The Prepared Mind: June 22, 2015

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“It is hard to make predictions, especially about the future.” – Yogi Berra

The major indexes showed little change from the previous week’s close. The NASDAQ Composite Index closed at a record high on Thursday. Wednesday’s announcement by the Fed left the impression that an interest rate increase would occur sooner rather than later. Thursday’s rally brought ‘risk on” back to the market valuation. The ECB failed to reached an agreement with Greece on a new debt plan. This failure led to a market sell-off on Friday. An emergency summit meeting of Eurozone finance ministers and the Greek Prime Minister has been scheduled for Monday. This meeting will set the tone for trading at the beginning of the week.

Here is an overview of the market behavior last week:

Index 19-Jun Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 18014.28 115.44 0.64% 1.07% 13.82% (VXD)
S&P 500 (SPX) 2109.75 15.64 0.75% 2.47% 13.96% (VIX)
NASDAQ 100 (NDX) 4505.59 51.60 1.16% 6.28% 14.61% (VXN)
Russell 2000 (RUT) 1280.26 15.01 1.19% 6.27% 16.23% (RVX)
S&P 100 (OEX) 927.47 5.99 0.65% 2.10% 14.29% (VXO)
CBOE Volatility Index (VIX) 13.96 0.18 1.31% NA

Data Source: OptionVue7


For the second straight week, VIX futures again ignored a Friday sell-off along with the higher volatility earlier in the week. The VIX and related products were essentially unchanged. The potential exit of Greece from the Eurozone has been named Grexit by the financial media.  Grexit and its impact have been a continuing 2015 theme for the financial media. Last week’s price action for the VIX is at odds with the prevailing warnings from the talking heads. Russell Rhoads, senior Instructor at the Options Institute, coined a new term for the fatigue associated with the markets waiting for Greek default – Greetigue. The big VIX trade of the week was on Wednesday. A trader sold 22,800 VIX Jul 15 Calls for 1.73 and 22,800 VIX Jul 15 Puts at 1.18 who then completed the trade through purchasing 22,800 VIX Jul 22 Calls at 0.72 for a net credit of $2.19.


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

Indexes Ticker 19-Jun 12-Jun Change % Change
CBOE Volatility Index VIX 13.96 13.78 0.18 1.31%
VIX July Future VXN5 15.425 15.375 0.05 0.33%
VIX August Future VXQ5 16.325 16.075 0.25 1.56%
VIX September Future VXU5 16.925 16.775 0.15 0.89%
CBOE Short-term Volatility Index VXST 14.32 14.16 0.16 1.13%
CBOE 3 Month Volatility Index VXV 15.91 15.61 0.30 1.92%
CBOE Mid-term Volatility Index (6 month) VXMT 17.61 17.15 0.46 2.68%
VIX of VIX VVIX 92.16 85.55 6.61 7.73%
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures VXX 18.23 18.25 (0.02) -0.11%
pShares VIX Short Term Futures ETF VIXY 12.18 12.16 0.02 0.16%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 11.09 11.05 0.04 0.36%
Inverse VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 46.53 46.7 (0.17) -0.36%
ProShares Short VIX Short Term Future ETF SVXY 90.89 91.55 (0.66) -0.72%

Data Source: OptionVue7

All trading will be done in response to the ECB’s response to the Greek debt crisis. The week of June 22 includes reports on existing home sales, new home sales, durable goods, and Japanese inflation. The final reading on US first quarter GDP will be released on Wednesday. European Union heads of state meet in Brussels on Thursday and Friday. The Chines market had its worst week since 2009 falling more than 13%. It should be noted the market was up about 140% for the year. Last week’s sell-off put this market in “correction“ territory. Any significant continuation in the downward move could panic US and European markets.

The new earnings cycle does not start for another couple of weeks. This week will have very few announcements.   Announcements (including those not meeting my earnings criteria) include: Sonic, Fuller, Darden Restaurants, Carnival, Lennar, Worthington Industries, Monsanto, Herman Miller, Bed Bath & Beyond. Nike, Micron Technology, Winnebago and Finsh Line.  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
“I’d be a bum on the street with a tin cup if the markets were efficient ” – Warren Buffett


“Volatility is a symptom that people have no idea of the underlying value” – Jeremy Grantham


Monday June 22:


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


International Economic: EMU Consumer Confidence Flash – 10:00 AM.


Other: Greek Prime Minister Alexis Tsipras will meet the leaders of the 18 other eurozone nations at a Brussels summit. U.S. Supreme Court could rule on same-sex marriage and Obamacare.


Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
SONC Sonic Corporation $32.57 37.14 A $0.37



Tuesday June 23:


Economic: Durable Goods Orders – 8:30, Redbook – 8:55, FHFA House Price Index – 9:00, PMI Manufacturing Index Flash – 9:45, New Home Sales – 10:00, Richmond Fed Manufacturing Index – 10:00.


International Economic: Bank of Japan Meeting Minutes – 7:50 PM, China PMI Flash Manufacturing Index – 9:34 PM.




Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
CCL Carnival Corp $48.62 25.13 B $0.16
DRI Darden Restaurants, Inc. $69.16 24.51 B $0.93



Wednesday June 24:


Economic: MBA Mortgage Applications – 7:00, GDP – 8:30, Corporate Profits – 8:30, EIA Petroleum Status Report – 10:30.


International Economic: No Major Announcements.




Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
BBBY Bed Bath & Beyond Inc. $71.10 29.09 A $0.94
LEN Lennar Corporation $47.31 26.87 B $0.65




Thursday June 25:


Economic: Weekly Jobless Claims – 8:30, Personal Income and Outlays – 8:30, PMI Services Flash – 9:45, Bloomberg Consumer Comfort Index – 9:45, , EIA Natural Gas Report – 10:30, , Kansas City Fed Manufacturing Index – 11:00.



International Economic:




Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
BKS Barnes & Noble, Inc. $26.40 36.91 B ($0.37)
MU Micron Technology, Inc. $24.47 36.73 A $0.59




Friday June 26:


Economic: University of Michigan/Reuters Consumer Sentiment – 10:00.

International Economic:


Other: Kansas City Federal Reserve Bank President Esther George speech on the payments system, in Kansas City, Missouri -12:45 PM.



Optionable Earnings:

Symbol Company Name June 12 Close IV30 B/A XEPS
FINL Finish Line Inc $26.40 45.65 B $0.24



Monday June 29:


Economic: Pending Home Sales Index – 10:00, Dallas Fed Manufacturing Survey – 10:30.


International Economic: No major announcements.


Optionable Earnings: None meeting criteris.


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