CBOE Mid-Day Update 8.8.14

Talk of peace in southern Europe pushing stocks higher.  VIX Futures showed (preliminary numbers) over 49k contracts trade in the overnight session.  Slightly less than 600k SPX and 300k VIX Options trade by mid-day today. Volatility as an asset class:

Lululemon (LULU) is up $1.17 to $40.20 following announcement that founder Chip Wilson will sell half his stake to Advent International. August call option implied volatility is at 35, September is at 46, December is at 41; compared to its 26-week average of 37.

Gap (GPS) is higher by $2.34 to $42.53 after the retailer announced July same-store sales rose 2% and issued Q2 EPS outlook above the consensus estimate. August call option implied volatility is at 23, September is at 26, December is at 25; compared to its 26-week average of 27.

Tekmira (TKMR) is up $4.50 to $18.75 after announcing that the FDA verbally confirmed they have modified the full clinical hold placed on the TKM-Ebola to a partial clinical hold.  August call option implied volatility is at 143, September is at 111, December is at 93, March is at 88; compared to its 15-week average of 99.

Actives at CBOE:  AAPL TSLA C NFLX TWTR SD SCTY AMZN ZNGA GILD AMZN

Stocks with increasing volume @ CBOE: COH APC JOE DKS TDS

CBOE DJIA BuyWrite Index (BXD) is up 1.19 to 263.25, compared to its 50-day moving average of 267.80 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 26c to 16.40. VIX August 18 calls and 14 puts are active on 195K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 21c to 34.40.
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Weekly Market Commentary 8.8.14

The $SPX chart remains bearish after having broken down through 1950.
$SPX sliced right through the next support level at 1925, and after temporarily
holding at 1915, appears ready to test the major support level at 1900.
lm 8 8 spxEquity-only put-call ratios remain on sell signals. They are both rising steadily, and as long as they are trending higher, that is negative for stocks.

Market breadth has been problematic for over a month now.  Both breadth
oscillators are on sell signals, and both are in oversold territory.  All that “oversold”
means in this case is that sharp, but short-lived rallies are possible at any time.

Volatility indices ($VXST, $VIX, and $VXV) had one strong up day on July 31st,
but since then they have fallen back some and don’t seem to be tracking the decline
much at all.  Nevertheless, the trend of $VIX is higher, and that is bearish for stocks.
lm 8 8 vixIn summary, the intermediate-term indicators are all on sell
signals, and so we remain intermediate-term bearish.

Blogging Options: CBOE Morning Update 8.8.14

Stocks modestly higher as a news source claims Premier Putin has tweeted (?) that Russia would be agreeable to talks to settle the Ukraine tensions.  ‘overseas markets slightly lower.  Train is empty coming in to work today.  Who was that good looking guy on CBOETV yesterday talking about XSP options?   26th anniversary of the first night game at Wrigley Field. Volatility as an asset class:

Monster Beverage (MNST) is up 91c to $66 in the premarket on a Q2 profit beat and positive outlook.  August weekly call option implied volatility is at 85, August is at 49, September is at 36, December is at 32; compared to its 26-week average of 34.

Nvidia (NVDA) is up 79c to $18.25 as the chip maker reported better than expected Q2 results and provided stronger than expected guidance. August weekly call option implied volatility is at 89, August is at 57, September is at 43, December is at 30; compared to its 26-week average of 33.

SolarCity (SCTY) is up $2.87 to $78.50 in the premarket on the provider of clean energy reporting better than expected Q2 results.  August weekly call option implied volatility is at 186, August is at 100, September is at 76, October is at 64, January is at 56; compared to its 26-week average of 63.

Options expected to be active @ CBOE:  SCTY LULU CSC CBS MGA MELI CECO NVDA MNST DV ZNGA GPS DRC

CBOE Volatility Index (VIX) Put/Call Ratio 0.36 CBOE.com

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Next Week in Weeklys – 8/8/2014

First off, I’m well aware next week is standard August option expiration week so every company that reports has short dated options available for trading. However, with Hannah heading back to college (USC’s gain and The Options Institute’s loss), gathering all that data would probably take a couple of days. Therefore the list of stocks below is the twenty two companies that have been consistently on the Weeklys list that are reporting earnings.

As a refresher, and because I get emails asking what these numbers mean, here’s what these numbers mean.   The Max and Min are the biggest up and down moves for the trading session that occurs after the earnings report. Abs Avg refers to the magnitude of the average move (higher or lower) after earnings. These three figures are based on the last twelve quarters and in cases where there is not three years of data I italicize the data. Finally Last Q is the stock price reaction to the previous quarter’s earnings report.

Weeklys

Finally, since next week is a standard options expiration date, if there’s a stock you are interested in feel free to email me – rhoads@cboe.com . I’ll dig up the data and post a revision to the list Monday morning.

Finally (a shameless plug), as the week goes along I’ll be tweeting how the stock price changes look compared to history – follow me at @russellrhoads

CBOE Mid-Day Update 8.7.14

Volatility as an asset class

21st Century Fox (FOXA) is recently up $1.98 to $34.40 after the company reported higher than expected Q4 earnings and the stock was upgraded to Market Perform from Underperform at Cowen. August call option implied volatility is at 28, October is at 26, January is at 25; compared to its 26-week average of 26.

Jack in the Box (JACK) is recently up $5 to $60.45 after reporting Q3 results above estimates and raising fiscal 2014 EPS view. August call option implied volatility is 18, September is at 19, March is at 22; compared to its 26-week average of 28.

Radian Group (RDN) is recently up 63c to $13.38 after reporting Q2 EPS of 78c on revenue of $344.5M vs. $200.44M last year. August call option implied volatility is at 37, September and November is at 35; compared to its 26-week average of 38.

Actives at CBOE:  AAPL TSLA C NFLX TWTR AMZN SD LVS

Stocks with increasing volume @ CBOE: GDP RIG JNS QCOM JCP CROX NVDA

CBOE DJIA BuyWrite Index (BXD) is recently down 1 to 262.26, compared to its 50-day moving average of 267.88 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 32c to 16.69. VIX August 15 and 20 calls are active on 261K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 24c to 34.13.
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Part 4 of 4: Managing SPX Diagonal Spreads

For the fourth and final segment of this series on SPX SUPER LEAPS®, LEAPS and Weekly’s, we’ll take a look at managing the Diagonal Spread that we put on last week. As a quick refresher, we have a long SPX December 16, 2016 1875 Call with a cost basis of $17,200. Against this position we  sold the SPX August 1, 1990 strike call for a credit of $350, creating a Diagonal Spread.

sh 1As you can see in the chart above, the SPX has been hit hard this week losing 50 points since when we put on the short leg. With the SPX trading 70 points away from the short call being in-the-money, there is little risk of an assignment. Therefore, we can focus our attention on rolling the position into the following week. The SPX has dropped 2.5% and downside volume has pushed to one-month highs.

Here’s where the trader needs to make a decision about how to manage the position. There are several choices based on an analysis of the current market and where the trader feels the market is headed in the immediate future. Here are the actions for each “opinion”

#1 “This is the start of a correction, it’s time to take profits”

If this is the opinion then it’s best to close out both legs of the spread. The trader can do one of two things to close out. He can wait until the short leg expires and then sell the long leg (the SPX Super LEAPS trade until 4:15 Eastern) quoted @ $20,080 below.

sh 2If he wants to close out the position prior to the short leg expiring then he can “unwind” the position by creating a spread in which he buys back the short leg (for a few dollars debit) and simultaneously sells the long leg for a net credit to his account.

#2 “I think this is temporary and the SPX will rally next week and be back up to these levels (1975)” More

Blogging Options: CBOE Morning Update 8.7.14

Good jobless report this morning and European stocks steady up.  Option volume good yesterday and ~276k VIX Futures also trade.  Consolidate.  Volatility as an asset class

Costco (COST) is down $1.26 to $118.33 after reporting July SSS rose 5%. July revenue was $8.55B vs. $7.87B last year. Overall option implied volatility of 16 is at its 26-week average of 17.

Keurig Green Mountain (GMCR) is down $1.95 to $116.28 on seeing Q4 EPS 68c-75c, compared to consensus 86c. August weekly call option implied volatility is at 152, August is at 62, September is at 49, December is at 42; compared to its 26-week average of 48.

Bank of America (BAC) is up 0.14 to $15.34  on the U.S. Justice Department are close to agreeing on a landmark deal of between $16 billion and $17 billion to resolve allegations of mortgage-related misconduct in the run-up to the financial crisis—according to reports. August call option implied volatility is at 24, September is at 26 and January is at 25; compared to its 26-week average of 24.

Options expected to be active @ CBOE:  SUNE WEN MNK NUS JACK MCP FOX FOXA AGU BAC CTRP PCLN GMCR

CBOE SKEW INDEX (SKEW) at 124.41, below 50-day MA of 131.93. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

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CBOE Mid-Day Update 8.6.14

Volatility as an asset class

Walgreen (WAG) is recently down $8.54 to $60.58 after exercises option to acquire remaining 55% of Alliance Boots and says it will not pursue inversion as part of deal. August call option implied volatility is at 28, September is at 24, October is at 25, November is at 24; compared to its 26-week average of 28.

Nu Skin (NUS) is recently down $13.95 to $43.97 after the multilevel marketer reported less than expected guidance.  August weekly call option implied volatility is at 97, August is at 65, September is at 58, December is at 50; compared to its 26-week average of 47.

AOL (AOL) is recently up $3.01 to $42.05 after reporting Q2 revenue of $606M, compared to consensus $595M. August call option implied volatility is at 43, September is at 44, October is at 55, January is at 64; compared to its 26-week average of 47.

Actives at CBOE:  AAPL TSLA C NFLX TWTR AMZN DIS FSLR

Stocks with increasing volume @ CBOE: CIE PH HLF NUS WAG ESI HIMX

CBOE DJIA BuyWrite Index (BXD) is recently up 65c to 263.45, compared to its 50-day moving average of 267.96 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 84c to 16.03. VIX August 17 and 20 calls are active on 346K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 2.4% to 32.95.
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Blogging Options: CBOE Morning Update 8.6.14

Activity picked up yesterday in stocks and options with reports of Russian troop movements and weak economic data.  VIX Futures with ~365k contracts traded,   SPX 820k and VIX with 586k. Asian stocks lower, European shares off +1%. With Italy’s economy shrinking 0.2% and German orders sliding 3.2% in June, recession chatter picking up.  US 10-year with lowest yield in 14-months, below 2.45%. Volatility as an asset class

Time Warner (TWX) is down $11.23 to $73.97 in the premarket after 21st Century Fox (FOXA, FOX) withdrew its bid for the company. August call option implied volatility is at 32, September is sat 29, January is at 24; compared to its 26-week average of 24.

21st Century Fox (FOX) is up $1.82 to $32.85 after its board authorized a repurchase of an additional $6B of Class A Common Stock is expected to be completed in the next 12 months after withdrawing proposal to acquire Time Warner (TWX). Overall option implied volatility of 29 is above its 26-week average of 26.

Sprint (S) is down $1.10 to $6.18 in the premarket on heavy volume, as said to end talks to buy T-Mobile (TMUS). Overall option implied volatility of 49 is near its 26-week average of 50.

T-Mobile (TMUS) is recently down $2.65 to $31.45 on Sprint talks ending. Overall option implied volatility of 35 is below its 26-week average of 38.

Options expected to be active @ CBOE:  TWX FEYE FOX GRPN Z WBMD ATVI DIS S TMUS

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CBOE Launches New S&P 500 End-Of-Month Options

Following up on an earlier CBOE Blog, CBOE recently launched the new, and long anticipated, S&P 500® End-of-Month Options. The introduction of these options stemmed from requests by asset managers who wanted an SPX option expiration that more precisely coincided with their end-of-month fund cycles and performance periods.

To date the launch has been very well received, with a total of about 320,000 contracts traded during the month of July, at an approximate average daily volume of 16,800 contracts.

These options can be found under the regular SPX option chain, with an underlying symbol of SPXW and an expiration date coinciding with the last trading day of each particular month.  The 2014 launch of the S&P 500 End-of-Month Options builds upon the 2005 launch of S&P 500 Weekly options, and the 2007 launch of the S&P 500 Quarterly options.  The current End-of-Month options, with corresponding expiration dates, available to trade are as follows:

mw 85

To learn more about S&P 500 End-of-Month options, please visit www.cboe.com/EOM.

