Options on an Options Exchange?

The CBOE is at an all time high.  As I stated multiple times in the last few months,  for those who might be afraid of things like VIX or even 'options' stock on CBOE itself can be a hedge on the market.  Why?  Because when the market is tanking CBOE is breaking records in VIX and sometimes SPX.  In addition to a the stock likely rallying in a down market, it has a dividend and listed options.  So even when it sits there is a chance to collect some income.  

The stock is at an all time high and I think it could make some sense to buy call options on the exchange.  Take a look at the chart below:

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Front Running VIX

Ahead of nonfarm payrolls the general belief is that implied volatility will increase.  This is true,  where consus is wrong is when IV peaks.  General consus is that it will peak on Thursday just before payrolls are announced.  While historically this is true, it has not been true over the last few years.  Look at the graph below, what one will notice is that IV has a pattern ahead of Nonfarms.

1.  IV starts to rise Monday

2. It rises all the way until midday on Wednesday

3.  There is a push to lower IV's, somewhat aggresively on Thursday morning

4.  They catch a small bid (lower than Wednesday mornings high) on Thursday night

5. They plummet on Friday

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YHOO BABA Earnings Swap

Tomorrow morning Alibaba reports earnings.  The market is expecting big things because the IV is exploding.  What is interesting is that the IV in Yahoo options is not.  Currently  BABA accounts for about 85% of YHOO's market value.  Thus a pop in BABA options should produce a pop in YHOO options.  But take a look at the two IV charts compared:

Chart - YHOO - Yahoo! Inc._window_screenshot.png

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SPX 2017 and All Is Well??

Anytime the market hits an all time high I typically expect to see either a near low term or at least close a near term low.  This is not the case with the SPX and the VIX right.  SPX is at an all time high but the VIX is about 2.5 points higher than it was the last time we got up here.


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The Trade:

Straddles continue to be too cheap in my opinion,  when the SPX is at an all time high and VIX is still elevated, the underlying is going to keep moving

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Loved Stock Trade in FB

I have been discussing what I call the 'LOVED STOCK' earnings chart over the last few days.  This is a pattern where an AMZN, NFLX, or FB rallies in anticpation of earnings.  The stock then gets sold out of earnings as it disappoints traders.  Finally, within a couple of days of the sell off the stock begins to rally again earasing some of the losses from earnings.  The only stocks that are 'loved' that did not show this pattern so far is TWTR.

With FB appearing to create this pattern and FB IV in the dump (See chart)


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Graphic Evidence of UVXY Crudiness

Over the last 3 months both VIX and VXX are actually up (albeit slightly for both).  You know what is not up on the year,  UVXY and TVIX.  The combo of levering and contango make the product pretty great in a market where the VIX is exploding (see mid October)  but pretty awful the rest of the time

Chart - UVXY - ProShares Ultra VIX Short-Term Futures ETF_window_screenshot.png

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The Trade:

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Next Week's ATM Straddle is Too Cheap..AGAIN

Last Friday we wrote how the SPX ATM straddle was pricing in a level of around 34 bucks a spread,  this after the SPX had just ripped up 70 points or so.  At the time VIX was around 16.  Since then the market has ripped up higher a little over 35 points.  The straddle is worth close to 40.00 a spread.  Today, the VIX is down to below 14.50 after moving 35 points in 3 days.  With 8 full trading days to go, the SPX straddle expiring next week is pricing in under 33.50 dollars a spread.

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VVIX Remain Sky High

Do you have questions about the options markets, how options markets work (or how options work) tweet questions for the blog @optionpit

While the S&P 500 has recoverd to its 100 Day Moving Average (we shall see if it gets past their)  the VIX and VVIX remain high relative to where they were at the beginning of the month.  For the VIX this makes some sense as Friday and Monday were the first back to back less than 1% movement days in the SPX in sometime.   VIX options also continue to have extrodinarily high vols.  The VVIX, the VIX of VIX has remained above 100 for a long period of time.

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Risk takes the Weekend off

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Is Next Week's SPX Straddle Too Cheap

The SPX ATM straddle expiring next week is trading just a tick over 34 dollars a spread.  Under normal circumstances, the risk chart below would seem to pricey for me.

Risk Chart - ^SPX - Standard & Poors 500 Index_window_screenshot.png

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