One of the most followed stocks on the NASDAQ, FB, had earnings last night. There was HUGE volume yesterday ahead of earnings and May3 weekly volatility got to 150% ATM. FB actually made a decent move by the end of the day today, moving up to near 29.00 a share. But, those who bought upside calls are probably NOT happy. Take a look at a shot of the FB May3 29 calls from yesterday.
The big surprise today is that the economy shrank in the 4th quarter of 2012. The market did not really care most of the day, as the SPX traded a near term high of 1509.54. The fact that the government is starting to reduce its influence on the economy is probably for the best. If we get out for just modest declines in GDP, that will bode better in the long term. Take the short term medicine now versus a big slug in 4 years. What I think this does is draw a picture of lower realized market volatility for a while. It might not stay at 4% like it is but it could stay in the low 10’s. That brings me to the Facebook trading.
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.
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?
We all know that AAPL has had a rough couple of months. The stock has moved up and down 200.00 in the last 6 months. The company has earnings next week and I wanted to put into perspective how much the fear is priced into options right now. Take a look at this chart of AAPL stock and IV.
The Vol is a lot higher than it was last earnings, despite the fact that AAPL had taken a dive from over 700 to near 600. If we compare straddle prices with about the same time to expiration I think it becomes even more clear.
I liked the special title there for our blog tonight. For the most part the activity in the volatility markets was pretty muted today. On balance some decent earnings but nothing to light a candle under the big indexes. The NDX was up about .33% so the CES show was not exactly lighting a candle under the technology stocks. I was reading a column in the WSJ not so long ago that the next technology innovations won’t be enough to spur economic growth or some sort of nonsense like that. Some professor was espousing this idea and it reminds me of a quote from the head of the US Patent Office around the end of the 19th century, “Everything that can be invented has been invented,” he opined in ….1898.” Well he was a little bit off and while the CE
The market got a bit of a relief rally today. The hurricane was manageable and the employment picture was a bit brighter according to ADP so we had a very pleasant rally. Today was the first real smack down in volatility since the day before GOOG reported underwhelming numbers a couple of weeks ago. Anytime the VIX drops near 2 points it is a big readjustment in the volatility perception. Even with the election looming it won’t make much difference for the market if today’s IV markdown was any indication.
I won’t go through the VIX play by play today,because it was pretty straight forward. The VIX November (and sometime December) future spent a good part of the day underwater, in doing so, showing that the VIX futures were slightly backward. What does that mean? Move movement in the short term as 200 point moves in the down start to ignite the realized volatility in the market. My closet theory is that implied volatility will not drop until after AAPL announces. I have no real proof for that, but this whole scene feels like last spring when the market was sitting on the big news. It looks like we are waiting for Friday morning for any meaningful drop in volatility (or another pop), but right now, there is enough movement to support what is going on.&nb
One of the frequent questions we take in the daily pit report during earnings season is if premium is a sale into the earnings announcement. Usually we take these on a case by case basis, but one of the best ways to evaluate this is by taking the front month options and turning them into a pure play on the event.