The market is usually fickle about earnings. It is always a case of what have you done for me lately. AAPL is now no exception. When the future always looked brighter, the name would rally day after day. Now the stock is really in a tail spin. Instead of talking about $500 as a buy point, that number is $50 out of the money. That does not stop the AAPL faithful, and a look at the implied volatility after earnings in this case might be helpful.
Goldman put out a comment prior to earnings season, which was something that I happened to agree with. It basically pointed toward the fact that, while the VIX was overpriced relative to market movement, it didn't mean the component parts IV's were necessarily overpriced. Their main point was that it might not make sense to sell premium in individual names; in fact, they might be a buy. At the same time, SPX IV is probably still a sale. Something that might confirm the low SPX expectations are the overall flat VIX curve and the low JCJ (CBOE Correlation Index). Let's quickly break down the trade
While we could sit and debate by how much the VIX is overpriced, and whether it should be trading below 10 (maybe it should), one thing we can't debate is where forward values are pricing VIX movement. Forward values, represented in the futures, are the smart money's guess as to where volatility is heading. The answer is, at a minimum, nowhere, and could be down. On a day when the VIX managed to eke out a small gain, take a look at what the VIX futures curve did?
One of the first things we try to convey in the Pit Report each day is what the volatility markets are doing. There is always room to discuss a stock going up or down, but volatility study is one of the places we help our clients the most. A day like today is the perfect example. The reason being, of course, is what the numbers say, and what is really happening can be two different things. For instance, the closing number on the VIX today was 12.58, up about .12 on the day. At first glance, that is the volatility up slightly on a day when the market hit another short term high with the SPX just an open away from 1500. Those seem to be two contradictory things.
I don’t want to pooh pooh the rally we have had recently. After 3 years or so of the governments from both sides of the Atlantic trying to “manage” the economy, some of the shackles are starting to break off. Europe does not even make front page news anymore, as the Euro is making some short term highs. Mario should thank Ben. Most, if not all, of the economic data has been improving, as houses are selling, and most businesses are generating decent earnings. With the super low interest rates and giant chunks of liquidity from the Fed the US is set to grow. I don’t know what Ben is going to do with his big balance sheet, but I guess he will figure that out. One stumbling block remains, and that is level of spending by the US government. The
As I speak to traders, many lament the lack of volatility anywhere in the stock market. Especially as the VIX hits new lows, I point them towards other markets. As recently as mid December, the GVZ, the VIX of GLD, was trading at the lowest levels we have seen since the listing of GLD options. One might think that with the VIX at 5 year lows that the GVZ would also be at all time lows:
Some big dough got together and started to bang their heads together about DELL. I use a DELL computer and it works just fine. Personally I don’t like working on an iPad thingy and looking at the market full time on one of those gizmos would leave me with less than the one eye I have that works. Clearly I am in the minority since the consumer is not buying as many made to order Dells as they once did. Michael Dell made billions taking the company public and he no doubt will make billions taking it private but $13 bucks per share won’t fly. It would have to be more than $14 at least since DELL is sitting on all that cash.
We have spent a lot of time in this blog chronicling the movement in Facebook. I think the stock has been a really good trader except of course for the $38 buyers on the IPO. It feels like nobody wanted the stock at $19 either because all the initial investors were getting out. Some did for sure as was reported today but by and large there is a big group of holders not quite ready to hit the bricks yet. The lockup expiration dates have been the great buying opportunities of the year for this name. I guess the point is that when things are telegraphed this well in advance they are generally not what they seem?