CBOE Mid-Day Update 5.18.15

Volatility as an asset class

S&P 500 ticks new life high

The S&P 500 (SPY) index has ticked a marginal new life high at 2127.45. May weekly and June call option implied volatility is at 11; compared to its 90-day average of 13.

Technology Sector SPDR (XLK) May weekly and June call option implied volatility is at 13; compared to its 90-day average of 15.

Financial Sector SPDR (XLF) May weekly and June call option implied volatility is at 14; compared to its 90-day average of 14.

Consumer Discretionary SPDR (XLY) May weekly and June call option implied volatility is at 14; compared to its 90-day average of 14.

Health Care SPDR (XLV) May weekly call option implied volatility is at 14, June is at 13; compared to its 90-day average of 15.

Active calls @ CBOE: GLD 6/19/15 125. PBR 6/19/15 11. ACHN 9/18/15 15. EEM 6/19/15 44.50, AAPL 5/22/15 130, TWTR 1/15/16 55. DISH 6/19/15 70, BG 6/19/15 92.50

Active puts @ CBOE: RIG 6/19/15 14, SPY 5/29/15 204, IWM 7/17/15 112

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) up 0.33% to 6.02 stks.co/h2GXo

CBOE Crude Oil Volatility Index (OVX) up 3% to 30.97, WTI oil trades near $60.  cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) up 7% to 19.52
cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL FB BAC MSFT RIG T PBR CSCO BABA MU

Options with increasing volume @ CBOE: ASNA LAZ GTI CBRL ANN ISSI ANET HTS URBN LVLT

CBOE Volatility Index (VIX) up 41c to 12.79, day range 12.75 – 13.22 cboe.com/VIX
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Will The Breakout To New Highs Stick This Time? – Weekly Market Outlook

The S&P 500 Index ended last week at a new high, and the technical trend momentum picture is bullish.  But we’ve seen similar moves since February reverse several times, as the market has remained in a choppy and grinding narrowing range (with a mild upside bias).

The $64,000 question: Do we trust the move we just got by taking it at face value, or is this another potential fakeout? We’ll weigh the odds below, after taking a detailed look at some of last week’s and this week’s economic numbers.

Economic Data

While the economic dance-card was pretty full last week, not much of the data has hard-hitting. The portion of it that was heavy-duty stuff, though, wasn’t encouraging.

For instance, the pros were looking for a little measurable progress on the retail sales front. Overall retail sales were flat in April, versus expectations of a 0.2% improvement. Retail sales without automobiles were only up 0.1%, compared to an expected 0.2% increase. And no, we can’t blame lower oil/gasoline prices for the weakness. Consumers are (still) basically keeping their purse strings drawn fairly tightly; May’s surge was an exception to the recent norm.

Last week’s surprisingly low Producer Price Inflation rate casts a shadow of doubt on this week’s upcoming consumer inflation data. Producers saw a 0.4% decline in their overall input costs, versus a forecast for a 0.2% uptick. Core producer inflation (without food and energy) fell 0.2%, versus an expected 0.2% rise. On an annualized basis, we’re now seeing deflation for producers. Though the lull in oil prices is the reason for the swing to a deflationary environment, even without the slump in volatile food and energy prices, prices/costs are very weak, suggesting a lack of pricing power.

If last month’s producer inflation data is any indication of what’s in store for this Friday’s consumer inflation report, then the Fed need not be in any hurry to raise rates – inflation isn’t anywhere near running rampant.

Last but not least, Capacity Utilization and Industrial Production continue to fade. Capacity utilization fell from 78.6% to 78.2%, and industrial production fell another 0.3%. Both readings came in lower than expected.

While the developing trends are ugly, know that waning oil-drilling and refining is being pegged as the bulk cause of this weakness.  Everything else is on the following grid:

Economic Calendar
PH 51715-econ-data
Source;  Briefing.com

This week is going to be a little lighter in terms of economic news, though it’s going to be a huge week for real estate and construction data. The party gets started on Tuesday with last month’ housing starts and building permits, though we’ll get the existing home sales report on Thursday. Both housing starts and building permits are expected to tick higher, to 1.0919 million and 1.065 million, respectively. Meanwhile, existing home sales are projected to edge up just a bit, from a pace of 5.19 million to 5.24 million.

