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.

More

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.

More

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

More

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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Blogging Options: CBOE Morning Update 9.19.14

Alibaba.  No for Scotland. Triple Witch.  AAPL phone.  Stocks open higher on Scottish vote and follow through to yesterday’s rally. Lots of investors shut out on BABA IPO.  Options on BABA 9/29.  Volatility as an asset class:

Yahoo (YHOO) saw profit takers  move the shares to unchanged after being up $0.60 in the pre-market, as Alibaba (BABA) 320.1M shares IPO priced at $68.  September call option implied volatility is at 105, September weekly is at 77, October is at 56,  November is at 44, January is at 36; compared to its 26-week average of 35.

Red Hat (RHT) is down $2.36 to $58.30 after reporting less than expected Q2 results. September call option implied volatility is at 92, October is at 36, December is at 29; compared to its 26-week average of 30.

Oracle (ORCL) is off $1.25 to $40.30 following a Q1 earnings miss and a CEO transition. September call option implied volatility is at 51, October is at 22, December is at 19; compared to its 26-week average of 23.

Options expected to be active @ CBOE: YHOO ORCL RHT TIBX CNCR SAP

CBOE Equity Options volume: 1,228,861 call, 762,798 put, 1,991,659 total

CBOE S&P 500 BuyWrite Index (BXM) at 1108.94 compared to its 10-day moving average of 1107.17 cboe.com/BXM

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Weekly Weekly’s for 9.18.14

Where does the trade go from here?  I’m Angela Miles, and that is what I am covering today. Option’s plays in hot stocks going into next week’s options expiration.

Let’s get it started with the grand-daddy of them all: Apple. Apple’s iPhone 6 hits store shelves tomorrow. Implied volatility has remained tame with many traders busy selling vol this week. This morning, 81,000 contracts were moving to start the day. As AAPL trades around $102 players are positing call trades at the 101 and 102 strikes. There are also put buyers at the 100 line, but not much to suggest a near-term breakdown in the stock.

Yahoo is moving big this week on Alibaba’s IPO Friday. Yahoo has a 23% stake in BABA. Traders are really going after the 48 calls, with buyers and sellers. Implied vol is pumped up to 83. Put action is light. Retail paper is active in YHOO.

US Steel has been on fire, including a 10 percent jump yesterday. The company is making strategic moves to return to profitability.   Puts are in play at the 45 and 46 strikes for next week, which could predict a slight pull back is in store for the stock after a hot run.

As Apple and Alibaba steal the show, options paper is just a bit lighter today in the momentum names…Such as Tesla, which has been active this week. The CEO, Elon Musk is out talking about self-driving cars . Going into next week the 265 and 260 calls are in gear.

Amazon has 325 puts active for next week as the stock trades $325.

Netflix has more calls than puts trading. NFLX trades at $455. The most popular call strike so far is 460 for next Friday’s expiration.

Gilead Sciences is in play on news its selling its Hepatitis C drug at a lower cost in developing nations. The bulls are positioning in the 105 and 106 strikes as shares trend higher this week.

Among other movers…

Whole Foods has 40 strike put contracts on the move into the Weekly’s expiration.

EEM Emerging Market Index was active going into the FOMC announcement. Traders remain active into next week at the 43 and 44 put lines.

Micron Technologies has earnings next Thursday. The most active strike are the 32.5 and 37 calls.

One final mention, options are active for next  week’s expiration in SPX, the predominate strike is 1,970 puts, Although the 2005 strike calls are active.  Angie Miles

CBOE Mid-Day Update 9.18.14

Volatility as an asset class

Yahoo (YHOO) is recently down 54c to $42.05 into the expected IPO of Alibaba (BABA).  September call option implied volatility is at 98, September weekly is at 77, October weekly is at 63, October is at 50,  November is at 46, January is at 37; compared to its 26-week average of 35.

CBOE & C2 plan to list Alibaba (BABA) options on Monday, September 29.

Technology based financial service company’s option implied volatility is low as shares trend higher

TD Ameritrade (AMTD) is recently up 62c to $34.48. October call option implied volatility is at 17, November and January is 18; compared to its 26-week average of 24.

E-Trade (ETFC) is recently up 64c to $24.51. October call option implied volatility is at 30, January is at 27; compared to its 26-week average of 34.

Interactive Brokers (IBKR) is recently up 57c to $26.50. October call option implied volatility is at 27, December is at 22; compared to its 26-week average of 26.

