Looking at IV's in the FANG stocks there is one major theme....they are STUPID CHEAP. If you can't find an option to buy, you are probably a jerk.
The only one I remotely don't want to own is NFLX. The rest look like steals.
NFLX had earnings today and the stock moved 17.00 dollars, rallying past 115. The straddle was pricing in a move of less than 10 dollars yesterday. Hey, surprizes happen...however NFLX has outperformed its earings straddle for 4 straight quarters, ever since they started producing their own content. Take a look:
www.livevol.com LivevolX (r)
We have another day like last week where the rally came from nowhere and is most likely not going to go anywhere. It feels like the algo driven market catches any new piece of news about the FOMC release and it is off to the races. The last 6 months has been about macro freight trains, collapse of the Euro, oil and commodity prices with a rocketing dollar. Greece isn’t even in the headlines anymore. As day went most stocks were up and VIX softened a bit before the Wednesday’s release.
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)
We all know that as companies mature there can be some permanent changes to the implied volatility of its options. They can go from low to high and back. Think how the IV of Corning (had their been options) would have appeared when they were in the business of making ugly cookware vs high end glass. That being said, when a stock hits a certain level of volatility that the options become disgustingly cheap it usually makes sense to buy some premium. Take a look at NetFlix IV:
Stocks briefly flirted with new highs today, but look like they will close up for the day. Slightly better housing news with a non-reaction to Thailand or Ukrainian violence also got the VIX to a 12 close. I am not saying stocks can't drop, but the case for up to flat is getting better. Part of the VIX is to forecast volatility in the future and for now there isn't any.