The Prepared Mind: June 29, 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

The major indexes continue to show minimal movement, The NASDAQ composite set two new closing highs earlier in the week. The NASDAQ Composite Index closed at a record high on Thursday. Two US Supreme Court rulings on Thursday and Friday tempered market focus on the Greek debt crisis. News about the Greek situation is very fluid. The after-hours trade of the E-Mini on Sunday night is down about 1.5%, A sample of the news and associated headlines from only the past hour are giving a number of different messages:

  • “Greece Tries to Staunch Bank Run Ahead of Looming Default”
  • “Schauble say Greece default , euro exit looks inevitable”
  • “ECB maintains emergency funding lifeline”
  • “ECB limits Aid to Greek Banks”
  • “ECB Emergency talks Continue as Grexit Looms”
  • “Greece crisis: a disaster for Athens and a colossal failure for the EU”

The headlines are changing minute to minute. Be nimble. This crisis has been a constant for the past year. This week should bring it all to a conclusion, unless they can devise a way to delay a decision even longer.


Here is an overview of the market behavior last week:

Index 26-Jun Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 17947.02 (67.26) -0.37% 0.70% 14.15% (VXD)
S&P 500 (SPX) 2101.61 (8.14) -0.39% 2.07% 14.02% (VIX)
NASDAQ 100 (NDX) 4487.31 (18.28) -0.41% 5.85% 15.33% (VXN)
Russell 2000 (RUT) 1281.91 1.65 0.13% 6.41% 16.18% (RVX)
S&P 100 (OEX) 925.07 (2.40) -0.26% 1.84% 14.6% (VXO)
CBOE Volatility Index (VIX) 14.02 0.06 0.43% NA

Data Source: OptionVue7


There was a disconnect between the VIX cash and the VIX futures. In addition, the premium over the spot VIX for the July VIX future went from nearly 1.60 to only 0.50. This was very surprising given the unresolved status of the Greek debt crisis and “Employment Week” with its plethora of employment reports.   Other VIX Indexes showed different expected volatility for future time horizons. The 9-day CBOE Short-term Volatility Index (VXST) was up % while the 3-month (VXV) and 6-9 month (VXMT) were down. The cash VIX may be indicating the anticipated effects of a shortened trading week.


The SPX continues to be range bound. Support is at 2070-1075 with resistance at 2130-2135. Put/call ratios and most other technical indicators remain firmly without direction. The VIX is trading under 15 and is bullish for the SPX. The wild for the coming week is the Greek debt crisis.


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

Indexes Ticker 26-Jun 19-Jun Change % Change
CBOE Volatility Index VIX 14.02 13.96 0.06 0.43%
VIX July Future VXN5 14.525 15.425 (0.90) -5.83%
VIX August Future VXQ5 15.475 16.325 (0.85) -5.21%
VIX September Future VXU5 16.175 16.925 (0.75) -4.43%
CBOE Short-term Volatility Index VXST 15.49 14.32 1.17 8.17%
CBOE 3 Month Volatility Index VXV 15.46 15.91 (0.45) -2.83%
CBOE Mid-term Volatility Index (6 month) VXMT 16.86 17.61 (0.75) -4.26%
VIX of VIX VVIX 83.09 92.16 (9.07) -9.84%
Long VIX ETP’s
iPath S&P 500 VIX Short Term Futures ETN VXX 17.35 18.23 (0.88) -4.83%
pShares VIX Short Term Futures ETF VIXY 1.55 12.18 (10.63) -87.27%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 10.66 11.09 (0.43) -3.88%
Inverse VIX ETP’s
Daily Inverse VIX Short Term ETN XIV 48.6 46.53 2.07 4.45%
ProShares Short VIX Short Term Future ETF SVXY 95.13 90.89 4.24 4.66%

Data Source: OptionVue7

The second quarter ends on Tuesday. Quite often markets will seen end of quarter machinations as money managers position themselves for the next quarter. The entire focus of the week will be the Greek debt crisis, the Shanghai sell-off and US job reports. The Shanghai Composite Index was down 12% for the week with a drop of 7.4% on Friday. The Shanghai Composite Index has lost 19% since June 12. Even with these losses the index is up 30% for the year.

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: ConAgra, General Mills, Paychex, Constellation Brands and International Speedway. 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. You should call an confirm earnings dates with the individual company’s investor relations department. 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 29:


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


International Economic: Germany CPI – 8:00 AM.


Optionable Earnings: None meeting criteria.


Tuesday June 30:


Economic: Redbook – 8:55, S&P Case-Shiller Home Price Index – 9:00, Chicago PMI – 9:45, Consumer Confidence – 10:00, State Street Investor Confidence Index – 10:00,


International Economic: Germany Unemployment Rate – 3:55 AM, Great Britain GDP – 4:30 AM, EMU Unemployment Rate – 5:00 AM, China PMI Manufacturing Index – 9:45 PM.


Other: The EU-IMF bailout for heavily indebted Greece expires on Tuesday.  St Louis Federal Reserve Bank President James Bullard speech in St. Louis.


Optionable Earnings:

Symbol Company Name June 26 Close IV30 B/A XEPS
CAG ConAgra Foods Inc $43.85 25.42 B $0.59


Wednesday July 1:


Economic: Motor Vehicle Sales, MBA Mortgage Applications – 7:00, Challenger Job-Cut Report – 7:30, ADP Employment Report – 8:15, Gallup US Job Creation Index – 8:30, Gallup US Payroll to Population – 9:30, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction Spending – 10:00,EIA Petroleum Status Report – 10:30.


International Economic: EMU PMI Manufacturing Index – 3:55 AM.


Optionable Earnings:

GBX Greenbrier Companies Inc $49.50 48.39 B $1.60
STZ Constellation Brands, Inc. $117.67 23.22 B $1.22


Thursday July 2:


Economic: June Employment Situation – 8:30, Weekly Jobless Claims – 8:30, Bloomberg Consumer Comfort Index – 9:45, Factory Orders – 10:00 , EIA Natural Gas Report – 10:30.


International Economic: Germany Retail Sales – 2:00 AM, EMU PPI – 5:00 AM, Japan PMI Composite – 9:35 PM, China PMI Composite – 9:45 PM.


Other: European Central Bank (ECB Minutes) – 7:30 AM.


Optionable Earnings: None meeting criteria.



Friday July 3:


All US Markets Closed – Banks Open


International Economic: EMU PMI Composite – 3:55 AM, EMU Retail Sales – 5:00 AM.


Monday July 6:


Economic: PMI Services Index – 9:45, Labor Market Conditions Index – 10:00, ISM Non-Manufacturing Index – 10:00, TD Ameritrade IMX, Gallup US Consumer Spending Measure – 1:00.


International Economic: Germany Manufacturer’s Orders – 2:00 AM.


Optionable Earnings: None meeting criteria.

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