Charles Schwab (SCHW) is recently up 56c to $30.76. October call option implied volatility is at 24, December is at 23; compared to its 26-week average of 25.

CBOE VIX methodology for Market Vectors Gold Miners Fund (VXGDX) is recently down 1.5% to 27.95, compared to its 50-day moving average of 27.38 as gold trades near a 4-year low.

VIX methodology for Apple (VXAPL) is down 1.6% to 23.28, below its 50-day moving average of 26.31. cboe.com/VXAPL

Actives at CBOE:  AAPL PBR C TWTR TSLA AMZN NFLX LVS BIDU YHOO

Stocks with increasing volume @ CBOE: RAD EDMC ORLY DEO PIR UNFI INFA ETP FXP SCOK PWE VHC

CBOE DJIA BuyWrite Index (BXD) up 12c to 270.91, compared to its 50-day moving average of 268.84 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 4.9% to 12.03. Oct 18 and 21 calls active on 203K cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 1.1% to 27.33.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 5.1% to 11.21; compared to its 10-day moving average of 12.62. stks.co/r0CS2

CBOE DJIA Volatility Index (VXD) down 6.5% to 11.01; compared to its 10-day moving average of 12.14.
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Blogging Options: CBOE Morning Update 9.18.14

Weekly Housing numbers bullish, but Housing Starts fell ~14%.  European shares higher, election results from Scotland before today’s US close?  Philly FED ay 9am CDT.  Triple Witch this afternoon and tomorrow.  BABA prices after the close today.  Volatility as an asset class

Yahoo (YHOO) is up $0.46 to $43.05 in the premarket into the IPO of Alibaba (BABA).  September call option implied volatility is at 89, September weekly is at 81, October weekly is at 64, October is at 53,  November is at 45, January is at 39; compared to its 26-week average of 34.

Rite Aid (RAD) is down $066 to $5.98 after the drugstore lowered its full-year view. September call option implied volatility is at 147, October is at 71, January is at 46; compared to its 26-week average of 49.

Pier 1 Imports (PIR) is down $1.82 to $13.72 in the premarket after the home-goods retailer lowered its full-year guidance. September call option implied volatility is at 148, October is at 54, December is at 39; compared to its 26-week average of 34.

CBOE Gold Volatility Index (GVZ) closed at 17.14, above its 50-day moving average of 14.57 as gold near 4-year low. cboe.com/GVZ

Options expected to be active @ CBOE: YHOO ORCL RHT RAD PIR SODA

CBOE Interest Rate 5 Year Note (FVX) @ 17.74, above 50-day MA is 16.71 into FOMC decision

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Blogging Options: CBOE Morning Update 9.17.14

FedEX beat estimates by $0.14 this morning, helped by stock repurchase program.  Sony announced a $2 Billion loss due to smart phone sales dropping.  Eyes (Ayes?) on Scottish vote tomorrow.  Some traders thinking early results could be announced while US markets still open.  Triple Witch Friday.  Janet Yellen makes appearance this aternoon. Volatility as an asset class:

Yahoo (YHOO) is down $0.15 to $42.56 in the premarket into the expected IPO of Alibaba (BABA).  September call option implied volatility is at 89, September weekly is at 84, October weekly is at 69, October is at 52,  November is at 47, January is at 40; compared to its 26-week average of 34.

CBOE & C2 plans to list Alibaba (BABA) options on Monday, September 29.

Rackspace Hosting (RAX) is down $7.14 to $32.10 after ending a strategic review and deciding to stay independent. September call option implied volatility is at 89, October is at 56, December is at 46; compared to its 26-week average of 46.

U.S. Steel (X) is up $4.59 to $46 volatility after updating Q3 outlook. Overall option implied volatility of 38 is above its 26-week average of 35.

Sony (SNE) is down $2.00 to $18.75 in the premarket volatility after raises its net loss forecast and eliminating its dividend. Overall option implied volatility of 25 is near its 26-week average of 26.

Options expected to be active @ CBOE: YHOO ADBE X RAX SNE DD FDX GIS AUXL ENDP LEN RHT ORCL

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NASDAQ Concerns – Market Outlook

Monday’s loss may not have been a big one, but it certainly wasn’t an encouraging step in the right direction following last week’s dip, with a Fed meeting still on tap this week.  Yet, it’s not like the market has fallen over the edge of a cliff – there’s still a way the bulls could figure a way around an overdue and much-needed pullback.