Did the Federal Reserve Cause The Recent Disturbance and Increased Volatility?

As the markets continued to go higher and higher lately it became increasingly uncomfortable to stay long.  For many, no doubt it is safer being on the sidelines before a major storm disrupts the flow.   But where/when does it stop, and should we even be asking that question in the first place?  As always, I will let the market tell me what to do and how to proceed, staying clear of making bold predictions and market timing calls.

We’ve been saying for months that the Fed is looking at the data the help them shape policy.  While many still believe they are behind the curve I would disagree, this is exactly what they should be doing.  Those who ‘front run’ the Fed trying to game a turn in policy are doing it the hard way.  This Fed is more transparent about policy you they may as well be covered in saran wrap!    Given the past foibles, secrecy and neglect the FOMC will not make a policy mistake if they can help it, and will tell their approach to everyone.

Last week the Fed convened their meeting and once again did not change rates, cut another 10 billion off the QE program and gave a brief update on their stance of the economy.  Basically things are going according to plan for Chair Yellen and the Committee, though many pointed to some words of caution.  I did not see anything mentioned that was alarming, but as we know the clock keeps ticking toward a change in policy.  The Fed stated very clearly policy will be very accomodative to a long period of time (Fed Governor Plosser dissented over this language, but other hawks did not voice the same opinion).

The stock market will react to any form of news or information, and with volatility so low (complacency) it’s not a surprise with a big selloff like Thursday occurs.  Keep in mind the Fed is NOT being restrictive.  Some view the taper effect as a tightening in policy, and I can understand why that may be, but when the bond market is not impacted but a so-called ‘increase in supply’ then there is something else at work here.  Low yields continue to confound and confuse everyone, yet the curve is still leaning upward (albeit a bit flatter through the month of July).

Concluding, the Fed really did not offer much to shake the trees, rather just the news was one of many excuses to sell (lots of geopolitical things happening as well).  There are a million of ‘em, but only one reason to buy.

CBOE Mid-Day Update 8.5.14

Volatility as an asset class

Target (TGT) is recently down $1.80 to $58.90 after lowering its Q2 adjusted EPS view on a data breach and discounts. August and September call option implied volatility is at 21, October is at 18; compared to its 26-week average of 18.

Cablevision (CVC) is recently down 87c to $18.57 on a decrease in video subscribers. August call option implied volatility is at 29, September is at 25, December and January is at 23; compared to its 26-week average of 27.

MGM Resorts (MGM) is recently down on less than expected Macau Q2 results, but better than expected Las Vegas results. Q2 EPS were 21c, compared to consensus 11c. August call option implied volatility is at 34, September is at 26, October and December is at 27; compared to its 26-week average of 33.

Actives at CBOE:  AAPL TSLA C NFLX TWTR AMZN PBR BAC MGM BP

Stocks with increasing volume @ CBOE:  Z FSLR WFM ALLT NBL SALE JNUG CVC DLPH

CBOE DJIA BuyWrite Index (BXD) down 1.30 to 263.62, compared to its 50-day moving average of 268.01 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 59c to 15.70. VIX August 15, 16, 23 and 24 calls are active on 148K contracts @ CBOE cboe.com/VIX
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Today’s Gray Swan – ISM Non-Manufacturing Index

The Institute for Supply Management (ISM) released the results of their survey of purchasing managers at non-manufacturing firms. The result was a bit higher than expected with the ISM Non-Manufacturing Index coming in at 58.7. According to Bloomberg the consensus expectation was for 56.5 and last month’s reading was 56.0. The new number shows an acceleration in business activity for non-manufacturing industries in the US.  The US economy is more reliant on non-manufacturing than manufacturing oriented industries so this reading applies to the majority of US business activity.

For those unfamiliar with how this index works, a reading above 50.0 means business activity is expanding, a reading below indicates contracting business activity. The chart below shows the last ten years for this ISM index, note we are bumping up against the high end of the historical range.

ISM Index

Data Source: Bloomberg

This matters because we will not see higher rates out of the Fed or the continuation of activity that has kept interest rates low if the Fed becomes concerned about inflation.   If the ISM Non-Manufacturing Index continues to maintain high levels or trends higher inflationary pressures are sure to follow.

Blogging Options: CBOE Morning Update 8.5.14

Chinese and European economic data soft overnight. Target off ~$2.60 as it lowers forecast. Oil, metals and grains lower overnight.  ISM report 30-minutes into trading day will be watched.  2″ of rain last night in parts of Chicago. Volatility as an asset class

Coach (COH) is up $2.04 to $36.35 in the premarket after reporting Q4 EPS 59c ex-items, compared to consensus 53c; revenue was $1.14B, consensus $1.09B. August weekly calls option implied volatility is at 76, August is at 48, September is at 34, November is at 37, January is at 32; compared to its 26-week average of 29.

CVS Caremark (CVS) is up $1 to $78.37 after reporting better than expected Q2 earnings and revenues. Overall option implied volatility of 19 is at its 26-week average.

AIG (AIG) is up $1.09 to $53.75 in the premarket after reporting Q2 results and an additional $2B share repurchase authorization. August weekly call option implied volatility is at 47, September is at 27, November is at 212 compared to its 26-week average of 23.

Options expected to be active @ CBOE:  TGT ATVI DIS AIG ESI LF THC COH GCI CVS THC MSI NILE GTAT PCLN TGT VIX

CBOE SKEW INDEX (SKEW) at 128.96, below 50-day MA of 131.92. 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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Checking in on Warren Buffett’s Equity Index Put Trade

While everyone else has been focusing on Berkshire Hathaway’s record quarter and what stocks they seem to like I continue to focus on their derivative position. The short equity index put option position shows up on pages 14 and 15 of the 10-Q that can be downloaded from www.berkshirehathaway.com. The following is a review and then update of a position I have been monitoring for over a year now.

Four times a year Berkshire Hathaway submits a filing with the SEC that discloses their holdings.  Most Warren Buffett watchers dig in to see what current holdings have been added to along with any new stocks that have worked their way into Berkshire Hathaway’s holdings.  I dig into the filings as well, but I’m looking for something a little different.  I want to see what’s up with the short put trade that Berkshire Hathaway initiated back in the 2004 to 2008 time frame.

Some people may be unfamiliar with the trade I’m talking about, but may be aware that Warren Buffett called derivatives financial weapons of mass destruction in the Berkshire Hathaway 2002 annual report.  Part of the commentary around this thought had to do with Long Term Capital Management and the focus was more on over the counter derivatives.  However, by 2004 Berkshire Hathaway began initiating a pretty interesting over the counter equity index derivative trade.  They sold puts on major market indexes.

Between 2004 and 2008 Berkshire Hathaway entered into what is referred to in annual reports as their equity put trade.  The firm sold over the counter put options that will expire 15 to 20 years in the future.  These positions are on four major equity indexes (S&P 500, EuroStoxx50, FTSE 100, and Nikkei 225).  Also, Buffett has pointed out that these are European style options that may not be exercised until expiration.

Not a ton of information has been forthcoming about these specific positions.  Buffett has noted that they are at the money put options written on those four indexes.  Also, the timing was not too great as the majority of the trades were done between 2004 and 2007.  A small number of trades were added in 2008.

Below is a weekly chart of the S&P 500 with different time periods highlighted to coincide with the progression of events listed below.

SPX Buffett Put

1. In Warren Buffett’s 2007 Shareholder Letter it was disclosed that from 2004 to 2007 Berkshire Hathaway had sold put options on equity indexes that were struck at the money.  These put options had brought in $4.5 billion in premiums, were European style options, and were due to expire between 2019 and 2027.

2. In the 2008 letter it was noted that the notional value of the put options totaled $37.1 billion and were written on the four major indices that were mentioned above.  Buffett also states  that they have added modestly to the equity put portfolio and have now received a total of $4.9 billion for selling these puts.  Due to the drop in the global equity markets the valuation of these puts is a liability of $10 billion or a mark-to-market loss of $5.1 billion.

3. In the 2009 shareholder letter Buffett discloses that the terms of about 10% of the contracts have changed.  The maturities were shortened and the strike prices lowered.  It appears that they rolled the strike prices down and gave up some time.  However it was also noted that in these modifications no money changed hands.

4. In the 2010 shareholder letter Buffett discusses that between 2004 and 2008 they received $4.8 billion in premiums for 47 equity index put contracts.  It was also disclosed that at the instigation of their counterparty in these trades eight of the contracts were unwound.  They had received $647 million for selling those puts and paid $425 million to get out of those obligations.  This resulted in a profit of $222 million.  This also left Berkshire with 39 short equity index put contracts on their books at year end.

5. At the end of 2011 the book value of the remaining put positions was a liability of $8.5 billion.  This is determined using a Black Scholes model.  Buffett notes that if the options had all come due at that time the payment would have been $6.2 billion.

6. At the end of 2012 the liability based on their open short put positions had dropped from $8.5 billion to $7.5 billion.  Again this is based on a Black Scholes valuation.

7. In the 10-Q filing for the third quarter of 2013 it appeared the liability for the open short put positions was down to $5.35 billion which is again based on a Black Scholes valuation.  This was based on the S&P 500 at 1690.

8. In the 2013 annual report the liability based on their open short put positions had dropped to $4.66 billion based on a Black Scholes valuation.  It was also noted that the aggregate intrinsic value of the equity index put option contracts was approximately $1.7 billion on December 31, 2013 down from $3.9 billion on December 31, 2012.  A final statement on this position noted that the weighted average life of the contracts was about 7 years on December 31, 2013.

9. This past weekend I got a chance to look through the second quarter 10-Q and was surprised at what I came across when checking on the liability recorded with respect to the equity index put position. As mentioned in number 8 the liability was recorded at $4.66 billion as of the end of 2013. It actually ticked up a bit to $4.73 billion as of the end of the second quarter. This rise was despite the S&P 500 being up a little over 6% as of the end of the second quarter. The rise in the liability was a nice reminder that the equity index put position is not 100% weighted to the S&P 500. There are also agreements based on the EuroStoxx50, FTSE 100, and Nikkei 225. At as of June 30th the EuroStoxx50 was up 3.84%, but the FTSE 100 was down 0.08% and Nikkei 225 was down 6.93% for the year.

“The Game”: An Intern Showdown

We’ve been hearing about it for months. Jim Bittman and Russell Rhoads call it “The Game” against Spot Trading (A proprietary trading firm located seven floors below CBOE’s Regulation Department at 440 S. LaSalle). Jim and Russell got a good amount of entertainment by not explaining how to play the game, regardless of the amount of nagging and insisting us interns did to try to get a leg up on the competition.

21 CBOE interns, not knowing anything about what we were about to get ourselves into or what the competition was like over at Spot Trading, made the trek up the 28 floors to the Spot Trading office where our unknowing fate (under)lies (bad options pun). We walked into the large corner conference room, and immediately lost our concentration after noticing the inmates at the Metropolitan Correctional Center playing basketball up on the roof of their facility. One of the more interesting views a few of us interns are lucky enough to have from the regulation department.

Our group of interns got settled into our teams of two and three and noticed the Spot trading interns, along with their first year trainees, started filing in. Rough estimates lead me to believe that they outnumbered us by about six or seven people. Nothing like starting a race 30 feet behind the competition. Jim, Russell, along with Deborah Lenchard from Spot Trading  presented themselves in the front of the room and Jim began to explain what we were going to do.

“The Game” turned out to be an options trading simulation game that involved Jim rolling dice (referred to as “random number generators”) to choose one of twelve stocks on strategy cards (Covered Call, Long Straddle, Butterfly Spread, etc). Each strategy was appropriate for whichever kind of market movement occurred (Bullish, Neutral, or Bearish) and you either made or lost money based on this decision and the markets next movement. This all seemed straight forward enough, especially since having respectable options strategy knowledge under our belts from the Options Institute. We CBOE underdogs had fire in our eyes and a chip on our shoulder from the Spot interns proving superior last year. Jim rang the (imaginary) bell and the market opened!

Jim was changing the market based on dice roles and shouting out whether the market was moving up or down. The mood started off tame for most because our starting amount was only $10,000. However, those were the people who didn’t end up with $36,000 by the third round. Fellow intern Charlie Burdick and I were in first by over $10,000, which was an enormous morale booster for the CBOE interns. We “bet the bank” just about every time and it was evident that the instructing of Jim and Russell had paid off because we were gaining maximum profitability on the majority of our trades. By the halfway mark, the emotions in the room were vastly divided. People were either making a lot of (imaginary) money or considering taking out a second mortgage for their (imaginary) houses.

