Blogging Options: CBOE Morning Update 7.21.14

Gorgeous weekend in Chicago.  Heat wave mid-week. Overseas markets cooled off overnight, with NIKKEI and DAX off 1%.  Oil and metals up fractionally, 10-year hovers around 2.475%.  Volatility as an asset class

EMC (EMC) is up $1.27 to $28.25 in the premarket on activist investor Elliott Management Corp taking a $1B stake in data storage equipment maker and plans to push the company to spin off its VMware Inc (VMW), the Wall Street Journal reported. Overall option implied volatility of 24 is above its 26-week average of 21.

Monster Beverage (MNST) is down $1.70 to $66.11 on Morgan Stanley downgrade to Equal Weight from Overweight on slowing U.S. trends and balanced valuation.  Overall option implied volatility of 32 is at its 26-week average.

Campbell Soup (CPB) is off $0.23 to $43.72 in the premarket after reaffirming FY14 guidance. Overall option implied volatility of 22 is above its 26-week average of 20.

Options expected to be active @ CBOE: EMC NFLX CMG TXN RAI AAPL

CBOE SKEW INDEX (SKEW) at 141.19, above 50-day MA of 130.26. 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.


This Week in VIX – 7/18/2014

What a day VIX had last week. We got a 32% plus move in VIX and the second highest VIX futures volume ever. And then we returned to the new normal of VIX being a pre-teen. When VIX moves to the upper teens and stays there it is going to be a rude awakening for those that do not realize VIX can (and will again…someday) stay at elevate levels. For now the standard seems to be any move higher is followed by a quick move lower.



This Week in Oil and Gold Volatility – 7/18/2014

The price of oil rose a bit in conjunction with the flare ups in the geopolitical situation this past week. However, oil had backed off from 2014 highs a few weeks ago and did not come close to surpassing those levels despite some real fear that showed up in the stock market. This resulted in OVX moving up on Thursday, but not nearly to the extent of equity market volatility.


Gold also moved higher as would be expected when there is uncertainty that involves armed conflict. However, like oil, gold didn’t break out to new highs. In fact the move higher for GLD actually resulted in the price moving back into the middle of support and resistance.


The underlying markets have a little in common, but the weekly curve changes tell two different stories. GVZ shifted higher in the type of manner that raises a warning that a bigger price move that has been experienced over the past few weeks may be on the horizon. With respect to oil, the volatility futures seem to be indicating low expectations of any big price moves in the near term.


This Week in VXST – 7/18/2014

On Thursday VXST ran up from 10.26 to 16.23. I’ll catch some flak for this next sentence, but I’m pretty much resigned to always getting flak as long as I talk publicly about volatility markets. That means the CBOE Short-Term Volatility Index was up just over 58% which was the fourth biggest move (on a percentage basis) based on the history for VXST that CBOE has compiled going back to January 2011. I know there’s an argument to not discuss volatility index changes in the context of percentages, but I think of them as index points and if we talk about the S&P 500 changes in percentage we should do the same for volatility indexes. VXST PA More

This Week in Russell 2000 and Nasdaq-100 Volatility – 7/18/2014

Despite some interesting market movements last week VXN was down slightly. We can combine Friday’s market rebound from the latest one day crisis that occurred on Thursday along with INTC, EBAY, and GOOGL getting their earnings out of the way. I did notice that some big Nasdaq-100 components report next week (AAPL, AMGN, AMZN, and GOOGL) so I would have expected VXN to be a little bit higher going into those numbers, it could be VXN is telling us not to expect many fireworks over the rest of the second quarter earnings season – at least not from tech and biotech companies.



This Week in Volatility Indexes and ETPs – 7/18/2014

The week over week curve changes do not even come close to doing this past week’s volatility index action any justice. I got out my back up spreadsheet that allows me to plot three lines. The result is below. Note the purple line showing the short lived volatility event from Thursday. The pattern of a spike followed by a drop continues.



This Week in CBOE Strategy Indexes – 7/18/2014

Today was expiration for standard old school SPX options. Expiration date also means roll date for BXM, BXY, and PUT. First, let’s take a look at the settlement values for the respective July SPX options that were part of each strategy.   July SPX settlement, which was determined using the opening prices of the stocks that make up the S&P 500 index came in at 1966.31. This was a bit higher than the closing price for the S&P 500 on Thursday evening of 1958.12. This higher settlement value should not be much of a surprise since the market rebounded overnight with no escalation of the issues that weighed on the equity market Thursday.   PUT was short the SPX Jul 1960 Put which expired with no value, but was in the money based on Thursday’s closing. This price action is reflected in the PUT chart below. BXM was short the SPX Jul 1965 Call which went from out of the money to settling 1.31 in the money and BXY was short the SPX Jul 2005 Call which was out of the money on Thursday and remained so on Friday.

Strat PA

The new positions are now in place. The reference price for the S&P 500 that was used to determine what August SPX options were to be sold was 1970.29. The next strike higher was 1975 so BXM now consists of owning the S&P 500 and short the SPX Aug 1975 Call at a price of 17.52889. The 2% out of the money BXY is short SPX Aug 2010 Calls at a price of 3.45 and finally PUT is in cash and short the SPX 1970 Put at a price of 20.02333.

Performance wise the total return for the S&P 500 is still a bit higher than that for the three strategy indexes. However, BXM did manage to gain a little ground last week.

Strat Table

CBOE Mid-Day Update 7.18.14

Volatility as an asset class

General Electric (GE) is recently down 25c to $26.36 after reporting a 13% increased Q2 profit. August and September call option implied volatility is 13, December is at 14; compared to its 26-week average of 17.

Honeywell (HON) is recently up $1.90 to $97.06 on Q2 earnings rose 7.6%. August call option implied volatility is at 14, September is at 12, December is at 14; compared to its 26-week average of 17.

LabCorp (LH) is recently down $2.19 to $103.23 after the medical testing services provider reported Q2 earnings fell 7%. August call option implied volatility is at 20, November is at 19, February is at 20; compared to its 26-week average of 22.


Stocks with increasing volume @ CBOE:  NQ PBR JCP MPEL DNKN HSP NI SWKS

CBOE S&P 500 Short-Term Volatility Index (VXST) is recently down $4 to 12.21; compared to its 10-day moving average of 11.62. VXST is a market-based gauge of expectations of 9-day volatility

CBOE Volatility Index (VIX) down 2.47 to 12.02. VIX August 13, 14, 15, 17 calls and 12 puts are active on 245K contracts @ CBOE

iPath S&P 500 VIX Short-Term Futures (VXX) down 6.8% to 27.92, July 28.5 & 29 calls are active.

CBOE DJIA Volatility Index (VXD) down 1.84 to 11.49; compared to its 10-day moving average of 11.28.

CBOE Nasdaq-100 Volatility Index (VXN) down 2.10 to 13.74; compared to its 50-day moving average of 13.77.

S&P 100 Options (OEX) recently is recently up $6.94 to 877.60 as solid corporate earnings supersede geopolitical events.