We’ll look at those opportunities in a moment.  First we need to paint with the broad brush strokes of economic information.

Economic Data

While there was a steady flow of economic data all last week, not much of it was market-moving.  The only item of any real interest was August’s retail sales growth, which were good… as expected.  Overall retail sales were up 0.6% for the month (from July’s levels), and retail sales not counting automobiles was up 0.3% between July and August.

This week is already a little busier than last week too, in terms of economic numbers.  It’s going to be harder hitting stuff too, beginning with last month’s industrial production and capacity utilization.  The data fell on for both.  Capacity utilization fell from 79.2% to 78.8%, while industrial production fell 0.1%.  Any step backwards is a step in the wrong direction, but this information is hardly cause for alarm just yet.  The bigger trends in both cases are still pointed upward, and this is definitely long-term data.

Industrial Production and Capacity Utilization Chart

PH 91514-capacity

Source:  U.S. Federal Reserve

Economic Calendar

PH 91514-econ-data

Source: Briefing.com

There’s still plenty in store for the week though, like a big dose of inflation data.  We’ll hear last month’s producer price inflation rates on Tuesday (flat, as expected), and on Wednesday we’ll get the consumer inflation data for August.  A month ago both figures suggested inflation was pretty well tamed, and the improvement in the value of the U.S. dollar has only kept inflation at bay.  As of July, the consumer inflation rate was 2.0%, and the producer inflation rate was 1.7%.  It’s unlikely either was up for August.

We’re also starting a wave of housing and real estate data near the end of the week, with Thursday’s housing starts and building permits figures for August.  The expectations are basically for figures comparable to July’s.  However they come out, the overall undertow is a positive one.

Stock Market Index Analysis

Let’s start with Monday’s most alarming red flag… the NASDAQ Composite’s (COMP) (QQQ) breakdown below 4539.  Through last week, that floor had held up.  On Monday though, it failed, allowing the NASDAQ to move under a key support level.  That pullback to a close of 4518.90 also pulled the composite under the 20-day moving average line for the first time in over a month, after it acted like it was going to find support there at the end of last week.

NASDAQ Composite & VXN – Daily Chart

PH 91514-nasdaq-daily

All charts created with TradeStation

There’s still a glimmer of hope for the NASDAQ – the selling seems have stopped at the lower 20-day Bollinger band.  It’s not like the bulls have pushed up and off of the lower Bollinger band yet, however. It’s still in prime position to break under it.

When we zoom out to a weekly chart, the NASDAQ still looks like it’s in trouble.  Ever since the composite broke under a major long-term support line (dashed) in April, it’s been unable to get back in that bullish groove.  In fact, the pace of the broad advance has clearly slowed ever since that April stumble.  Being realistic, in this particular timeframe we can’t really count on stocks finding a firm floor until the NASDAQ falls back to the 200-day moving average line (green), currently at 4278, but rising.

NASDAQ Comp & VXN – Weekly Chart

PH 91514-nasdaq-weekly

Throw in the fact that the Nasdaq Volatility Index (VXN) is still just starting to rise and hasn’t even come close to bumping into its key ceiling around 23.50, and it’s tough not to think we’re possibly headed for a relatively significant correction.

Nothing really changes when we turn the focus on the S&P 500 (SPX) (SPY).  The large cap index was already deteriorating via last week’s move under a floor at 1986 and a move below the 20-day moving average line at 1994.  Monday’s lower low and lower close only pulled the index a little further away from a rebound.  You can also see the CBOE Volatility Index (VIX) (VXX) is in a firm uptrend here, even if the S&P 500’s pullback isn’t yet quite as firm.

S&P 500 & VIX – Daily Chart

PH 91514-sp500-daily

Taking a step back and looking at a weekly chart of the S&P 500, however, tells us that while a pullback may still be in the cards, there’s a decent chance the dip here could be well contained.

Looking closely at the chart, you’ll see the index has frequently found a floor at straight-line support (dashed) going all the way back to late-2012.  It’s also found support at the 100-day moving average line (gray) since early 2013.  Care to guess which two lines have converged at 1954?  Yes, the long-term support line AND the 100-day average line.  We have to assume the bulls will at least make a pretty good stand there, if pressed.

S&P 500 & VIX – Weekly Chart

PH 91514-sp500-weekly

It’s also in this weekly timeframe we can see the VIX hasn’t even come close to a toppy level, though it is on the move.

So what’s the call here? From a technical perspective, the scales tip in favor of bearishness, but just barely.  And, regardless of what gain or loss the market makes over the next month or so, choppiness is almost sure to be in the menu.  Don’t get lured in too much on any bullish pops.  September and early October are generally weak periods for stocks, and the August rally has set up a near-perfect calendar-based lull.  Although we won’t get there in a straight line, we are looking for the NASDAQ to test its 200-day line now that the bears have some momentum.  If you want to know precisely where the bottom is though, odds are good the VXN and the VIX will mark them better than the indices for themselves.  Look for the volatility indices to retest bigger-picture ceilings as clues that a bottom has been hit.   Trade Well,  PH  BigTrends.com

Ten Takeaways from CBOE RMC Europe

There was so much I had trouble narrowing the list down to 10, but here goes –

Change in VIX Calculation

The change that is scheduled to go into effect on October 6th in the VIX calculation is an improvement on measuring 30 day expectations of volatility in the market.   In reality this is not a change in the calculation, but a change to the inputs or option series that will be used to determine VIX.  The two closest expiration series to the 30 day time frame will be used to determine the consistent 30 day measure that is VIX.  There are still two option series being used, but with SPX options expiring each Friday the nearest expiring series that is closest to 30 days and the first expiring series just after the 30 day time frame will be combined to calculate what we see quoted as VIX.  It has been emphasized several times, but it is worth repeating that this will have no impact on VIX futures, VIX options, or the VIX settlement process.

The Carry Trade is Alive and Well

Despite VIX being so low, relative to historical levels, there are still plenty of traders willing to take advantage of the premium in VIX futures relative to the index. Carry trades were discussed in more than one session, although with a note of caution.  Probably my favorite quote related to the current environment was that traders are still picking up nickels in front of a steamroller.  However, the nickels are getting small and the steamroller is getting bigger.

The dollar cost of a VIX hedge can be very low

A term I hear thrown around, but do not use much myself is “VIX Tourist”. This can be someone that watches VIX, but doesn’t really understand the intricacies of trading VIX options or futures.  Something that VIX Tourists are apt to say is that anyone hedging tail risk using VIX options has paid up over the last three years and seen no benefits.  At CBOE’s RMC conference there are no VIX Tourists in attendance and you do not hear comments such as this.  It is very possible to get long VIX exposure with no capital outlay, however there is risk to the trade.

One of my favorite trades to get long exposure to volatility involves selling an out of the money VIX put and buying an out of the money VIX call spread. Both will share an expiration date.  Through selling two options and buying one this trade is often executable at a low price or may even be put on for a small credit.   At RMC one speaker demonstrated this trade where a 12 strike put was sold for 0.30 and a 17 – 23 call spread was purchased for 0.30.  The result of this spread is a transaction executed at no cost.  The risk to the trade is if VIX is below 12.  It was noted that VIX futures have settled under 12 only four times since 2008, although it has become more likely in the current market environment.  The upside is six points with VIX settlement above 23.00.

VIX in the teens can be rich

Another misstatement that plagues VIX is that it is low, or more specifically too low. VIX is the market’s expectation of realized volatility over the next thirty days.  To be honest, if someone is certain that VIX is too low that means they have knowledge of what is going to happen in the equity markets over the next 30 days.  We don’t know if VIX was too low or too high until 30 days have passed.  Again, if someone states that VIX is too low or too high with certainty they are in possession of some very valuable information.  ‘Knowing’ that VIX is mispriced should be kept to oneself and the individual with this information should place trades based on what they know.

Combining RUT and SPX options is a great way to spread long versus small cap stocks

One of the strategies demonstrated for taking advantage of a relative view of large cap versus small cap stocks involved combining options on the Russell 2000 (RUT) and S&P 500 (SPX) into a single strategy or position. In 2013 RUT outperformed SPX by almost 10%.  This year the tables have been turned with SPX beating RUT by almost 10%.  Bullish SPX spreads in 2014 combined with bearish spreads in RUT were demonstrated as an effective way to benefit from the different performance of large cap versus small cap stocks.

European demand for US Option trading is growing

One of the sessions at CBOE RMC featured a study discussing different trends in the US option market. Something that really stood out for me was the growing use of the US option market by all levels of European traders.  Apparently brokerage platforms in Europe have opened up to giving retail traders enhanced access to the US markets.  The result is increased interest and trading volume coming from that part of the world into the US option markets.

VIX is a global risk measure

VIX is considered a global measure of risk. We often say this at CBOE, but being in Europe and hearing this from the European derivatives community just reinforces this belief.  A trading idea that was floated by one presenter involved being long volatility in a region where there may be higher volatility while being short VIX at the same time.  The idea is to take advantage of the carry in VIX options or futures while having a long position in a derivative based on a volatility index that would react more to a regional volatility event.

VIX is about market risk, not just tail risk

We often think of a long VIX option or futures trade to be a position that will benefit from some sort of ‘tail event’ or black swan. Historically VIX rises when the S&P 500 falls, but VIX also moves higher in front of potential market moving events.  If an important economic event happens to result in the S&P 500 dropping around one percent, that would not be considered a tail event, but would benefit traders that are long VIX options or futures.

VXTYN futures may be a game changer

I mentioned VIX as a global risk indicator. The interest rate market could be considered more of a global market than the stocks represented in the S&P 500.   US debt is held by investors around the globe and macroeconomic events tend to have more of an impact on interest rates than stocks.  VXTYN futures, due out in early November, will give investors and traders focused on interest rates a new tool to hedge their exposure to volatility.

March 4 – 6, 2015 should be circled on your calendar

The next version of CBOE’s Risk Management Conference is scheduled from March 4 – 6 in Carlsbad, CA. I have been lucky enough to attend four RMC conferences and each one seems to top the previous edition.  I can’t wait to head to southern California in early March to spend three more days immersed in discussions centered on option and volatility trading.  More info on the next Risk Management conference can be found at www.cboe.com/rmc

For more extensive daily recaps from this year’s CBOE RMC Europe conference can be found at –

Day 1 – http://www.cboeoptionshub.com/2014/09/03/day-one-cboe-rmc-europe-recap/

Day 2 – http://www.cboeoptionshub.com/2014/09/04/cboe-rmc-europe-day-two-recap/

Day 3 – http://www.cboeoptionshub.com/2014/09/06/day-3-cboe-rmc-europe-recap/

 

Blogging Options: CBOE Morning Update 9.16.14

Producer Prices were flat in August, as expected.  Markets up fractionally in first half-hour of trading.  YHOO off $0.45 as most aware they own ~22% of BABA shares.   Volatility as an asset class:

Currency option implied volatility increases into Scotland voting for independence

CurrencyShares British Pound Sterling Trust (FXB) overall option implied volatility of 12 is above its 26-week average of 8.
CurrencyShares Australian Dollar Trust (FXA) overall option implied volatility of 9 is above its 26-week average.

CurrencyShares Swiss Franc Trust (FXF) overall option implied volatility of 8 is at its 26-week average.

CurrencyShares Canadian Dollar Trust (FXC) overall option implied volatility of 11 is above its 26-week average of 8.

CurrencyShares Japanese Yen Trust (FXY) overall option implied volatility of 6 is below its 26-week average of 8.

Euro Currency Trust (FXE) overall option implied volatility of 8 is at its 26-week average of 8.

Wisdom Tree Dreyfus Chinese Yuan Fund (CYB) overall option implied volatility of 10 is at its 26-week average.

Options expected to be active @ CBOE: YHOO TSLA HUM ADBE FDX ORCL

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Is “Noise” in the Market a Concern?

I often find myself repeating this message but the more I do, the more it seems to sink in.  The noise is getting louder out there and it could be quite harmful.  Why is that?  Because the future is so uncertain, and when we have the media, pundits, experts, analysts all claiming they can predict the next move – well, I just have to turn down the volume.  The markets will ALWAYS tell us the next move.  These reminders are always important but more so at this very moment, because so much is coming that could seemingly derail this market.  I won’t ever try and predict or anticipate what will happen with markets, I’ll leave that to the market timers who are like broken clocks (they are right twice a day).

But where most are struggling is length of this bull market and not being hit hard when it ends.  Again, another market timing call.  The devastating financial crisis is still fresh in everyone’s head and if you had the courage to add down there in 2009 or just stayed with your trades you are probably far better off or at worst near even.  Yet, with all of the reasons/excuses surrounding this massive 5+ year bull run there is nobody who wants to be left holding the bag if/when the market takes a nosedive.  Remember 2007?  We hit all time highs at a time of great vulnerability, but very few saw the warning signs.  Fixes and corrections were made to the banking/lending system to seriously challenge whether that sort of crisis would repeat, but you never really know.  A story for another day.

So, currently we have a market that exceeded some extreme levels in price action, ‘hung around’ for a bit and after a fantastic August and is correcting in price and time.  That’s not a bad situation and likely gives some a chance to get set up for a big end of year run (see chart below).  Heck, if you didn’t know it the SPX 500 is still up solid for 2014.   With the talk of all the ‘events’ upcoming – the Fed meeting, Alibaba IPO and this or that, we have an economy that is growing modestly with little inflation, productivity is strong, consumer sales are starting to flicker some life and banks have started to lead again.  Housing is still a drag on the economy.  But after a tremendous month, isn’t the market entitled to a rest?  Does a down week or month mean we ‘stick a fork in it’?  Of course that’s not the case. spx 091314

As for sentiment, worries still abound on the geopolitical crises across the globe, but unless you are using that as a selling excuse, there is not much to be done (which is interesting, because every time the market had come down of late following some news overseas it quickly rebounded – that seems to have changed now, when news hits the market doesn’t blink).  After reaching some pretty negative extremes a month ago the sentiment has become much more sanguine.  The market structure is still healthy though a bit wobbly after a few distribution days.  We’ll have to see how things shake out the rest of the month but for now players are showing some caution – and when that ‘wall of worry’ is up there is no better condition to go higher.  Bob Lang, Senior Market Strategist option trading newsletter Explosive Options.

CBOE Mid-Day Update 9.15.14

Volatility as an asset class

Yahoo (YHOO) is recently up 11c to $42.99 into the Alibaba (BABA) offering.  September call option implied volatility is at 56, October weekly is at 55, October is at 50,  November is at 44, January is at 37; compared to its 26-week average of 34.

VIX methodology for IBM (VXIBM) up 6.9% to 20.07, above its 50-day moving average of 17.27.  cboe.com/VXIBM

VIX methodology for Goldman Sachs (VXGS) up 6.8% to 20.06, above its 50-day moving average of 19.03. cboe.com/VXGS

VIX methodology for Apple (VXAPL) down 3.9% to 24.60, below its 50-day moving average of 26.67. cboe.com/VXAPL

VIX methodology for Amazon (VXAZN) up 12.4% to at 30.72, above its 50-day moving average of 29.26. cboe.com/VXAZN

VIX methodology for Google (VXGOG) up 7.3% to 25.87, above its 50-day moving average of 21.40. cboe.com/VXGOG

Actives at CBOE:  AAPL TWTR TSLA BAC AMZN AA GILD NFLX C YHOO

Stocks with increasing volume @ CBOE: AVNR GPRO WLB WAC

CBOE DJIA BuyWrite Index (BXD) down 5c to 270.35, compared to its 50-day moving average of 268.70 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 70c to 14.01. VIX September 14, 15, 16, 17, 18 and October 20 calls are active on 375K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 2.6% to 29.35

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 16.2% to 15.43; compared to its 10-day moving average of 12.21. stks.co/r0CS2

CBOE DJIA Volatility Index (VXD) up 5.5% to 13.33; compared to its 10-day moving average of 12.21.

CBOE Nasdaq-100 Volatility Index (VXN) up 12.1% to 16.44; compared to its 50-day moving average of 14.04.

S&P 100 Options (OEX) recently is recently down 86c to 882.20 after China’s factory output grew at its weakest pace in nearly six-years

Blogging Options: CBOE Morning Update 9.15.14

Empire State bounced back as expected, following a sharp drop in the previous month.  Industrial Production fell 0.1% in August (+0.3% expected). Oil down, Gold a little higher; 10-year dips below 2.59%.  Triple Witch, Scottish vote and Alibaba (BABA) should be on the watch list this week.  How ’bout those (Chicago) Bears!  Volatility as an asset class:

Terex (TEX) is down $2.70 to $32 in the premarket after the aerial work platforms equipment company lowered Q3 guidance to 55c-65c, compared to consensus 79c. Overall option implied volatility of 31 is below its 26-week average of 33.

AngloGold (AU) is up $0.58 to $14.03 after the gold producer decided not to proceed with restructuring and capital raise. Overall option implied volatility of 36 is   below its 26-week average of 39 according to Track Data, suggesting decreasing price movement.