The methodology each team had for choosing their investments was quite interesting. Some teams, changed it up every time, and some teams stuck with two or three strategies, which worked out for them surprisingly well. As we came closer to the last few turns, each team had a large decision to make: stick to their guns, or go for broke and bring another year of bragging rights back to their respective companies. Charlie and I, along with many other teams, made the obvious decision to get a taste of that fictitious financial glory. We wanted to “risk it to get the biscuit” in the last market movement.

la foto 4

Based on the mountain the market was climbing with great force, we believed it was due for a sharp drop. We were right. The market dropped like Bambi on ice. Unfortunately, we were short on overall return compared to the Spot teams. A full analysis is still in the works, but based on the ending positions, the home team walked away with the two highest overall returns. A few interns here at CBOE however might have to run an audit on that analysis and Spot’s score sheets just for good measure.

“The Game” that Jim and Russell proctored so well was truly a fun, competitive breakdown of how someone can look into the options market through basic analysis of various investment strategies and profitability matrixes. We all found out very quickly that it was just like riding a bike. As soon as we got on the bike and started riding we had a blast. We were bound to fall down and scrape our knees once or twice but we just had to get back on the bike and move on.

Bennett Wakenight
Intern  at  CBOE

CBOE Mid-Day Update 8.4.14

Volatility as an asset class

Amgen (AMGN) is recently up $1.41 to $126.95 after the company reported its Phase 3 clinical trial ASPIRE met its primary endpoint of progression-free survival. August weekly call option implied volatility is at 22, September is at 23, October is at 21; compared to its 26-week average of 23.

Michael Kors (KORS) is recently down $6.03 to $75.79 after reporting a Q1 profit and sales increase, however forecast slowing sales and weaker margins.  August call option implied volatility is at 35, September is at 31, November is at 32, January is at 29; compared to its 26-week average of 34.

Disney (DIS) is recently up $1.46 to $86.83 on “Guardians of the Galaxy” from Disney’s Marvel Studios topped weekend movies with ticket sales of $94M, beating forecasts of $72M to $75M.  August weekly call option implied volatility is at 24, September is at 18, January is at 19; compared to its 26-week average of 22.

Actives at CBOE:  AAPL TSLA C NFLX TWTR AMZN LNKD FB YHOO

Stocks with increasing volume @ CBOE:  ESI OCN RIG AIG MTW ABC

CBOE DJIA BuyWrite Index (BXD) down 15c to 263.63, compared to its 50-day moving average of 268.84 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 73c to 16.29. VIX August 16, 17 and 20 calls are active on 140K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 1.1% to 32.70.
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Valuation Trepidation – Weekly Market Outlook

Ouch.  Not that traders didn’t have an inkling the market was overbought and perhaps poised for stumble, but few saw coming the suddenness and size of Thursday’s drubbing.  However it materialized, we have no choice but to at least entertain the possibility that this is the beginning of a much more significant pullback.

We’ll slice and dice the details in a moment.  The first item we need to cross off our to-do list is a closer look at last week’s major economic reports.

Economic Data

One of last week’s main economic highlights was July’s employment data, which wasn’t quite as promising as hoped, and not quite as encouraging as recent reports have been.

The good news is, more people are working now than there were at the end of June.  As of July, the nation was employing 146,352,000, which was 131,000 more people than the 146,221,000 that were working in June.  The bad news is, the number of unemployed people hit 9,671,000, up 197,000 from June’s figure of 9,474,000.  How do we get an increase in both figures?  Easy – the number of people who count themselves in the workforce (whether they’re employed or not) grew from 155,694,000 to 156,023,000… an increase of 329,000.

It’s still not clear how or why so many more people joined the ranks of the job-seeking crowd last month, but they did all the same, and it means we took a step back on\m the jobs front.  The unemployment rate bumped up from 6.1% to 6.2%.  Even though we technically added (net) 209,000 jobs in July, the whole jobs situation remains a liability for the economy. 

Interestingly, even with relative weakness in the employment numbers, confidence ticked much higher.  In fact, the Conference Board’s Consumer Confidence score hit a multi-year high of 90.9 for July.  That’s the highest it’s been since the bull market and economic rebound began.  In fact, that’s as high as it was right before the recession began in 2008.  The Michigan Sentiment Index wasn’t quite as impressive, sliding lower from June’s final reading of 82.5 to 81.8 in July.  Even so, the overall trend for both data sets says consumers are feeling pretty good.  That’s critical for sustained economic growth.

Finally, though it was an exaggerated jump because of Q1′s nasty 2.1% decline, the second quarter’s preliminary GDP figure grew 4.0%.  Don’t look for the same pace of growth in Q3, though the reading does say we’re back in a positive trend.  Also bear in mind the Q2 figure will be revised a couple more times.

Economic Calendar

PH 8314-econ-dataSource:  Briefing.com

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Blogging Options: CBOE Morning Update 8.4.14

Markets look to bounce back this morning after a tough week.  Gaza situation seems to be winding down as some troops depart.  Portugal bank situation getting more complicated but overseas markets slightly higher.  Coolest Chicago July ever.  Big data week in store.  Volatility as an asset class:

Berkshire Hathaway (BRK.B) is higher by $1.97 to $127.80 in the premarket,   Overall option implied volatility of 18 is near its 26-week average of 16.

Michael Kors (KORS) is off $1.44 to $83.27,  despite reporting better than expected Q2 earnings and revenue.  August weekly calls option implied volatility is at 91, August is at 66, September is at 47, November is at 37, January is at 32; compared to its 26-week average of 34.

Pike Corporation (PIKE) is up $3.81 to $11.77 in the premarket after announcing a merger agreement where Court Square Capital Partners and J. Eric Pike, the company’s chairman and CEO, will acquire the company in which each of the company’s shareholders will receive $12.00 in cash. Overall option implied volatility of 79 is above its 26-week average of 57.

Options expected to be active @ CBOE: KORS MU RIG BRK.B AN ALU LNKD AMGN

CBOE SKEW INDEX (SKEW) at 128.93, below 50-day MA of 131.86. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

CBOE Volatility Index (VIX) closed at 17.03, compared to its 10-day moving average of 13.42 and its 50-day moving average of 11.98. cboe.com/VIX

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Three Gray Swans – Week of August 4 – 8

Last week was a fun week where there could easily have been more than three things to focus on. I also love that with FOMC and an Employment Number dominating the expectations for the week, the day between those two results was the day the S&P 500 had a headline grabbing drop. This week is expected to be a little less eventful than last week, but you never know. Now it is time to look forward –

Tuesday – Shortly After the Stock Market Opens – ISM Non-Manufacturing Index

This is an indication of the health of the non-manufacturing component of the US economy. We are much more of a service economy so this number gets a lot of love as far as an indicator of economic growth. Anytime the number is over 50, this is considered an indication of economic growth. Too far away from 50 (on the upside) and it could mean the economy is starting to grow too fast. The June number that came out on July 3rd was 56.0. Expectations are for a slightly higher number this time around (like 56.3 to 56.5 depending on who you listen to).

Thursday – While We are Sleeping – ECB and Bank of England Interest Rate Decisions

Just like the FOMC, the question will be more about tone than these rate decisions. So far I have been avoiding foreign news in this blog space, but the rate decisions may have us asking, “what happened?”, as we wake up and turn on our favorite business network Thursday morning.

Friday – Before the Open – Unit Labor Costs

I’m going to keep watching for any inkling of inflationary pressures and rising labor costs can result in higher prices across the board. The economic calendar is fairly unexciting next week, especially compared to last week, so this may potentially be the best volatility inducing number next week. This is a quarterly number which came in at 5.7% when all was said and done for the first quarter of 2014. It is also a choppy number so the assumption (and consensus estimate) is for 2.0%. A high number may confirm the previous quarter’s result and that labor costs are truly something that market should be keeping an eye on.

This Week in VIX – 8/1/2014

VIX rose just over 35% last week with the big part of that move coming from Thursday’s price action. However, Friday’s price behavior was pretty interesting as the S&P only finished down 0.29%, but did trade in a high low range of over 1%. For a longer review of what happened on Thursday click on the link that appears between these words and the VIX price chart –

http://www.cboeoptionshub.com/2014/07/31/vix-today-time-may-different/VIX PA

 

My personal pattern that goes along with how VIX moves to the upside have been short lived over the last couple of years relates to how I put this blog together. On weeks where VIX rises dramatically mid-week and then comes back down very quickly I would add an extra curve to the chart below to highlight the price action  Since VIX held up on Friday and the near dated futures actually played some catch up rising more than the index and narrowing the spread a bit.

VIX

 

Volume is always a big deal around CBOE, especially when it comes to VIX. Friday was a huge day for VIX futures volume with not just one, but two records broken. First, volume during the extended hours session came in at 68,033 contracts, which broker the previous record of 59,505 contracts which was set on July 10, 2014. The other new record that was set on Friday involved total VIX futures volume which came in at 527,803. The previous total VIX futures volume record was set on April 15, 2013 as a total of 449,955 contracts traded on that date.

This Week in Gold and Oil Volatility – 8/1/2014

When I put these numbers together for the weekend there is always something that stands out and makes me double check my figures. This week it was GVZ. For goodness sake, they are panicking, I can feel it, they are panicking out there. I was in the classroom most of Thursday and Friday, but our classroom is above the VIX pit and the yelling I heard was the kind of panicking that Eddie Murphy refers to with respect to pork bellies and traders not being able to afford the GI Joe with the Kung Fu Grip for Christmas. Well, it is my humble opinion that we don’t have a panic without gold, and GVZ says we aren’t there yet.

GVZ PA

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This Week in VXST – 8/1/2014

VXST spiked higher on Thursday and remained at elevated levels to end the week up just over 60%. At the height of people hitting the panic button on Thursday VXST rose to 19.99. On Friday, when a second leg down in the S&P 500 appeared to be on the horizon, VXST managed to climb into the 20’s for the first time since the Friday before Ukrainian elections back in March of this year.

VXST PA

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This Week in Volatility Indexes and ETPs – 8/1/2014

After checking in on the four S&P 500 oriented volatility indexes I realized part of what I see is expected and the other part is a little worrisome. VXST was up just over 60% last week. I love how I type that and move on. Any other market has a 60% move and there is a CNBC special about it. VXST finished the week at about a 2 point premium to VIX and this is fairly normal considering the S&P 500 was down 2.69%. What makes me pause is the farther end of the curve where 3 month and 6 month S&P 500 implied volatility is pretty much in line with 30 day IV. It makes me wonder if consistently higher volatility is on the horizon.

VXST VIX VXV VXMT

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This Week in Russell 2000 and Nasdaq-100 Volatility – 8/1/2014

VXN rose just under 30% last week, admittedly off a low base, but still that is quite a move. This rise in VXN was slightly less than VIX’s one week change of over 35% which may be attributed to a combination of the concerns weighing on the equity market being somewhat global in nature and the Nasdaq-100 dropping a little less than the S&P 500.

VXN PA

The Russell 2000 has been a laggard this year and is now down more than 4% on the year. The CBOE Russell 2000 Volatility Index (RVX) has reflected this lack of performance by consistently trading at a premium relative to VIX. The premium narrowed a bit last week with RVX rising less than 20%.

RVX PA

Before moving on to the curves I would like to note a trade highlighted in this blog space before the market dropped last week. Someone, in a very timely fashion, purchased 2,200 of the RUT Oct 1010 Puts for 9.50. The reason I bring this up in a space discussing volatility is the benefit that trader got from the move up in the implied volatility of RUT options combined with some price appreciation that came from the drop in the Russell 2000. Late Friday the bid price for the RUT Oct 1010 Put was 14.00. This is a great demonstration of why paying attention to equity index implied volatility and understanding how it changes relative to the underlying market is important for traders that may only focus on index options.

The blog about the RUT trade from earlier this week may be found at the following link –

http://www.cboeoptionshub.com/2014/07/30/bearish-rut-trade-yesterday/

The curves are both basically mirror images of each other. Both the indexes are at slight premiums to the front month future and then a slight amount of contango beyond the August futures. Friday saw a bit of a catch up for the futures as there was not rebound in the stock market after Thursday’s big drop.

VXN RVX Curves

The Weekly Options News Roundup – 8.1.2014

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

Using VIX for Protection

While the CBOE Volatility Index (VIX) remains below its historical average of 20, Russ Koesterich, Chief Investment Strategist of BlackRock, suggests investors utilize the VIX as a matter of protection even in times of calm.

“BlackRock’s Koesterich Says Buy Volatility During Market Calm” – Meghan Morris, Bloomberg

http://bloom.bg/1s7ezjw

Signs of Anxiety are Returning to the Stock Market

The VIX Index rose from seven year lows in July, due to unrest in regions around the world. With the threat of changes in monetary policy by central banks, along with this global instability, volatility is expected to continue to increase.

“VIX July Gain Tops 8% as Ukraine Jolts Record S&P 500” – Callie Bost, Bloomberg

http://bloom.bg/1AtIjuY

How Will VIX React to a Fed Move?

“So, what actually happens once the Federal Reserve begins to tighten monetary policy? The answer from the market’s volatility index historically has been, Not much…”

“Once Hawks Take Flight at the Fed, VIX’s Feather’s Won’t Ruffle” – Brendan Conway, Barron’s

http://jlne.ws/1o59qaa

Fear?  What Fear?

In a recent survey, nearly 50% of financial professionals said that “investors are too complacent given historically low volatility levels” and that most do not expect to see a sharp rise in volatility through the end of the year.

“Amid Sleepy Markets, Survey Suggest Investors Complacent About Volatility” – Chris Dieterich, The Wall Street Journal

http://jlne.ws/1o5bHlK

CEO Outlook 2014

As we reach the midpoint of 2014, CBOE CEO Edward Tilly spoke with Markets Media and shared his thoughts on the first half of the year and what lies ahead for the remainder of 2014….

“Summer C-Level Series: Ed Tilly” – Terry Flanagan, Markets Media magazine

http://bit.ly/1oQLact

Alums in the C-Suite

Some companies have CEOs and CFOs that hail from the same university, including CBOE.  How does this dynamic influence management styles and working relationships?  CBOE CEO Edward Tilly and CFO Alan Dean find that this connection helps “sync” their thinking, except when it comes to their Chicago baseball rooting interests…

“When CEOs and CFOs Share an Alma Mater” — Maxwell Murphy, The Wall Street Journal

http://on.wsj.com/1mzyhy2

Career Advice

CBOE, along with several other Chicago financial institutions, hosts a summer intern program for youth seeking to break into the financial industry.  CEO Ed Tilly, along with executives from other financial firms and exchanges, spoke to the interns at an event hosted by John Lothian Newsletter.

“Trading Experts’ Advice: Embrace Change” – Thomas Dixon, Futures magazine

http://bit.ly/1pJ3rF6

 

Blogging Options: CBOE Mid-day Update 8.1.14

Active morning at CBOE, as 5.1mm contracts trade. SPX 690k, VIX options 960k and VIX Futures with 322k volume.  Volatility as an asset class:

Volatility indexes have spike today as stock indexes have traded lower

Proshares VIX Short-Term Futures ETF (VIXY) is up 4.8% to 22.07; compared to its 50-day moving average of 20.04.

Proshares VIX Mid-Term Futures ETF (VIXM) is recently up 1.2% to 15.72; compared to its 50-day moving average of 15.75.

iPath S&P 500 VIX MD-TM FT (VXZ) is up 1.3% to 12.85; compared to its 50-day moving average of 12.88.

Velocity Share VIX Short Term ETN (VIIX) is recently up 5.3% to 44.90; compared to its 50-day moving average of 40.65.

Velocityshares Daily 2X VIX Short Term ETN (TVIX) is recently up 10.7% to 3.85; compared to its 50-day moving average of 3.31.

ProShares Ultra VIX Short-Term Futures ETF (UVXY) is up 10.7% to 35.07, compared to its 50-day moving average of 29,73.

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 0.9% to 19.77; compared to its 10-day moving average of 13.62. stks.co/r0CS2

CBOE DJIA Volatility Index (VXD) up 4% to 16.37; compared to its 10-day moving average of 12.75.

CBOE Nasdaq-100 Volatility Index (VXN) up 6.3% to 17.85; compared to its 50-day moving average of 13.51.

Actives at CBOE:  AAPL TSLA C NFLX TWTR AMZN LNKD X FB

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Weekly Market Commentary 8.1.14

The genie is now out of the bottle, and it’s going to be very hard to put
him back in again. $SPX has broken major support at 1950, and that changes
things: the chart of $SPX is no longer bullish; it is now bearish.
spx 7 31

Equity-only put-call charts continue to remain on sell signals.
These put-call ratios will remain bearish until they
roll over and begin to trend downwards.  It doesn’t appear that will
happen anytime soon.

Market breadth (advances minus declines) was a harbinger of this
move.  Both breadth indicators are on sell signals and
are deeply into oversold territory.  However, the market can
decline while these are oversold, so these are not buy signals.

This now brings us to volatility.  As one might expect, volatility
literally exploded yesterday. $VIX is now in an uptrend, and that is
bearish for stocks.
vix 7 31

In summary, all of the indicators are negative.  There are some
oversold conditions beginning to appear, but there are no buy signals
at this time.

Blogging Options: CBOE Morning Update 8.1.14

Big day in the options world yesterday.  ~26mm contracts change hands with 8mm trading at CBOE.  SPX showed 1.44mm and VIX with 1.34 mm contracts.  VIX Futures had a robust 374k trade.  VXST up sharply.

This morning, NFP for July with a gain of 209k jobs.  227k to 230k gain was expected.  Unemployment rate rises to from 6.1% 6.2%.  May and June with slight revisions higher in jobs added.  Participation Rate up one tick to 62.9%. DJIA Futures had been off ~120 points, now unchanged.  DAX off 1.75% before jobs numbers, rest of Asian and European stocks lower. Scientific Games in bid for Bally. 10-year 2.54%.

Volatility as an asset class

Tesla Motors (TSLA) is up $2.20 to $226.34 in the premarket after reporting Q2 results and announcing that it broke ground on a possible Gigafactory location in Reno, Nevada.  August call option implied volatility is at 60, September is at 49, December is at 46; above its 26-week average of 52.

LinkedIn (LNKD) is higher by $13.46 to $194.10 after reporting better than expected Q2 results and guidance for Q3 and fiscal 2014. August call option implied volatility is at 58, September is at 47, November is at 41; compared to its 26-week average of 48.

Expedia (EXPE) is up $2.26 to $81.68 in the premarket after reporting Q2 results above analyst estimates and raising its quarterly dividend. August call option implied volatility is at 60, September is at 43, January is at 34; above its 26-week average of 37.

Options expected to be active @ CBOE: BYI SGMS PCLN WWWW NFLX TSLA GPRO MT LNKD NVS DDD FB EXPE

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VIX Today – This Time It May Be Different

Today was a heck of a day in the equity markets. We got our biggest on day S&P 500 drop in a few months and the first down month for the S&P 500 since January (I bet you forgot the January Effect indicator was bearish for 2014 – I admit I did). The result was a spike in VIX, VXST, and moves higher in all other equity market related volatility indexes. Here are a few of the highlights (or low points depending on you were positioned coming into the day).

The CBOE Volatility Index –

VIX moved up over 27% which was the third biggest move to the upside in 2014. The front month future was up just over 12% and finished the day at a discount of 1.75 points to the spot index. If you throw spot VIX out of the equation, the term structure chart is actually in contango, which could be taken as a bullish signal for the equity market. The market has become conditioned to expect any spike in volatility to be short lived and that is apparent when you look at the blue line below, of course excluding spot VIX. A couple of weeks ago VIX moved up by over 30% in a single day, but was back down below 12 in less than a week. That is the sort of pattern that traders have come to expect and may explain the August discount to spot. Keep in mind we have an employment report tomorrow that probably has some market participants nervous. Looking at the August VIX future price today I would say those that are nervous into tomorrow’s number are in the minority.

VIX Curve  More

VXST Futures and VIX Index Both Rose More Than 26% Today

In a July 26 piece that now looks as if it could be rather prescient, in last weekend’s Barron’s, Steve Sears wrote –

“BlackRock, the world’s largest asset-management firm, is telling clients that equity-options volatility is now the last cheap asset class in the financial market. With the CBOE Volatility Index (VIX) at about 11.50, around half of its long-term average of 19, BlackRock is telling clients that the measure should be in the mid- to high-teens. This view is consistent with our previous recommendations that investors buy volatility in anticipation of VIX increases in reaction to shifting Federal Reserve monetary policy or continuing geopolitical instability in Ukraine and the Middle East. …”

CHART SHOWING SIX TRADING DAYS

The chart below shows that the VIX spot Index and VXST futures (expiring on Aug. 6) both moved pretty closely in tandem.

VXST chart for 7 31  Blog

TABLE

The table below shows today’s price moves for CBOE’s 26 volatility indexes and the near-term VXST futures.  Both the VIX spot index and the VXST August Week 1 futures rose more than 26.1% today.

Table July 31 Blog

To learn more about futures and options on several volatility indexes, please visit www.cboe.com/volatility.

 

Weekly Weekly’s for 7.31.14

It’s been a wild week for earnings and it’s not over yet!

Let’s look at Weekly options set to expire this Friday, August 1st and next Friday August 8th.

Turning in earnings today three big names: LinkedIn, Gopro and Tesla.

I’m starting with LinkedIn in the wake of Twitter taking off on much better than expected earnings. LinkedIn options expiring Friday, as the stock trades $185, implied volatility is very high at 180.   It appears trades are mostly calls spread strategies with calls robust in the 190 & 200 and 210 strikes and puts at 162 & 165 and then again at 177. Traders also like to play Weeklys and traditional options and there are 200 traditional calls active in LNKD. Volatility is high in LNKD. The 185 straddle suggests a 7.8 percent move as it prices in at $14.50.

GOPRO comes out with its first earnings report tonight since going public. It’s mostly calls that are active at the 44, 45 and 50 strikes and so far there is not much interest in the puts. The straddle is shifting around and is currently suggesting a 10 percent move up or down on earnings.

Tesla is likely to gain in trading volume throughout today’s session going into earnings tonight. TSLA is trading around $229. Calls in multiple strike are active up to 270 and puts down to 190. There are more calls than puts trading which could be a sign Tesla will beat on earnings or the shorts are looking for cover.  tHE TSLA Straddle predicts a 9 percent move.

Friday morning Procter and Gamble (PG, $77.50) reports earnings and a mini move is projected by the options of about 1.6 percent. But, anything is possible this earnings season.

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CBOE Mid-Day Update 7.31.14

Volatility as an asset class

Yum! Brands (YUM) is recently down $4.05 to $68.95 after the company disclosed a “significant negative impact to same store sales” in China due to the latest China food supplier issue. August call option implied volatility is at 22, September and January is at 19; compared to its 26-week average of 21.

L-3 Communications (LLL) is recently down $18.35 to $101.17 following the announcement of the Aerospace segment internal accounting review and the $84M pre-tax charge. August call option implied volatility is at 33, October and January is at 23; compared to its 26-week average of 19.

T-Mobile (TMUS) is recently up $2.08 to $33.05 after France’s Iliad (ILIAF) confirmed interest in T-Mobile. August call option implied volatility is at 29, September is at 33, November is at 27; compared to its 26-week average of 35.

Actives at CBOE:  AAPL TSLA GILD C WFM NFLX RFMD TWTR AMZN

Stocks with increasing volume @ CBOE:  TMUS S TSLA MU GPRO EXPE HIMX

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up $4.46 to 17.75; compared to its 10-day moving average of 12.66. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 2.96 to 266.51, compared to its 50-day moving average of 268.13 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 2.70 to 16.03. VIX August 13, 16, 17, 18 and 20 calls are active on 721K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 6.6% to 31.

CBOE DJIA Volatility Index (VXD) up 2.33 to 15.03; compared to its 10-day moving average of 12.20.

CBOE Nasdaq-100 Volatility Index (VXN) up 2.54 to 16.47; compared to its 50-day moving average of 13.43.

S&P 100 Options (OEX) recently is recently down $12.42 to 864.50 following the lead of international markets that were also lower overnight after Argentina defaulted on its debt.

