One of the interestings stories coming out of the Fiscal Cliff is the juggling of cash positions that is occuring amoung many of the high market cap companies that produce a lot of cash. We have seen ORCL accelorate their dividend, and we have seen nearly 100 other companies on the S&P 500 adjust their dividend schedule, announce a special dividened, or speed up dividend payments ahead of the cliff. Today, our COO Mark was asked about another major name, DELL, and how one might play Dell options. You can watch the video here:
As we discussed on Tuesday, VIX was not just pricing in the cliff, it was pricing in the non-farms that came out today. While the December contract really hasn't moved since then, the Cash Index has come in considerably. The curve closed the day basically back to normal contango, albeit a relatively flat contango.
Over the years, I have made the argument repeatedly that I think SPX puts do a better job of hedging than VIX calls, especially in low VIX environments. However, like all trades and hedges, that is not a rule but a generality. There is something strange going on in VIX that is making going long call spreads in VIX very favorable. Take a look at VIX term structure:
Today, for The Street, I wrote an article pointing out the list of companies I think could be next in line for a special dividend. On that list was ORCL, who just announced after the bell that theirs could be a special dividend. The companies I looked for were super stable, high market cap, low PE, and loaded with cash. Naturally, at the top of my list: AAPL
Take a look at how much cash per share the company is currently holding. It is an incredible amount of money that the company has on hand, and it represents a big portion of the stock's value. I think, as a company that is printing money right now, it is borderline irresponsible for the firm not to have some sort of special dividend.
At Option Pit, our goal is to teach our option mentoring students not just the strategy, but the theory behind why one would execute a strategy. We want our option traders to learn how to construct their own trades, not just regurgitate others' trades. Learn more about how we teach here. Here is an example:
Many of you saw the GVZ write up I did for Mad Money on Tuesday's Off the Charts (if you didn’t it’s the 1st video on the bottom of our homepage). In the piece I point out that I think GLD might be ready for a push higher because GVZ is so low. Recall that last week the index hit an all-time low in the mid 14's. While today the index is still lingering near the 15% mark. I think it could be bottoming, as could the stock.
The market finally got the selloff it wanted. We had steeper put skews and relatively elevated volatility, so the volatility markets were right. This was one of the first weeks Option Pit did not have a short VIX/VXX play in our Strategy Letter (that might change Monday) over the last 2 months. But if I asked you right now if the SPX was up on the week, what would you say? The SPX is up about 5 handles from last Friday, and the VIX is up near a full point. The market was up and volatility was up for the week, so let’s see how long that will last. One place the volatility was up was Gold.
One of the things we constantly talk about with our option mentoring students is option volatility and IV indexes. In all the talk of the 'low' VIX, traders may be missing a real opportunity: GVZ, the Gold VIX. Take a look at a chart of GVZ since GLD options were listed on the CBOE: