The Prepared Mind: June 15, 2015

"Chance favors the prepared mind." -- Louis Pasteur

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

We want to perceive ourselves as winners, but successful traders are always focusing on their losses” – Peter Borish

The major indexes showed little change from the previous week’s close. The economic news was a mixed bag. The IMF walked away from bailout talks with Greece, Chinese growth is sluggish, Japanese GDP revised from 2.4% to 3.9%, US retail sales were up 1.2% and the US trade bill was not passed. Last week’s activity was done with both eyes on the June 15 meeting of the FOMC. It is expected the FOMC will announce the magnitude and timing of interest rate increases.

Two sell-offs last week in the SPX, interspersed by a hard rally on Wednesday, brought out the financial media cheerleaders for a correction. Every market sell-off is used as a reason to bring out the market doomsayers. The market is locked in a trading range benefiting neither bulls nor bears. The November to June trading range for the SPX is 2025 to 2125.     Current longer term resistance is at the 2140 to 2150 with 2070 as a short-term support level. Support at the 2070 was strengthened when the SPX bounced off the 2070 level last week. Equity only put/call ratios are giving buy and sell signals. Market breadth indicators are vacillation between weak buy or sell signals. The bottom line is the market appears to remain firmly within a trading range.

 

Here is an overview of the market behavior last week:

Index 12-Jun Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 17,898.84 105.50 0.59% 0.43% 13.85% (VXD)
S&P 500 (SPX) 2,094.11 1.28 0.06% 1.71% 13.78% (VIX)
NASDAQ 100 (NDX) 4,453.99 (23.20) -0.52% 5.07% 15.16% (VXN)
Russell 2000 (RUT) 1,265.25 4.24 0.34% 5.03% 16.13% (RVX)
S&P 100 (OEX) 921.48 1.58 0.17% 1.44% 14.64% (VXO)
CBOE Volatility Index (VIX) 13.78 (0.43) -3.03% NA

Data Source: OptionVue7

 

VIX futures ignored Friday’s sell-off along with the volatility earlier in the week. Both the cash VIX and the VIX futures were lower for the week. June VIX futures and options stop trading at the close this coming Tuesday. These options and futures will expire on Wednesday June 17. Per the CBOE, the final settlement of the VIX is determined as follows: “The Final Settlement Price for VIX Futures is a Special Opening Quotation (SOQ) of VIX. The SOQ is calculated from the sequence of opening prices of the SPX option series that underlie VIX on the Final Settlement Date. The opening prices are determined in a special opening auction conducted for each option series. This procedure is analogous to the method used for the final settlement of U.S. exchange-traded stock index futures. Its purpose is to help market participants unwind and hedge VIX futures positions by making the Final Settlement Price a traded price.”

 

 

Here is an overview of last week for the VIX and related products:

Indexes Ticker 12-Jun 5-Jun Change % Change
CBOE Volatility Index VIX 13.78 14.21 (0.43) -3.03%
VIX June Future VXM5 14.2 14.725 (0.53) -3.57%
VIX July Future VXN5 15.375 15.975 (0.60) -3.76%
VIX August Future VXQ5 16.075 16.625 (0.55) -3.31%
CBOE Short-term Volatility Index VXST 14.16 13.7 0.46 3.36%
CBOE 3 Month Volatility Index VXV 15.61 15.96 (0.35) -2.19%
CBOE Mid-term Volatility Index (6 month) VXMT 17.15 17.75 (0.60) -3.38%
VIX of VIX VVIX 85.55 84.1 1.45 1.72%
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures VXX 18.25 19.09 (0.84) -4.40%
pShares VIX Short Term Futures ETF VIXY 12.16 12.71 (0.55) -4.33%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 11.05 11.27 (0.22) -1.95%
Inverse VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 46.7 44.85 1.85 4.12%
ProShares Short VIX Short Term Future ETF SVXY 91.55 87.84 3.71 4.22%

Data Source: OptionVue7

All trading will be done in anticipation of Wednesday’s FOMC monetary policy statement and Fed Chair Janet Yellen’s press conference. On Monday, Mario Draghi will give quarterly testimony to the European Parliament’s Economic and Monetary Affairs Committee. The status of continuing negotiations on the bailout of Greece will be constant throughout the week. Friday is one of four annual “Quadruple Witchings.” The quadruple witching refers to the near simultaneous quarterly expiration of stock index futures, stock index options, stock options and single stock futures.

This will be the quietest week of the quarter for earnings announcements.  Announcements include: Adobe Systems. Bob Evans Farms, La-Z-Boy, Oracle, FedEx, Kroger, Darden Restaurants, Red Hat, and CarMax.  It is imperative for an option trader to know the date of earnings announcements in relationship to the expiration date of options being traded.   It is your responsibility to know the dates of announcements. The July and August monthly expirations encompass over 90% of the 2nd quarter earnings announcements for the S&P 500. OptionVue provides information on the effect of individual earnings announcements on the historic stock price and the pre and post earnings implied volatility of the options. These OptionVue tools designed to help the trader successfully trade options around earnings plays. There are five different kinds of earnings play which OptionVue tracks.

I have provided a list of major earning announcements along with Friday’s closing price and implied volatility, time of announcement, and expected earning range. The selected stocks are the result of a scan for stocks announcing earnings in the coming week using the following criteria: Price > 20, 30 Day Implied Volatility > 22, and Average Daily Option Volume > 400 contracts. Once again, it is your responsibility to confirm these earnings dates. The date and time of earnings announcements can and do change.

 

Trading advice to remember:

 

“Chance favors the Prepared Mind.” – Louis Pasteur
The art of living lies not in eliminating but in growing with troubles.” – Bernard Baruch

“People who don’t take risks generally make about two big mistakes a year.

People who do take risks generally make about two big mistakes a year.” – Peter F. Drucker

 

Monday June 15:

 

Economic: Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15, Housing Market Index – 10:00.

 

International Economic: EMU Merchandise Trade – 5:00 AM.

 

Optionable Earnings: None meeting criteria.

 

Tuesday June 16:

 

Economic: Housing Starts – 8:30, Redbook – 8:55.

 

International Economic: Germany CPI – 2:00 AM, Great Britain CPI and PPI – 4:30 AM.

 

Other: FOMC Meeting begins.

 

Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
AKRX Akorn, Inc. $46.67 49.71 B $0.41
ADBE Adobe Systems Incorporated $79.56 28.04 A $0.31
BOBE Bob Evans Farms Inc $45.96 38.85 A $0.44

 

Wednesday June 17:

 

Economic: MBA Mortgage Applications – 7:00, EIA Petroleum Status Report – 10:30.

 

International Economic: Bank of England Minutes – 4:30 AM.

 

Other: FOMC Announcement – 2:00, Fed Chair Press Conference – 2:30, FOMC Forecasts – 2:30.

 

Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
JBL Jabil Circuit, Inc. $24.00 29.42 A $0.39
ORCL Oracle Corporation $43.94 23.44 A $0.83

 

 

Thursday June 18:

 

Economic: CPI – 8:30, Weekly Jobless Claims – 8:30, Current Account – 8:30, Bloomberg Consumer Comfort Index – 9:45, Philadelphia Fed Business Outlook Survey – 10:00, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30.

 

International Economic: Bank of Japan Announcement.

 

Other: Bank of Japan Announcement.

 

Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
KR Kroger Co $71.29 23.28 B $1.20
FNSR Finisar Corporation $22.91 39.40 A $0.14
RHT Red Hat Inc $78.41 35.85 A $0.27

 

 

 

Friday June 19:

 

Economic: PPI – FD 8:30, University of Michigan/Reuters Consumer Sentiment – 10:00.

International Economic: Germany PPI – 2:00 AM.

 

Other: Quadruple Witching – Expiration, San Francisco Federal Reserve Bank President John Williams speech on policy, in San Francisco – 11:40 AM, Cleveland Federal Reserve Bank President Loretta Mester speech to housing conference, in Pittsburgh – 12:15.

 

 

Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
DRI Darden Restaurants, Inc. $66.95 25.41 B $0.93
KMX CarMax, Inc $73.15 33.19 B $0.85

 

 

Monday June 22:

 

Economic: Chicago Fed National Activity Index – 8:30, Existing Home Sales – 10:00.

 

International Economic: No major announcements.

 

Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
SONC Sonic Corporation $31.11 35.94 A $0.36

 

 

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