Anheuser-Busch InBev (BUD) is up $3.19 to $114.12 in the premarket on reports that SABMiller (SBMRY) has approached Heineken (HINKY) about an offer for the brewer to help defend itself against a possible takeover attempt by Anheuser-Busch. Overall option implied volatility of 18 is near its 26-week average of 19.

Options expected to be active @ CBOE: YHOO BUD AAPL CTSH DHR CREE TEX AU

CBOE volume Sept 12; 1,352,531 calls, 785,721 puts, 2,138,252 total CBOE.com

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This Week in VIX – 9/12/2014

The S&P 500 was down just over 1% last week and VIX reacted with a rise in to the 13’s. You can also say that VIX rose 10%, but I think that overstates the reaction to the market selling off a little.  It feels like we have rebounded so many times when the S&P 500 moves down a couple of percent that traders have tired of preparing for the continued sell off that never comes.  VIX finishing the week at 13.31 when a 1% drop tells me that we really have reached complacency among market participants.

VIX PA

I did find the September VIX future at a 0.74 premium to the index kind of interesting. This shows more concern than the spot index, especially when you consider that there are only two trading days remaining until VIX settlement this coming Wednesday on the open.  Expect VIX and the September contract to begin to converge over the next couple of days.  As far as whether the index rises of the future drops, that one is a pretty tough call.

VIX Curve

This Week in Gold and Oil Volatility – 9/12/2014

The price of oil came under pressure last week with the US Oil Fund ETF (USO – 34.37) losing about 1.5%. OVX can rise when the price of oil breaks what appears to be resistance or support, in this case OVX rose based on a breakdown in oil prices.

OVX PA

Gold also broke what appeared to be pretty strong support at 120.00 for the Gold ETF (GLD – 118.38). The next stop is a couple of points lower in the 116 range which is the lowest we have seen GLD in years.  With GLD breaking out of the 120.00 – 130.00 range that has dominated most of 2014 GVZ reacted with a pretty dramatic move to the upside.

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Next Week in Weeklys – 9/15/2014

After a couple of weeks on the road for CBOE I’m back home and playing some catch up. Before getting to earnings, there were a few changes to the list of securities with Weeklys available.  First, the additions to the list over the past couple of weeks –

Weekly Additions

A few names also dropped off the list –

Weekly Subtractions Now on to the fun stuff…

There were only four stocks with short dated options reporting next week, but a couple are definitely worth keeping an eye on. Note the average moves for Rite Aid Corporation (RAD – 6.55) and NQ Mobile Inc. (NQ – 6.06) below.

Earnings

This Week in Volatility Indexes and ETPs – 9/12/2014

All four of the volatility indexes that use SPX options as inputs rose last week. VXST rose, off an admittedly low base, by almost 30% while VIX was up 10%.  Longer dated volatility was higher as well.  The relationship between VXST and VIX, which I wrote about more extensively in the previous blog, tends to make me ponder the mind of the market.  Basically VXST at a discount to VIX, even slightly, can be read that the equity market should rebound as it has done over the past two plus years.  Even with PPI and the FOMC this next week and the dreaded months of September and October not behind us volatility indicates no fear in the markets.

VXST VIX VXV VXMT Curve

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This Week in VXST – 9/12/2014

I rarely review the previous week’s volatility trading data and wonder what is going on in trader’s minds. Looking at VXST this past week I have an idea of what they are thinking, I just find it confusing to read headlines with respect to what I see in the numbers.  VXST rose last week, that’s expected with the S&P 500 down 1%.  However, VXST finished out the week at a slight discount to VIX.  I can understand traders being conditioned to the S&P 500 always (at least for a couple of years) rebounding from small drops.  But VXST didn’t even follow the pattern of running up more than VIX, just to come down when the S&P 500 rebound.  I sort of get that, but when I look to next week’s economic calendar I truly am surprised that VXST closed a little lower than VIX on Friday.

VXST PA

The curve also perplexes me at bit.  A Friday headline regarding the stock market read “Red Across the Board on FOMC Meeting Jitters”.  The volatility markets don’t necessarily show that being the cause of weakness in stocks.  Look at the curve below and take note that the VXST future expiring on Sep 17th is at a premium to the Sep 24th future.  The Sep 17th contract expires just before the FOMC announcement Wednesday afternoon.  If the market were really nervously focused on the outcome (and market reaction to the announcement) that Sep 24th contract would be at a premium to the contract that will be off the board as the Fed speaks.

VXST Curve

This Week in Russell 2000 and Nasdaq-100 Volatility – 9/12/2014

The S&P 500 gave back more than the Nasdaq-100 and Russell 2000 last week. Although using the phrase “gave back” with respect to the RUT can be a misstatement since the small cap index is basically flat for 2014.  RVX was up, as would be expected with RUT down, but not as much as the other two broad based volatility indexes quoted at CBOE.

RVX PA

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This Week in CBOE Strategy Indexes – 9/12/2014

One of the benefits of using covered calls or cash secured put positions in lieu of purely owning an underlying market or stock can be lower volatility. BXM, BXY, and PUT displayed that this week with the S&P 500 dropping over 1% and each of the strategy oriented indexes moving lower, but not to the extent of the drop in the overall stock market.

Strat Charts

For the year, PUT overtook the total return for the S&P 500 last week. PUT was down 0.05% while the S&P 500 total return index was down 1.05%.  Both BXM and BXY gained ground on the S&P 500 as well.   This coming week is expiration week for standard option contracts.  That means those of you tracking these three strategy indexes would roll your positions mid-morning on Friday to October SPX calls and puts.

Strat Table

The Weekly Options News Roundup – 9/12/2014

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

Financial Movers and Shakers
Each year Crain’s selects and highlights movers and shakers in the Chicago business sector.  Once again, CBOE’s CEO Ed Tilly and Chairman of the Board William Brodsky are recognized for their commitment to the success of finance in Chicago.  

“Who’s Who In Chicago Business” – Crain’s Chicago Business
http://bit.ly/Y4atOz

VXTYN’s A Coming
First announced at CBOE’s Risk Management Conference in Europe last week, futures contracts on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN) will launch November 13, 2014.  Patterned after the VIX, these contracts offer a new dimension in the trading of volatility.

“CBOE To Launch Fixed-Income Volatility Futures” – Markets Media
http://bit.ly/X8eiRM

VIX Tricks of the Trade
Usage of the CBOE Volatility Index (VIX) as mentioned in previous roundups has evolved.  The VIX constantly measures expected volatility requiring traders to think ahead.  From VIX Futures to Options there are a few tricks of the trade.

“A Few Tricks for Trading VIX” – Steve Sosnick, Barron’s
http://on.barrons.com/1uLAf4i

Open Says Me
Alibaba has been one of the most anticipated and talked about IPO’s of 2014.  Reports have stated that shares in Alibaba will begin exchanging hands Friday, September 19, 2014.  If you trade them, options will come.  Here is a look at the requirements as well as timeline for options on Alibaba to begin trading on exchanges.

Alibaba – Premiering Soon at CBOE, Marty Kearney, CBOE Options Hub
http://bit.ly/1nOxuuZ

Weeklys Rising
With volumes down in the traditional stock market, Weekly’s, short-term options created by the CBOE in 2005 has seen a surge in contracts traded.  Up about 72 percent from a year ago, Weekly contracts continue to be a big draw for investors.

“S&P 500 Short-Term Contracts See Trading Volume Jump” – Callie Bost, Bloomberg
http://buswk.co/1uKhqhZ

The Best of Both Worlds
Floor trading is not only good for markets, but a fundamentally import aspect of the trading culture.  Many exchanges, including CBOE, have maintained their trading floor presence alongside electronic trading because the human touch matters.

“Researcher Argues for Preserving Floor Trading” – Bradley Hope, Wall Street Journal
http://on.wsj.com/1rxanpw

 

 

 

Weekly Market Commentary 9.12.14

The Standard & Poors 500 Index ($SPX) has made repeated new all-time highs — both intraday and closing — over the past three weeks. This action has, of course, resulted in a “bullish” $SPX chart.  The bears have made several attempts to sell the market intraday, but each time it seems to quickly regain strength especially late in the day.

LM spx 9 12

Equity-only put-call ratios have remained bullish, as well.  Market breadth has been week. As a result, both breadth oscillators registered sell signals on Monday and Tuesday of this week.  These sell signals are still in force.

Volatility indices have bounced around at relatively low levels. That is bullish, in general. From the VIX chart, though, one can see that $VIX is beginning to display an uptrend. A confirmed uptrend would be a bearish sign for stocks.

LM 9 12 vix

In summary, we remain bullish as long as $SPX does not break down below support and as long as $VIX does not rally above 13.50.