Blogging Options: CBOE Morning Update 7.31.14

Weekly Jobless Claims came in slightly higher than consensus at 302k, but the Employment Cost component jumped the most in 6 years.   The FED tapering by $10b had little effect on markets yesterday afternoon.  XOM off $1.50 after reporting earnings up 28% and a beat in Quarterly revenue.  Decent volume yesterday with CBOE trading 4.9mm of 17.6mm options traded.  Futures jittery this morning.  European stocks lower, Banco Espirito Sancto lost $3.5B Euros last quarter and talk of deflation in Europe. 10-year ~2.59%.  VIX Futures trade 21k this morning in extended hours session. Volatility as an asset class

Yelp (YELP) is down $4.71 to $70.75 in the premarket after reporting stronger than expected results. August weekly call option implied volatility is at 186, August is at 75, September is at 61, January is at 52; compared to its 26-week average of 62.

Akamai (AKAM) is off $3.73 to $57 after the online distributor reported a Q2 profit increases of 18%. August weekly call option implied volatility is at 144, September is at 39, January is at 31; compared to its 26-week average of 35.

Whole Foods (WFM) is down $2.08 to $37.03 in the premarket, earnings beat by $0.01 butafter guidance was below expectations.  August weekly call option implied volatility is at 99, August is at 44, November and January is at 29; compared to its 26-week average of 33.

CBOE Equity Options Volume on July 30: 1,175,991 calls, 673,820 puts, 1,849,811 total CBOE.com

Options expected to be active @ CBOE: ALU YELP TWTR HOS APA MA DDD YELP GOOG GOOGL MU WFM GLUU HOLX

CBOE SKEW INDEX (SKEW) at 140.54, below 50-day MA of 131.73. 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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Part #3 of 4 – Using SPX Options in a Diagonal Spread

Back in May and June we posted two videos on using Index options and SPX Super LEAPS®, this is the third in a four part series on using SPX Index options. You can watch the previous videos by visiting http://www.cboeoptionshub.com/author/shawn-howell/

For this third segment I’m using the SPX LEAPS and Super LEAPS as a foundation for a Diagonal Spread selling, SPX Weeklys to offset time decay or as an income generating strategy.

Here’s the general premise, as discussed in the first video when interest rates are low and we buy an option with a long expiration, the cost of time is much lower than if we bought a near-term option. In our example April 23 the SPX was at 1875 and buying an at-the-money option expiring December 16, 2016 would cost $17,200*. With 968 days to expiration this amounts to a daily cost to carry this option of $17.77 using a straight-line calculation for time decay.

sh 1   7 30

A trader that takes this position is anticipating that the SPX index will rise and the price appreciation of the option will outpace the time decay. As you can see, as of July 27th the SPX is at 1975 and our SPX LEAPS that we paid $17,200* for is now worth $22,470. As a side note, the index is up 5.3% and the option is up 31%. This is a good example of leverage afforded to us through options.

sh 2   7 30

Although the SPX has had a strong run up since April 23, the past 30 days there is evidence of overhead resistance around the 1990 level.

sh 3   7 30

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CBOE Mid-Day Update 7.30.14

Volatility as an asset class

US Steel (X) is recently up $5.36 to $33.03 on a less than expected Q2 loss. August call option implied volatility is at 36, September and January is at 30; compared to its 26-week average of 34.

Hess (HES) is recently up $2.05 to $101.47 after reporting better than expected Q2 adjusted EPS, boosting its share buyback and announcing its intention to pursue the formation and initial public offering of a master limited partnership. August call option implied volatility is at 17, September is at 16, January is at 18; compared to its 26-week average of 22.

Buffalo Wild Wings (BWLD) is recently down $23.99 to $143.01 on strong Q2 results, but its earnings forecast fell short of street expectations.  August call option implied volatility is at 32, September and December is at 30; compared to its 26-week average of 32.

CBOE Interest Rate 5 Year Note (FVX) is recently up 5.3% to 17.73, above 50-day MA of 16.52 into Fed concluding its 2-day FOMC

Actives at CBOE:  AAPL TWTR AMZN NFLX FB TSLA YHOO WFM NFLX C

Stocks with increasing volume @ CBOE: MTL NQ RFMD S X EXAM ASML TQNT NFX RFMD RATE BPI GALT

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 89c to 14.36; compared to its 10-day moving average of 12.61. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 65c to 269.14, compared to its 50-day moving average of 268.07.  cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 57c to 13.85. VIX August 16 and 25 calls are active on 280K contracts @ CBOE cboe.com/VIX

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Bearish RUT Trade from Yesterday

Going through the block index option trades from yesterday, something caught my eye and it wasn’t bullish. Someone came in to the market about 10:30 Chicago time yesterday and bought 2,200 puts on the Russell 2000 Index (RUT). The specific trade was buying 2,200 RUT Oct 1010 Puts @ 9.50 for a total cost of just over $2 million. At the time RUT was being quoted around 1140.00. If held to expiration the payoff diagram below shows the outcome for this trade –

RUT PO

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Blogging Options: CBOE Morning Update 7.30.14

ADP July number misses expectations (gain of 219k jobs versus 230k expected and 281k rise in June), but first peek at Q2 GDP showed a jump to + 4% (+3% expected).  Part of the GDP data was estimated due to incomplete June #’s, so expect revisions when second look and final Q2 announced).  Q1 GDP revised to a drop of 2.1% from a 2.9% slide.  10-year yield pops to ~2.51%.  Stocks liked the GDP #, FED expected to continue to taper. Volatility as an asset class

Twitter (TWTR) is up $9.54 to $48.10 in the premarket after the company reported stronger than expected Q2 results and user metrics, and provided higher than expected EBITDA guidance. August weekly call option implied volatility is at 168, August is at 70, September is at 57, November is at 56; compared to its 26-week average of 56.

Panera Bread (PNRA) is up $2.68 to $149.30 after reporting Q2 EPS $1.82, compared to consensus $1.74. August weekly call option implied volatility is at 41, September is at 29, January is at 24; compared to its 26-week average of 28.

SodaStream (SODA) is up $2.48 to $32.25 in the premarket after reporting Q2 EPS 43c, consensus 31c. August weekly call option implied volatility is at 139, September is at 61, October is at 54, January is at 47; compared to its 26-week average of 49.

Options expected to be active @ CBOE: TWTR BWLD SODA AXP DWA PNRA AMGN X BCS FB VIX

CBOE S&P 500 BuyWrite Index (BXM) at 1093.48, compared to its 10-day moving average of 1092.67 cboe.com/BXM

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Zero Hedge and Bond Volatility

There are two things that most financial markets professionals have in common. First, we all read Zero Hedge. Second, we don’t admit we read Zero Hedge. Before people get upset, the second part is a joke. This morning as I got settled in at The Options Institute I came across a tweet from Zero Hedge showing a disconnect between the 10 Year Yield and the S&P 500. To see what I’m talking about you can click on the link below –

http://www.zerohedge.com/news/2014-07-29/usdjpy-surge-sends-stocks-higher-bond-yields-tumble

Of course when I read anything about the markets I think…VIX. In this case my first thought was about VXTYN, which is the CBOE/CBOT 10 Year US Treasury Note Volatility Index. VXTYN is based on option prices on the 10 Year Treasury Note Futures that trade at the Chicago Board of Trade (CME Group). If the Ten Year is supposed to follow along with the S&P 500 then it may be worth checking out to see if VXTYN and VIX have any sort of relationship. After painstaking quantitative work, the result is they don’t. In fact we (giving Hannah credit for the leg work) got the closing prices for VXTYN, VIX, the S&P 500, Yield on US 10 Year Treasury Yield, and just for the heck of it we threw in the iShares 20+ Year Treasury Bond ETF (TLT). The table below shows the correlation for the daily price changes from January 28, 2008 to July 28, 2014.

VXTYN Table

The result is another Seinfeld blog where I take ‘nothing’ and make it into a story. In all seriousness, there is something to the lack of relationship between VIX and VXTYN. This is where things get a bit subjective, but there is always a reason for market behavior. The opinion as to what the reason is may result in this lack of connection between VXTYN and the other instruments in the table may have to do with the behavior of the option prices on the 10 Year Treasury Futures. It just may be that since interest rates are very sensitive to economic numbers that at times the implied volatility of TY options would move up in front of an FOMC meeting or Employment report from the Labor Department. Interestingly enough, we have both on the calendar this week. So for now, we plan on watching the market reactions and VXTYN price action before and after both numbers and putting up a summary this coming weekend.

CBOE Mid-Day Update 7.29.14

Volatility as an asset class

Merck (MRK) is recently up $1.19 to $59.15 on Q2 sales and profits that beat expectations.  August call option implied volatility is at 15, September is at 14, January is at 15; compared to its 26-week average of 18.

Pfizer (PFE) is recently down 10c to $30 after backing its fiscal year adjusted EPS view but lowered its adjusted revenue view for the year. August call option implied volatility is at 17, September is at 16, October and December is at 15; compared to its 26-week average of 18.

Men’s Wearhouse (MW) is recently down $3.09 to $54.25 after the company gave long-term guidance during its analyst day meeting. August call option implied volatility of 29, September is at 33, November is at 28; compared to its 26-week average of 37.

Actives at CBOE:  AAPL TWTR AMZN NFLX FB GILD VZ C

Stocks with increasing volume @ CBOE:  WYNN RPRX EWH CVC EXAS TQNT VMC TEF OTEX FTR GALT

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 3c to 11.99; compared to its 10-day moving average of 12.05. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 36c to 271.05, compared to its 50-day moving average of 260 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 10c to 12.46. VIX August 16 and 21 calls are active on 81K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 31c to 28.33.
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Blogging Options: CBOE Morning Update 7.29.14

Slow news-night.  Overseas markets up fractionally as 2-day FED meeting begins, and few newsworthy comments expected.  VIX futures calm overnight.  Beautiful weather in midwest again this week, trains empty coming into downtown Chicago.  little Volatility as an asset classUPS (UPS) is down $3.00 to $99.66 in the premarket after cutting FY14 adjusted EPS view to $4.90-$5.00, consensus $5.09. Overall option implied volatility of 21 is above its 26-week average of 15.

Herbalife (HLF) is sharply lower, off $8.18 to $59.58 after the company’s Q2 results missed analysts’ estimates.   Option implied volatility of 58 is above its 26-week average of 52.

Wynn Resorts (WYNN) is down $1.54 to $209.43 (had been down over $6 earlier this morning) in the premarket after reporting Q2 adjusted EPS $2.11, consensus $1.95, however gambling revenue growth cooled in Macau. August weekly call option implied volatility is at 37, August is at 28, September is at 24, December is at 25; compared to its 26-week average of 29.

Options expected to be active @ CBOE:  HLF PFE MRK UPS TWTR PLUG GLW WYNN UPS COST WMT LNKD DDD TSLA VIX

CBOE S&P 500 BuyWrite Index (BXM) at 1096.40, compared to its 10-day moving average of 1092.99 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) at 270.69, compared to its 50-day moving average of 267.87 cboe.com/micro/bxd/

iPath S&P 500 VIX Short-Term Futures (VXX) is recently down 23c to 28.42.

CBOE Volatility Index (VIX) at 12.56, compared to its 10-day moving average of 12.32 and its 50-day moving average of 11.77. cboe.com/VIX

CBOE S&P 500 Short-Term Volatility Index (VXST) at 12.02, compared to its 50-day moving average of 10.97 stks.co/r0CS2

SPDR S&P 500 ETF Trust (SPY) is up $0.33 to $198.1`y3 into this week’s Federal Reserve meeting, July jobs reports and corporate results.

Calls with increasing volume at CBOE:

FB 8/16/2014 75 32K
IWM 8/16/2014 120 27K
EEM 12/20/2014 50 25K
AAPL 8/1/2014 99 10K
SPY 8/1/2014 198 10K
F 9/20/2014 17 8K

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The Guacamole Dilemma: Dip Buyers Must Be Aware of Too Much Dip

So, when the markets drop 2-3%, which we have seen can happen within a week’s time – then is it right to buy that dip?  If you look at the chart below dating back a year the answer is a resounding YES.  But we are talking about drops/corrections in price and not time.  What makes many uncomfortable are the sharp drops in a few days that used to take a few weeks to occur.  We could blame that increase of speed on any ol’ reason – algorithmic traders, high frequency trading, hedgers, ETF’s, or just a more informed and reactionary investor/trader.  Gone are the days of buy and hold, which often turns into hope and pray mode!

spx 072614

Whatever the reason, we should look for patterns and trends that play out regularly, find confidence and go with the flow.  That gets us back to the dip question and how should we interpret what is a sufficient drop and whether it is appropriate to step in.  I have found over the past year plus these dips tend to be accompanied by very sharp changes in sentiment.  We’ll see a VIX spike as we had on July 17 and reversal – one of many that has occurred since 2012.  The McClellan Oscillator will show an extreme reading, with the NASDAQ and NYSE oscillators ticking down under -100 (very oversold).  Put/calls often zoom past 1 in these instances and the the polls show fewer bulls, traders getting more fearful (such as the AAII and II have lately).  When these all line up congruently I have found the best odds are buying that dip.

