Volatility Index (VIX) up 3.7% to 14.49, high 14.97, low 14.03, April 22 and 26 calls are active on total volume of 156K cboe.com/VIX

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