Not that these trends have been “bad”, but we could use a little progress on all three fronts.

Also remember we’ll get last month’s consumer inflation report on Friday.

Stock Market Index Analysis 

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Blogging Options: CBOE Morning Update 5.18.15

Option expiration with good volume Friday. European markets weary of Greece drama, but it looks like something might be finalized in next 10 days.  US stock futures off fractionally.  Housing data today, tomorrow and Thursday will be watched.  10-year 2.18%.  Stories around about European banks being analyzed by credit agencies.   Long weekend coming up, details on trading schedule tomorrow.  Volatility as an asset class:

ANN (ANN) is up $8.20 to $46.92 in the premarket on Ascena retail (ASNA) paying ANN  stockholders $37.34 in cash and 0.68 of a share of Ascena common stock. June call option implied volatility is at 42, September is at 31; compared to its 90-day average of 34.

Ascena retail (ASNA) is up $1.25 to $15.46. June call option implied volatility is at 36, September is at 34; compared to its 90-day average of 33.

Global X Funds (GREK) is down 17c to $12.25 on Greek government credit uncertainty. June call option implied volatility is at 66, September is at 63; compared to its 90-day average of 64.

Equities options volume @ CBOE 1,076,432 600,873 1,677,305 total cboe.com

Options expected to be active @ CBOE: YELP URBN TTWO YOKU ADSK CSCO TGT HPQ

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) at 6 stks.co/h2GXo

CBOE S&P 500 PutWrite Index (PUT) @ 1505 CBOE.com/PUT

‏CBOE Nasdaq-100 Volatility Index (VXN) at 13.89, compared to its 10-day moving average of 15.77.

CBOE S&P 500 Short-Term Volatility Index (VXST) at 10.77, compared to its 50-day moving average of 13.37. VXST is a market-based gauge of expectations of 9-day stks.co/r0CS2

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The Week in Russell 2000 Trading – 5/11 – 5/14

Small cap stocks narrowed the performance gap with large cap stocks last week. The Russell 2000 (RUT – 1243.95) rose 0.73% which places 2015’s price performance at up 3.26% while the Russell 1000 (RUI – 1184.73) gained 0.37%. Large cap stock performance is still slightly better than year to date small cap performance as the Russell 1000 is up 3.53% for 2015. The chart below adjusts both indexes to start the year at 100 for an easy visual comparison.

RUT RUI

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The Weekly Options News Roundup – 5/15/2015

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

VIX 101
“What is the essence of VIX? This may seem like an abstract, philosophical question, but I can assure you it is not. It is a practical one, and if you can understand what makes VIX unique, you will know why this index matters so much…”

“The Essence of VIX: What You Really Need to Know” – Reid Steadman, VIX Views
http://bit.ly/1HhQpcU

“Volatility for Stocks Stays in Check” – Saumya Vaishampayan, Wall Street Journal
http://on.wsj.com/1PnL6j8

There’s an Interest Rate VIX, Too
The CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) measures the expected volatility of the price of 10-year Treasury Note futures, a core instrument of the U.S. fixed income market.  TYVIX futures at CFE are the first exchange-traded volatility product in this space.

“The VIX People Should Be Talking About” – Mark Sebastian, Option Pit
http://www.optionpit.com/node/641122

VIX Pit Springs to Life With Big Trades
For most of 2015, the VIX Index has been confined within a relatively tight range, but spiked this week, hitting the 15 level on Tuesday, before subsiding back to the 12 range today.  This pop caused a flurry of big trades – were they hedges or predictions?

“Almost $100 Million of VIX Options Traded Hands in a Split Second Today”– Callie Bost, Bloomberg
http://bloom.bg/1cYUSaF

“More Color on the Big $VIX Trade” – Russell Rhoads, CBOE Options Hub
http://bit.ly/1B1eIqE

“VIX Sees Robust Ratio Call Spread Swap” – Daniel O’Leary, EQ Derivatives
http://bit.ly/1PJ01Q0

33rd Annual Options Industry Conference
Last week, the industry gathered in sunny Miami Beach for the 33rd annual Options Industry Conference.  Here are some highlights for the OCC’s keynote address and the exchange leaders panel.

“OCC Says Listed Options Markets Must Remain Vibrant in the Eyes of Regulators and Investors” – Options Clearing Corporation
http://on.mktw.net/1IB68H4

“Options Industry Perspectives: Exchange Leaders Trade Viewpoints at OIC 2015” – Sarah Rudolph, John Lothian News
http://bit.ly/1FcQfCJ

PUT Index Hits All-time Daily Closing High, with Less Volatility Than “Traditional” Indexes

On Thursday, May 14, the CBOE S&P 500 PutWrite Index (PUTSM) closed at 1503.46, its highest all-time daily close.  PUT is an award-winning benchmark index that measures the performance of a hypothetical portfolio that sells S&P 500® Index (SPX) put options against collateralized cash reserves held in a money market account. mm1 - PUT line graph May 14

The daily historical data for the PUT Index extends back to June 30, 1986. Since mid-1986 the PUT Index has had higher returns and lower volatility than the S&P 500 Index, the 30-Year Treasury Bond Index (Citi), and the S&P GSCI Index (that measures commodity performance). mm2 - Ret and Stand Dev

EXPLORING THE PUT INDEX AND CASH-SECURED PUT WRITING

For the many investors today who are concerned about low interest rates for fixed income instruments, and high p/e ratios for stock indexes, it could make sense to explore the pros and cons of the PUT Index and the cash-secured put writing strategy. Later this year there may be a launch of an ETF that is designed to track the PUT Index. To learn more about the PUT Index, please visit www.cboe.com/PUT.

Weekly Market Commentary 5.15.15

The broad stock market has continued to frustrate both bulls and bears by remaining within a trading range for quite some time.  However, today, $SPX closed at a new all-time high and thus is on the verge of an upside breakout.  While this produced much glee on CNBC, there could be problems once again if this breakout is not confirmed. The simplest confirmation would be another $SPX close at new all-time highs, and this time above the all-time intra-day high at 2125.92.

LM 5 15 15 spx

Equity-only put-call ratios rolled over to sell signals just a week ago.  They are now rising, and thus will remain on those sell signals as long as that is the case.

Market breadth has been rather lackluster recently, and in general has been a problem since last summer.  Today, breadth was positive enough to barely cancel out the “stocks only” sell signal.

Meanwhile, volatility indices and derivatives have generally been in a bullish mode for stocks for some time.  It appears that $VIX is going to have to break out above the highs at 17 (from March) in order to truly turn bearish.  That seems miles from here.

LM 5 15 15 vix

In summary, $SPX has made another new high, unaccompanied by many other indicators.  This is very similar to what it did a few weeks ago. Primarily, we want to see new highs in $DJX and $MID, plus heavily expanding breadth, and buy signals from the put-call ratios. Can all of that happen?  Yes, of course, but will it?  That seems far from certain.

Blogging Options: CBOE Morning Update 5.15.15

Today is May options expiration.  Memorial Day early this year, it’s next weekend.  We’ll have the holiday trading schedule posted Monday. May Empire Manufacturing with a big miss, with a gain of 3.09 (1.19 in April), we saw estimates between 4.8 and 5.25.  Most of the components were positive, but barely.  Most overseas markets up fractionally playing catch-up to the US rally yesterday. Gold & Oil down, 10-year retreats to ~2,.2%.  Enjoy the weekend.  Volatility as an asset class:

Symantec (SYMC) is down $0.80 to $25.40 in the preopen after the security solutions company reported less than expected Q1 EPS and a positive outlook. May call option implied volatility is at 73, June is at 26, October is at 25; compared to its 90-day average of 26.

Applied Materials (AMAT) is up $0.74 to $20.60 after the provider of semiconductor manufacturing equipment reported better than expected Q2 results and inline guidance. May call option implied volatility is at 72, June is at 29, July is at 28; compared to its 90-day average of 29.