But each dip could be the last one, faking everyone out – right?  Sure, but is that likely with so much liquidity in this market, low interest rates and strong corporate profits – not to mention a very dovish Fed that will continue to provide accommodation?  I side with recent history.

Money moves very FAST in this market and if you’re not positioned right you can be trampled.  Discipline trumps conviction in most cases and we must be willing to take profits and losses and move on.  As option traders, we do not have the luxury of time if we are buyers.  With low volatility in this market it means options are priced cheap, a great condition if the trend continues.  But market trends are not necessarily stock trends.  For instance, the markets were hammered on Friday yet some stocks performed well.  While we know Amazon was clobbered down 10%, Baidu was up nearly 13%.   Freeport McMoran was up 1%, Apple was up .6% but Netflix was down 1%.  My point is this:  We continue to live in a non-correlated market, a stockpicker’s delight.

The best friend of a stockpicker is usually the chart and technical’s, which gets us back to the dip dilemma.  Do we trust each dip to buy, or is the next dip the ‘sucker move’, the one that takes stocks down for that massive 10-20% correction that EVERYONE expects?   You can sit around and wait for that, and much like a broken clock you’ll be right some day – but how much time have you wasted in waiting for it?  Let the market tell you what to do.  Currently, the market is consolidating recent gains (heck, from Feb 1-June 30 the SPX was up 12.7% – entitled to a break?).  In July the SPX is up a scant amount, the Dow Industrials and NASDAQ are up solid while the Russell 2K is down an ugly 5%.  What’s to come for August and September?  I won’t guess the move, but certainly buying dips has been the right play – it will continue to be, until it’s not.  At some point the pattern changes, and if that happens we may not have something left for our chips to dip.

Floor Trading History 101: Hand Signals

With the millions of investors and traders across the country involved in the stock, options, and commodities markets, very few have actually seen these products traded in person. Someone who has never taken a tour of any one of these trading floors is missing out on an art that takes years to perfect yet only seconds to appreciate.

Back before  technological influences made their way into the various markets, the only truly effective manner of communicating all potential buys or sells was through speaking loudly (the term “yelling” or “shouting” could be substituted) or by communicating with ones hands.  Interestingly enough, Chicago was one of the first cities with exchanges that quickly adopted the hand signals as one of the most basic and effective forms of mass communication.

The CME, CBOT, and CBOE have all been using hand signals for years (CBOE since the 1970’s, the others from the turn of the previous century).  Even though the CME is one of the only institutions left in the country that still use this method on a regular basis, the CBOE SPX (options on the S&P 500) pit uses a mix of computer hand-held tablets as well as open outcry/hand signals to make the trades day by day. For those who are lucky enough to witness this developed combination in action recognize the immense concentration and practice it takes to trade effectively.

The SPX pit is where the old school open out-cry with hand signals are used frequently and necessary for traders to execute trades. This being the case, the aspect of visual communication is ideal for everybody in the pit. Basically, the pit is less of a pit and more of a small amphitheater with large raised levels to support all the traders. Now fill it with hundreds of traders with tables strapped to their chest manning a stylus in one hand while shouting and throwing out bids and offers for calls and puts with the other hand.

You can’t help but gawk at all the color splashed trading jackets (representing different trading firms), the 20 foot monitors displaying the underlies prices hanging from the ceiling, and of course the rapid flailing movements paired with the erratic yelling and screaming of the traders trying to obtain the best price possible. It truly is a spectacle just to be able to observe this constant process.

Deciphering some of the signals is easy at first, which helps better grasp the understanding of what is actually going on when all some people see is screaming and swinging of limbs. Whenever a trader has his palms directed towards the face they are indicating a buy or a bid on an underlying position to initiate a position or to close it out.  The opposite of that is when the palms facing away, representing the sale of an option or the asking price where that trader would be a seller of options. The hand formation of the “C” shape leads you to believe the signal for Calls is being displayed while the connection of the index finger to the thumb, similar to an upside down “P” or the “A-Ok” sign, shows Puts are being discussed.  Other hand signals might denote which option expiration is being discussed, which brokerage firm a floor broker is representing, which option strike price, etc.

Thinking in this way may be pretty straight forward by the time you read all of that, but in that time, 30,000 contracts could have been exchanged and the price could have moved half of a percent. Obviously, this environment is not for those with slow reaction times.

The contract quantities are just another factor that traders need to think about when considering a transaction. The values one through five are displayed vertically on the hand and six through nine horizontally. The larger values are a little more detailed and the excerpt from an online student manual for traders and clerks below shows the large sums of proposed contracts traders must read accurately.

The market opens 8:30 am CT, and closes at 3:00 pm CT five days a week for individual stock options and until 3:15 for indexes like SPX.  Each day, that’s six and a half hours of hand movements, yelling orders through for priority from traders, surrounded by hundreds of other people, all inside what they call the SPX “pit”. The floor traders who understand and speak this fascinating hand signal language are beyond valuable to the customers, brokers, and even the exchanges. Just reading about the organized chaos that it is online is one thing and seeing it in person is experience all its own.

hand fiveBennett Wakenight

(editors note:  Bennett is a hard-working intern here at CBOE, back to Loyola U Chicago in the Fall for his senior year)

Blogging Options: CBOE Mid-day Update 7.28.14

Volatility as an asset class

Trulia (TRLA) is recently up $6.75 to $63.12 on Zillow (Z) acquiring for $70.53 per share. August call option implied volatility is at 57, September is at 55, December is at 43; compared to its 26-week average of 56.

Zillow August call option implied volatility is at 55, September is at 53, November is at 51; compared to its 26-week average of 56.

Tyson (TSN) is recently up $1.67 to $41.20 after the a food production company specializing in chicken and other proteins reported better than expected Q3 revenues and the sale of Mexican and Brazilian assets. August call option implied is at 28, September is at 25, January is at 23; compared to its 26-week average of 27.

Cal-Maine (CALM) is recently down $4.49 to $74.80 after the egg provider said it was “cautiously optimistic” about having a good start to full-year 2015. August call option implied volatility is at 28, November is at 27; compared to its 26-week average of 32.

Actives at CBOE:  AAPL FB NQ TWTR AMZN LNG BIDU NFLX AVP

Stocks with increasing volume @ CBOE:  CVLT TRP DLTR RFMD SWFT AVP INFN ACRX GALT KN

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Busy Week On Tap – Weekly Market Outlook 7.28

Although the market’s uptrend may still technically be intact, there’s no denying it’s in question now.  The very day after the S&P 500 (SPX) (SPY) pushed its way past a key resistance line, it also fell back under it … in spades.  That pullback didn’t crush the uptrend, but we’re close to falling off the edge of the proverbial cliff.  We’ll look at the make-or-break lines in a moment.  The first thing we want to get out of the way is a look at last week’s and this week’s economics-based clues.

Economic Data

It wasn’t too busy last week in terms of economic numbers, but much of what we got was relatively important stuff.

First and foremost, inflation appears to be under control.  Two weeks ago we saw producer price inflation fall for a second straight month, to an annualized rate of 1.9%.  So, we had a decent reason to expected consumer inflation to fall in June too.  And sure enough, it did.  Annualized consumer inflation rate fell from May’s reading of 2.13% to 2.07%.  These are very tolerable levels, and there’s little on the horizon that suggests inflation is bound to grow in the foreseeable future.

It was also a big week for real estate number, most of which were encouraging.

The good news was, the Federal Housing Finance Agency reported home prices increased by 0.4% between April and May, and existing homes sales reached an annual pace of 5.04 million.  Home prices reached new multi-year highs – again – and are now at early 2008 levels.  The rate of existing home sales is now at the strongest pace since October.

The bad news is, new home sales tumbled from a pace of 442,000 units to 406,000 units in June.  That’s the weakest reading since September of last year, though it should be noted there’s usually a summertime lull in new home sales activity.

There’s a little more real estate data on the schedule for this week, although most of it is in now. All the rest of last week’s data is on the table below.

Economic Calendar

72714-econ-dataSource:  Briefing.com

Clearly this week is going to be considerably busier in terms of economic numbers.

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Blogging Options: CBOE Morning Update 7.28.14

Markets opening soft this morning.  CAT, MMM & Visa off ~$1 and moving the DJIA lower, whine AMZN off $6 and ISRG lower by $5 dragging the NASDAQ lower.  CBOE did 4.3mm of ~15.9mm contracts Friday – SPX with ~900k volume. VIX Futures with 44k traded in this morning’s session.  Volatility as an asset class:

Family Dollar Stores (FDO) opened  up $13.40 to $74.06 on Dollar Tree (DLTR) acquiring it for $74.50 per share. Overall option implied volatility of 25 is near its 26-week average of 27.

Dollar Tree overall option implied volatility of 21 is near its 26-week average of 22.

Sohu.com (SOHU) is down $1.00 to $56.40  after the internet portal reporting disappointing Q2 sales and guided weak Q3 sales. August call option implied volatility is at 54, December is at 40; compared to its 26-week average of 42.

Options expected to be active @ CBOE:  SOHU CYOU FDO DLTR X TEVA WYNN GPRO TWTR FSLR

CBOE S&P 500 BuyWrite Index (BXM) at 1095.06, compared to its 10-day moving average of 1092.07 cboe.com/BXM

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This Week in VIX – 7/25/2014

VIX rose over 5% last week despite the S&P 500 being basically flat on the week. There could be some of that anticipation we see in VIX (as opposed to reacting to the market) in front of big economic events and this coming week is full of those events. The FOMC rate announcement comes out Wednesday and Friday before the equity market opens we will get the first read on the economy in July when the Labor Department releases the monthly jobs report.

VIX PA

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This Week in Volatility Indexes and ETPs – 7/25/2014

I’m still getting back up to speed after a brief break from the markets last week. One of the first things I want to do Monday morning is get a handle on VXST versus the other S&P 500 oriented volatility indexes. The curve shift below has me stretching for a reason VXST would drop while the other indexes rose. Especially in front of a jam packed news week like we have coming up.

VXST VIX VXV VXMT Curve

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This Week in Emerging Market Volatility – 7/25/2014

The state of emerging markets is strong. EEM rose 1.4% last week and is up just a tad under 8% for 2014. After the underlying market put up a strong week VXEEM made a surprising move and rose over 5% – I’ll attribute this move up to the index already being pretty low and a couple of economic events coming out next week in the US that could result in extra volatility for all equity markets.

VXEEM PA

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This Week in VXST – 7/25/2014

I like being surprised and perplexed when I look at the week over week changes in volatility indexes. What has me really scratching my head is the difference between VXST and VIX. VXST was down slightly last week while VIX rose over 5%. That’s where I start to wonder what is up. I could understand VIX up slightly and VXST down a little (or vice versa) based on the S&P 500 being hardly changed last week. However, we got some news on the horizon with an FOMC announcement Wednesday and the July employment number out before the market opens on Friday. If I knew VIX and VXST were going to diverge last week I would have guessed VXST would have been higher and VIX would have been down from Friday to Friday.

VXST PA

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This Week in Gold and Oil Volatility – 7/25/2014

Checking with top people at the Rhoads family reunion this weekend, the feeling is that Gold is moving up, that is if more buyers than sellers show up.   In reality the published pundits seem to have a bearish outlook for the yellow metal. As for me, I just hope it breaks out in one direction or another since that will result in high volatility and I’m all about that.

GVZ

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This Week in Russell 2000 and Nasdaq 100 Volatility – 7/25/2014

I write this from the middle of Tennessee at a family reunion. I do not say this to elicit sympathy, but understanding as I have not been watching the markets as closely as I normally do. I noticed that the Nasdaq-100 had a nice week and VXN dropped as one would expect. In fact, after getting out my slide rule and double checking, it appears that NDX is up over 10% for 2014.

VXN PA

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This Week in CBOE Strategy Indexes – 7/25/2014

The S&P 500 made another all-time high and then backed off a bit on Friday. As a reminder, BXM is short the SPX Aug 1975 Call at about 17.53, BXY is short the SPX Aug 2010 Call at 3.45, and PUT is short the SPX Aug 1970 Put at a reference price just over 20.00.

Strat Charts

The Friday price action allowed the three strategy indexes to play a slight amount of catch up for 2014. Based on the respective short option positions if the S&P 500 stays around current levels until settlement on August 15th all three of these strategies should outperform for the July to August period.

Strat Table

CBOE Mid-Day Update 7.25.14

Volatility as an asset class

Baidu (BIDU) is recently up $18.26 to $222.46 after reporting better than expected Q2 results and mobile revenue reached 30% of overall revenue. August and September call option implied volatility is at 28, December is at 31; compared to its 26-week average of 42.

Xerox (XRX) is recently up 35c to $13.19 on adjusted Q3 EPS of 27c. August call option implied volatility is at 21, September is at 20, January is at 22; compared to its 26-week average of 27.

Pandora (P) is recently down $3.89 to $24.83 after the internet radio provider reported a wider than expected loss and less than expected guidance. August weekly call option implied volatility is at 58, August is at 53, September is at 50, January is at 51; compared to its 26-week average of 55.

VIX methodology for Amazon (VXAZN) down 23% to 28.58, below 50-day MA 31.22 into the release of Q2.

Actives at CBOE:  AAPL FB GILD MMM BIDU TSLA NFLX TWTR GILD AMZN BIDU P TSLA MNKD FB NFLX TWTR GILD

Stocks with increasing volume @ CBOE:  LSCC NU DEO MXIM SWFT INFA CERN VRS ABC

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up 73c to 11.64; compared to its 10-day moving average of 11.80. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down $1.21 270.18, compared to its 50-day moving average of 267.72 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) up 42c to 12.26. VIX August 15 and 16 calls are active on 175K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) up 79c to 28.78.
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CBOE 5-Day Educational Session Wraps Up

Jim Bittman from the Options Institute at CBOE is shown teaching options to 110 regulators from CSRC In Shanghai.  CFFEX (China Financial Futures Exchange) hosted regulators from several regions in China at the Holiday Inn Pudong in Shanghai for two days of options training.

jb

Jim, Debra Peters and Eugene Zheng of CBOE also spoke for three days to several groups of market makers and traders about options strategies used by investors and traders worldwide.

This educational effort began over two years ago when CBOE and CFFEX entered into an agreement formalizing our long-standing friendship and established a strategic alliance between the exchanges, which includes an educational component.  We hope the instruction received helps as the time grows near for  CFFEX to launch listed options.

 

 

Weekly Market Commentary 7.25.14

$SPX has now traded at a new all-time intraday high for the last three days,
and it closed at a new all-time high the last two.  Those new highs have
been confirmed by some of the other indicators, but some are still on sell
signals. $SPX has support at 1950, and that has proven to be very strong.

lm 7 25 spxEquity-only put-call ratios remain on sell signals.  They have
been steadily rising for nearly two weeks.

Market breadth has NOT been strong for the last couple of weeks.
One would have expected breadth to confirm the move in $SPX, and the fact
that it has not is a bit troublesome.

Volatility indices ($VXST, $VIX, and $VXV) have had a very
wild week. But in the end, $VIX generated a buy signal last Friday.
lm 7 25 vix

In summary, the indicators are not all in bullish agreement, but
the trend of $SPX is still higher and — unless that changes — the
intermediate-term picture will remain bullish.  As long as support at
1950 remains intact, the trend of the stock market is up.  And that is
one trend we do not want to fight (in fact, we’re not in the business of
fighting trends much anyway — that’s called top- or bottom-picking:
eventually, you’re right, but how much did it cost you in the
meantime?).

Blogging Options: CBOE Morning Update 7.25.14

Durable Goods for June increased 0.7% (May lowered from -0.9% to -1.0%). June DG were expected to gain 0.5% to 0.6%, so a slight beat.  ABBV beats, Pandora showed revenue increasing but quarterly losses grew. Option volume average yesterday as CBOE did ~4.2mm of 16.6mm contracts.  CBOE group in Shanghai wraps up week long option educational event today.  Volatility as an asset class

Amazon.com (AMZN) is down $38.21 to $320.40 in the premarket on Q3 margin outlook surprising to the downside. July weekly call option implied volatility is at 140, August is at 36, September is at 29, October is at 28; compared to its 26-week average of 30.

Visa (V) is down $6.15 to $216.59 after lowering annual revenue growth. July weekly call option implied volatility is at 39, August is at 20, September is at 17, December is at 16; compared to its 26-week average of 22.

Starbucks (SBUX) is down $2.30 to $78.15 in the premarket on Q3 earnings rising 23% on stronger sales. July weekly call option implied volatility is at 85, August is at 23, October and January is at 18; compared to its 26-week average of 22.

Options expected to be active @ CBOE: AMZN SBUX V P BIDU XRX LPNT XRX LEA LYB SLAB SWK TYC DECK WCG

CBOE S&P 500 BuyWrite Index (BXM) at 1097.62, compared to its 10-day moving average of 1091.61 cboe.com/BXM

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Next Week in Weeklys – 7/25/2014

There were a few additions to the Weeklys list last week. One in particular, AMAT, is a favorite trading stock of mine so I’m happy to see its arrival on the list. Not only is it a great technology bell weather, but AMAT also is one of those companies that does not report on a calendar year basis. The next earnings report for the company will be in mid-August.

New Stocks

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CBOE Mid-Day Update 7.24.14

Volatility as an asset class

Ford (F) is recently up 19c to $17.97 on Q2 profit increasing 6% to $1.3B.  July weekly call option implied volatility is at 24, August is at 18, September and October is at 17; compared to its 26-week average of 23.

Under Armour (UA) is recently up $9.53 to $70.16 on Q2 net revenue growth of 34%.  August call option implied volatility is at 30, August is at 27, January is at 26; compared to its 26-week average of 34.

United Continental (UAL) is recently up $1.28 to $47.28 on better than expected Q2 results.  August call option implied volatility is at 33, September is at 24, January is at 28; compared to its 26-week average of 42.
_DSC0068
VIX methodology for Amazon (VXAZN) up 0.9% to  37.16, above its 50-day  of moving average of 31.22 into the release of Q2.

Actives at CBOE:  AAPL FB GILD MMM BIDU TSLA NFLX TWTR GILD

Stocks with increasing volume @ CBOE:  BBRY  FTNT DPS UIS MXWL DEO CRI BC FFIV WYN

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 11c to 10.72; compared to its 10-day
moving average of 11.74. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 22c 271.50, compared to its 50-day moving average of 267.61 cboe.com/micro/bxd/
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Blogging Options: CBOE Morning Update 7.24.14

Ford up $0.30, GM drops $0.70 and CAT falls ~$3 as earnings keep rolling in this morning.  AMR Group declares first dividend in 34 years.  Weekly Claims fall again.  Overseas markets drift higher.  Volatility as an asset class:

Qualcomm (QCOM) is down $3.83 to $77.76  in the premarket after the chip manufacturer reported a 42% increase in Q3 results, however said its licensing and patents was encountering “significant challenges” in China. July weekly call option implied volatility is at 58, August is at 20, October and January is at 17; compared to its 26-week average of 20.

Gilead (GILD) is up $0.92 to $91.26 after reporting Q2 EPS $2.36, compared to consensus $1.79 and said its new hepatitis C treatment, Sovaldi, had $3.48B in Q2 sales. July weekly call option implied volatility is at 77, August is at 39, September is at 31, November is at 31; compared to its 26-week average of 33.

Facebook (FB) is higher by $6.00 to $77.25 in the premarket after the social-media giant reported that Q2 profit more than doubled and revenue topped estimates for the ninth straight quarter. The social media company said about 62% of its ad revenue comes from mobile devices. July weekly call option implied volatility is at 108, August is at 45, September is at 39, December is at 37; compared to its 26-week average of 42.

Options expected to be active @ CBOE:  FB POT F GM LLY QCOM GILD DNKN HOT GM CAT F AAL BMY LLY HSY UA

CBOE S&P 500 BuyWrite Index (BXM) at 1097.08, compared to its 10-day moving average of 1089.57 cboe.com/BXM

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CBOE Options Institute Visits Shanghai Exchanges

In preparation for the commencement of options trading in China, the Shanghai Stock Exchange and the Shanghai Futures Exchange have been sending various groups of exchange staff, brokers and market makers to The Options Institute at CBOE for basic- to intermediate-level education on options strategies and options pricing. In the last 18 months, 10 classes with over 500 total students have been given at CBOE in Chicago.

But now is the time for the “show to go on the road.” This week (July 21-25), Jim Bittman, Director of Program Development, Debra Peters, Vice-President and Director of the Options Institute at CBOE and Eugene Zheng from our Corporate Planning group have been in Shanghai giving educational seminars.   Earlier this week they gave a 2-day basic seminar to Exchange staff and Chinese regulators,  and today through Friday are giving a 3-day advanced class for market makers.  Jim tells us that the attendance at these all-day sessions has been tremendous and the participants  have been very engaged.

An attendee of a three-week  educational session in Chicago this past January stopped by yesterday and asked Jim about the “Polar Vortex”, and if Chicago’s weather has moderated.  Jim assured him it had.

Jim will post a recap of his, Deb’s and Eugene’s impressions of the  soon to be launched Chinese options market here next week.

Below is a picture of guests from Shanghai in The Options Institute last month.

oi class shang pic

Toll, Building a Strong Foundation

I’m looking at the buy side in Toll Bros. Inc (TOL $36, up $0.57).  On the daily chart below you can see that the recent low was made at the confluence of a .618 retracement of one major swing and the 1.272 extension of another.  One more price relationship comes in at the $34.78 – $34.92 area (aka price cluster zone) which was a 100% projection of a prior decline of $1.58 projected from another swing high.  The second swing ended up being very similar at $1.48. This is illustrated on the daily chart below.

cb 7 23 tol

 

Now if price continues to hold above this key price cluster low, the initial upside target comes in at the $38.36 area.  I will consider myself wrong the trade if the $34.78 area is taken out instead.
This week the last for TOL Weekly options.  With a 2-3 week projection, regular Aug. expiration would be the time-frame to target.

 

CBOE Mid-Day Update 7.23.14

Volatility as an asset class

Boeing (BA) is recently down $3.21 to $126.53 after raising 2014 EPS outlook, however renewed concerns on the KC-46 tanker program and a $425M charge on Pegasus jets. July weekly call option implied volatility is at 23, August is at 18, October is at 15; compared to its 26-week average of 21.

Biogen (BIIB) is recently up $34.71 to $338.69 after raising its 2014 profit forecast. July weekly call option implied volatility is at 43, August is at 29, September is at 26, January is at 30; compared to its 26-week average of 33.

Intuitive Surgical (ISRG) is recently up $56.37 to $448.53 after the robotic medical device company reported better than expected Q2 results. July weekly call option implied volatility is at 47, August is at 32, September and January is at 28; compared to its 26-week average of 36.

Actives at CBOE:  AAPL MSFT C TSLA NFLX TWTR GILD AA

Stocks with increasing volume @ CBOE: XLNX FTNT INO PBYI FOLD TLM CBAK ELY JNPR INFN

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down 54c to 11; compared to its 10-day moving average of 11.89. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) down 22c 271.28, compared to its 50-day moving average of 267.47 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 29c to 11.95. VIX August 15 and 19 calls are active on 138K contracts @ CBOE cboe.com/VIX

iPath S&P 500 VIX Short-Term Futures (VXX) down 20c to 28.14.
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Three Gray Swans – Week of Jul 28 – Aug 1

Next week is a dream week for those that look for new information to be digested by the markets. When I say new information being digested I’m really saying increased volatility based on major economic announcements. We have the two biggies – FOMC and Non-Farm Payrolls – coming out. Since the title is Three Gray Swans I’m going to add the ADP Employment Change report as a third event to watch next week. I’m adding this one due to the close association with the big employment number that comes out on Friday.

ADP Employment Change – Wednesday at 7:15 Chicago Time

The ADP National Employment Report (ADP Report) is considered a preview to the official number that is released on Friday before the stock market opens. Last month the ADP report indicated that 281,000 nonfarm private sector jobs were added in June which was much higher than expectations. Two days later the Labor Department reported that 288,000 nonfarm jobs were added in June that was also an upside surprise. Before I get emails about clarifying the differences between the Labor Department and ADP job counts, I am aware they are slightly different – the important aspect is that they both were higher than expected last month. This topping of the Labor Department count resulted even after estimates were raised between the ADP release and the official Labor Department number. The point is that the ADP number did a great job forecasting a higher government jobs number last month so it will probably get some extra attention next week.

If you are more interested in the ADP report you can visit – www.adpemploymentreport.com

FOMC Announcement – Wednesday at 1:00 Chicago Time

It has been a long time since there has been any question about what the rate decision will be and there are no questions about the target level remaining unchanged at 0.25%. These days the FOMC announcement is more about what is contained in the statement which is supposed to be a clear update on monetary policy. I’ll leave that debate to the guys that like to talk over each other on CNBC.   The element of the statement that I always scan down to comes toward the end where any potential risks to the economy are discussed and how the members voted. The potential risks will summarize what the members of the Federal Open Markets Committee are concerned about. I think it is safe to say that what they are focused on should also be a focus for investors and traders. The voting section will note any members that did not agree with the rate decision and potentially the reason this member did not agree with the majority of voters. That too can give some insight into the mindset of the committee and some concerns about the economy going forward.

Nonfarm Payrolls – Friday at 7:30 Chicago Time

If it were not for the FOMC meeting this week the slew of monthly data that comes from the Labor Department would be the primary focus next week. However, because of FOMC it may take on more importance. There have been grumblings that an acceleration of employment and wage growth could be an early sign of inflation. If that message is included in the FOMC statement Friday’s employment report may have a heightened level of importance.

CBOE at Public Funds Summit This Week

CBOE is working the 3-day Opal Public Funds Summit East in Rhode Island this week. About 250 financial professionals, including four state treasurers and dozens of trustees of public pension funds, have been in attendance.  At the CBOE exhibit table, available educational literature includes fact sheets on CBOE benchmark indexes, on CBOE volatility indexes (including VXTYN), and research papers by Hewitt EnnisKnupp, Cambridge Associates, Asset Consulting Group, and other leading firms.

Mike Warsh, Director of Institutional Business Development at CBOE, spoke on a panel and noted that some previous speakers already discussed use of options, and that plan sponsors are exploring use of options through programs that engage in tail risk hedging or selling index options to enhance income. To help plan sponsors learn more about prudent use of options, Mike noted that CBOE (1) has created a number of benchmark indexes, including BXM, BXY, and PUT, (2) is delivering customized presentations on use of options to key plan sponsors, and (3) will host the 31st Annual Risk Management Conference (RMC) in California in March 2015.

Tim Barron, Senior Vice President and Chief Investment Officer, Segal RogersCasey said that plans probably still should be invested in equities, and that now could be a good time to explore the use of hedging tools because hedging costs are relatively low.

John Longo, Chief Investment Officer and Portfolio Manager, Acertus Capital, noted that his firm has funds that use options for portfolio management.

To read more about options-based benchmark indexes and related research papers, please visit www.cboe.com/benchmarks.

mm2

mm 3

 

 

Blogging Options: CBOE Morning Update 7.23.14

Boeing beat and tweaked guidance higher, Pepsi up $1.80 and also gives upbeat guidance. Overseas markets higher, metals off. 10-year stuck in a tight range near 2.46%.  Chicago Bears report to training camp today.  I’m not sure summer has arrived in Chicago yet.  Weather perfect for sweet corn this year.  Volatility as an asset class:

Apple (AAPL) is higher by $0.50 to $95.22 in the premarket on Q2 profit growth of 12% and strong sales. July weekly call option implied volatility is at 68, August is at 28, September is at 24, October and January is at 23; compared to its 26-week average of 26.

Microsoft (MSFT) is up $0.82 to $45.65 on Q4 profit declining 7.1% as the company acquiring Nokia’s (NOK) money losing cellphone business. July weekly call option implied volatility is at 57, August is at 29, October is at 20; compared to its 26-week average of 20.

Puma Biotechnology (PBYI) is up $151  (that’s right, and they have no products in the marketplace at this time – it’s a breast cancer drug)  after reporting positive top line results from Phase III PB272 trial. August call option implied volatility is at 142, September is at 116 December is at 97; compared to its 26-week average of 98.

Options expected to be active @ CBOE:  MSFT AAPL AMZN WHR ISRG QCOM BRCM PBYI XLNX JNPR

CBOE SKEW INDEX (SKEW) at 136.37, above 50-day MA of 130.77. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

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CBOE Mid-Day Update 6.22.14

Volatility as an asset class

Coca-Cola (KO) is recently down $1.26 to $41.13 on the beverage company sees structural items hurting second half EPS by 2c. July weekly call option implied volatility is at 18, August is at 10, September and January is at 11; compared to its 26-week average of 15.

Harley-Davidson (HOG) is recently down $4.04 to $63.02 after the heavy weight motorcycle company reported a 30% rise in profit on disappointing retail sales. August call option implied volatility is at 21, November is at 20; compared to its 26-week average of 24.

Polaris (PII) is recently up $12.97 to $146.14 on Q2 EPS increasing 26% to $1.42 on 20% sales growth. August call option implied volatility is at 24, December is at 21; compared to its 26-week average of 24.

Actives at CBOE:  AAPL MCD AA KO BIDU AMAT BIDU AMAT TSLA GILD C TWTR AMZN

Stocks with increasing volume @ CBOE:  YPF AA SBAC KS EDU PII GALT EJ AXL HLF

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down $1.44 to 11.51; compared to its 10-day moving average of 11.84. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2

CBOE DJIA BuyWrite Index (BXD) up 62c 271.50, compared to its 50-day moving average of 267.34 cboe.com/micro/bxd/

CBOE Volatility Index (VIX) down 86c to 11.95. VIX August 13 and 14 calls are active on 165K contracts @ CBOE cboe.com/VIX
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Blogging Options: CBOE Morning Update 7.22.14

Average option volume day yesterday as ~19mm contracts trade.  SPX showed 590k and VIX with 355k.  VIX Futures with 174k.  Six DJIA components report Q2 results today.  KO off $1 on narrow miss, VZ up $0.40. DD up fractionally on light volume.   CPI rose 0.3% in June (2.1% ytd) Core up 0.1%. Volatility as an asset class:

Netflix (NFLX) is down $1.43 to $450.66 in the premarket after reporting solid Q2 results with continued international subscription strength. July weekly call option implied volatility is at 117, August is at 50, September is at 41,  December is at 40; compared to its 26-week average of 44.

Chipotle Mexican Grill (CMG) is up $62.48 to $652.40 on better than expected Q2 results last night. July weekly call option implied volatility is at 92, August is at 45, September is at 33, December is at 28; compared to its 26-week average of 32.

McDonald’s (MCD) is down $2.55 to $95 in the premarket on Q2 EPS $1.40, compared to consensus $1.44. July weekly call option implied volatility is at 23, August is at 14, September is at 13, and December is at 12; compared to its 26-week average of 14 according to Track Data, suggesting large near term price movement into the expected release of Q2 on July 22.

Options expected to be active @ CBOE: HLF MSFT AAPL AMZN ARMH NFLX CMG TXN KO DPZ UTX MCD PLUG AAPL FCEL FB

CBOE SKEW INDEX (SKEW) at 138.75, above 50-day MA of 130.55. SKEW measures the purchase of out-of-the-money S&P 500 Index puts that require a very large downside move to profit from long put positions. An increase of this index indicates greater expectations for an extreme down move.

CBOE S&P 500 BuyWrite Index (BXM) at 1093.08, compared to its 10-day moving average of 1086.92 cboe.com/BXM

CBOE DJIA BuyWrite Index (BXD) at 270.77, compared to its 50-day moving average of 267.18 cboe.com/micro/bxd/

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LEAPS® for Stocks and ETF’s to be Added for 2017

We received two questions last week from investors regarding the listing of 2017 LEAPS® options for stocks and ETF’s.  The listing of LEAPS used to happen in the early summer for dates going out ~30 months.  The listing of LEAPS was pushed back a few months because our data showed they didn’t trade very much initially.

We do not know which stocks will have LEAPS, most of those that have LEAPS now should have LEAPS for 2017.  One investor asked for specific strike prices to be added.  It’s a little early to decide on those.  As it states below, that info will be available one week before the stocks in that cycle are added.

The following schedule will be used to list the
January 2017 Equity (Stock) & ETF LEAPS:

Monday, September 15, 2014:   2017 LEAPS begin trading for
January Cycle option classes.
A notice listing the new LEAPS series will be distributed during
the week of September 8th.

Monday, October 13, 2014:   2017 LEAPS begin trading
for February Cycle option classes.
A notice listing the new LEAPS series will be distributed during
the week of October 6th.

Monday, November 17, 2014: 2017 LEAPS begin trading
for March Cycle option classes.
A notice listing the new LEAPS series will be distributed during
the week of November 10th.

Notice listings for LEAPS can be found by accessing the
below hyperlink during the distribution week mentioned above

http://www.cboe.com/tradtool/DailyNewListings.aspx

An example might be Wal-Mart (WMT).  WMT is in the March cycle.  So WMT LEAPS of 2017 would be added on Monday, November 17th.  A list of WMT strike prices would be published the week of November 10th.  Remember, not every stock or ETF with options has LEAPS.

So LEAPS for 2017 are on their way!

CBOE Mid-Day Update 6.21.14

Volatility as an asset class

Kandi Technologies (KNDI) is recently up $1.93 to $21.57 after a Chinese newspaper reported that electric cars made outside of China would not qualify for a key tax break in the country, though domestically-made ones would. August call option implied volatility is at 90, September is at 74, December is at 67; compared to its 26-week average of 88.

Yum! Brands (YUM) is recently down $2.65 to $74.77 following news of a tainted meat scandal for KFC operations in China.  August call option implied volatility is at 17, September and January is at 16; compared to its 26-week average of 21.

Hasbro (HAS) is recently down $1.74 to $51.54 after the toy maker’s Q2 revenue missed analysts’ consensus forecast and its Games division reported a significant decline in sales.  August call option implied volatility is at 21, September is at 17 and January is at 18; compared to its 26-week average of 20.

Actives at CBOE:  AAPL DG TSLA GILD C BIDU RFMD TWTR AMZN

Stocks with increasing volume @ CBOE:  AKS CLF EZPW STLD FL OREX CROX NIHD EXTR BBT

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently up $1.45 to 13.50; compared to its 10-day moving average of 11.91. VXST is a market-based gauge of expectations of 9-day volatility stks.co/r0CS2
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SPX 20 Day MA Violated, What Does It Mean? – Weekly Market Outlook 7.21.14

Although the week ended on a bullish note, it remains to be seen if Friday’s bounce was anything more than a temporary dead-cat bounce.  The bulls are still on the defensive here, and will need to prove themselves before stocks can get back into their prior bullish groove.  It’s the first time the onus has been on the buyers in a while, even though the bears aren’t exactly in a spot where they can be smug.

We’ll slice and dice the details in a moment.  Let’s first talk about last week’s overarching economic numbers.

Economic Data

It was a pretty busy week on the economic front, so let’s just dive right in, starting with the first major item we saw in the economic lineup – June’s retail sales.  Simply put, while they weren’t bad (i.e. they were positive), they weren’t as strong as expected.  Economists were planning on a 0.7% month-to-month improvement overall, and a 0.6% month-to-month increase when excluding automobiles. What we got was growth of 0.2% and 0.4%, respectively. On a year-to-year basis, this translates into 4.1% and 3.5% growth, respectively. Not bad.

Retail Sales, Year-Over-Year Change Chart

ph sales 72014-retail-salesSource:  Thomson Reuters

On Wednesday we heard June’s capacity utilization and industrial productivity data.  Like last month’s housing starts and building permits, though the data is basically positive, it wasn’t as strong as hoped.  Industrial production only grew by 0.2%, falling short of the expected 0.4% uptick.  And, capacity utilization fell from 79.2% to 79.1%.  Still, both data sets remain in uptrends.

And, construction activity stumbled a bit last month as well.  Housing starts fell to a pace of 893,000 units, down from May’s 985,000.  Building permits fell from a pace of 991,000 to only 963,000 units in May.  This isn’t the first weak month we’ve seen from the starts and permits data.  More of the same, and the bigger trend could officially turn south.

Everything else for last week is on the grid.

Economic Calendar

ph 72014-econ-dataSource:  Briefing.com

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