El Pollo Loco (LOCO) is down $3.95 to $25.11 in the premarket following Q1 results and guidance. May call option implied volatility is at 86, June is at 40, September is at 37; compared to its 90-day average of 42.

Equities options volume @ CBOE 907,237 calls, 542,668 puts, 1,449,905 total cboe.com

Options expected to be active @ CBOE: GMCR DDS LOCO KING JWN SYMC AVP

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) at 5.99 stks.co/h2GXo

‏CBOE Nasdaq-100 Volatility Index (VXN) at 14.31, compared to its 10-day moving average of 15.89.

CBOE S&P 500 Short-Term Volatility Index (VXST) at 11.59, compared to its 50-day moving average of 13.40. VXST is a market-based gauge of expectations of 9-day stks.co/r0CS2

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AAPL Income Trade for Today

Apple Inc. (AAPL) is around $128.40, up over $2 as I write this Blog. The stock is up about 16% for the year from the $110 level. The range over the last six weeks has been between $125 – $132.

At this level, the stock is in the middle of the range and I am looking at a relatively delta neutral income trade. What does delta neutral mean? Not really leaning long or short deltas, no opinion (hoping for little stock movement over the near term).  What does Income Trade mean?  A trade that is positive Theta (option time decay works to our advantage), my short options decay at a quicker rate than my long options. AAPL June 12 Expiration (6/12/15) in the Calls (about 29 days from expiration in these Weekly options).

The Trade:

Buy one June 125 strike call, Sell two June 128 calls, Buy one 131 call.  Total Debit: $0.48 ( $48). This is an at-the-money call butterfly. A butterfly will always be in a 1 X 2 X 1 ratio.  I did it earlier today 3X6X3 at $0.50,   3X6X3 at $0.49  and 3X6X3 at $0.48. That’s called scaling into a trade. I did the quantity 3X6X3 at three different price levels. Why?

I was trying to see what price the market makers really wanted to trade this at. Mid prices (difference between three different bid/ask spreads) were $0.50 when I first started trading this, and I got filled pretty quickly. It was pretty easy to get filled near mid. As the AAPL stock price started increasing slightly over $128 , the price of the butterfly decreased a bit, that’s when I got filled at $0.49 and $0.48. You pay the most for a call butterfly at the strike of the short option. As the price of the underlying moves up or down away from the short strike, the butterfly will trade for less.

Option volatilities in AAPL are around 21%, the lower end of the range. I don’t mind the low option volatility for this trade because I like the expected range where I can make money in this trade and with earnings out of the way.   I don’t see AAPL implied volatility levels rising much over the next 14 days.

My Plan:

I would like to be out of this 29 day trade in about 12-14 days. AAPL shares over $132 or under $124 I may look to adjust or get out. In between the prices over the next 12-14 days, I can make anywhere from 1% to 40% (commissions may impact the return). Closer to the short strike I make more (AAPL remains near $128), farther away from the short strike, I make less. AAPL usually trades more option contracts daily than any other stock. AAPL averaged over 200,000 plus option contracts daily in April, the 2nd place stock in average daily volume was FB with around 55,000 option contracts traded daily.  The liquidity in AAPL options is good, making it easier to enter into and exit the trade with limit orders.

CBOE Mid-Day Update 5.13.15

Volatility as an asset class

Kohl’s (KSS) is recently is down $8.78 to $65.70 on weak February Same Store Sales. June call option implied volatility is at 25, July is at 24; compared to its 90-day average of 24.

Vipshop (VIPS) is recently down $1.30 to $25.73 after reports Q1 adjusted EPS 13c, consensus 10c and inline revenue of $1.39B. May weekly call option implied volatility is at 48, June is at 47, August is at 51; compared to its 90-day average of 49.

Jack in the Box (JACK) is recently down $3.90 to $87.59 on better than expected Q2 results and sees FY15 operating EPS $2.90-$3.00, compared to consensus $2.96. June call option implied volatility is at 23, September is at 27; compared to its 90-day average of 26.

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) down 3% to 6.22 stks.co/h2GXo

CBOE Crude Oil Volatility Index (OVX) down 3% to 33.28 compared to its 10-day moving average of 35.44 as WTI oil trades near $60.  cboe.com/OVX

CBOE Volatility Index-VIX methodology for Energy Select Sector SPDR (VXXLE) down 2% to 19.81
cboe.com/micro/VIXETF/VXXLE/

Active options at CBOE: AAPL FB BABA FB FCX JCP MSFT MU TWTR

Options with increasing volume @ CBOE: AVP FCX UPS KSS CHK CSCO

CBOE Volatility Index (VIX) down 93c to 12.83, day range 12.79 – 13.29 cboe.com/VIX

IPath S&P 500 VIX Short-Term Futures (VXX) is recently down 35c to 20.31.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 1.57 to 11.92; compared to its 10-day moving average of 13.40 stks.co/r0CS2

CBOE Mini-SPX options (XSP) up 1.80 to 2111.68 http://www.cboe.com/micro/xsp/

S&P 100 Options (OEX) recently up 8.90 to 931.19 as jobless claims fell and the dollar traded at its lowest level in four-months.

Blogging Options: CBOE Morning Update 5.14.15

April PPI fell 0.4% (+0.1% expected), Core 0ff 0.2%.  Orders for machinery and oil prices major contributors to drop.  Weekly Jobless Claims come in less than anticipated.  Slow news day so far.  May option expiration tomorrow.  Traders talking about $VXTYN lately. Volatility as an asset class:

Cisco (CSCO) is down $0.30 to $29.10 in the premarket after reporting Q3 EPS 54c, compared consensus of 53c.  May call option implied volatility is at 69, June is at 25, July is at 21; compared to its 90-day average of 22.

J.C. Penney (JCP) is up 4c to $8.75 on less than expected Q1 EPS loss and inline revenue.  (57c), consensus (77c). May call option implied volatility is at 134, June is at 57, August is at 51; compared to its 90-week average of 50.

Puma Biotechnology (PBYI) into announcing the release of four abstracts on its drug candidate PB272 (neratinib) that will be presented at the American Society of Clinical Oncology (ASCO) Annual Meeting held May 29 to June 2, 2015. May call option implied volatility is at 118, June is at 95, September is at 69; compared to its 90-day average of 79.

Equities options volume @ CBOE 796,087 calls, 449,568 puts, 1,245,655 total cboe.com

Options expected to be active @ CBOE: JCP CSCO KSS BBRY PBYI GEVO VIPS JACK

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) at 6.43 stks.co/h2GXo

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Blogging Options: CBOE Morning Update 5.13.15

April Retail Sales unchanged (+0.2% to +0.3% expected). X-Auto’s +0.1%, Control Group flat.  march revised higher by two ticks, but Sales on weak side.  Europe calm this morning, US futures to positive side.  10-year yield drops near 2.2%.  Du Pont (DD) appears to have won proxy fight, is off $2 before opening.  Volatility as an asset class

Pall Corp (PLL) is up $5.78 to $124.40 in the premarket on acquiring Danaher (DHR) for $13.8B including assumed debt. May call option implied volatility is at 39, June is at 26, September is at 18; compared to its 90-day average of 22.

Danaher Corporation (DHR) is higher $4.70 to $90.70 on announcing it’s the separating the company into two independent, publicly traded companies and acquiring Pall Corp (PLL) for $13.8B including assumed debt. May call option implied volatility is at 26, June is at 23, September is at 21; compared to its 90-day average of 14.

Zillow Group (Z) is flat at $98 in the premarket after reporting Q1 EPS 5c, compared to consensus (12c).  Q1 revenue was $127.3M, compared to consensus $135.67M.  May call option implied volatility is at 97, June is at 49, August is at 47; compared to its 90-day average of 48.

Equities options volume @ CBOE 695,793 calls, 445,738 puts, 1,141,531 total cboe.com

Options expected to be active @ CBOE: M WPZ WMB DAL Z VRTX JCP CSCO PLL DHR

CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) at 6.50 stks.co/h2GXo

‏CBOE Nasdaq-100 Volatility Index (VXN) at 15.96, compared to its 10-day moving average of 16.09.

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