The Prepared Mind: September 21, 2015

https://tandemgeek.files.wordpress.com/2010/06/rocky2.jpgBy Frank Fahey

“And now, here to tell you everything about anything is Mr. Know-It-All.”

– Rocket J. Squirrel

 

Where is Mr. Know-It-All when we need him? Good news was once again bad news. A decision by the Fed to not raise interest rates was expect by the investment community to be bullish for the market. The announcement by the Fed not to raise rates initially sent the S&P 500 above 2,020. Weak signs of inflation and potential negative impact of global events were given as the reason for the delay during Fed Chair Janet Yellen’s press conference. The market response to these concerns resulted in a 3% sell-off on Thursday afternoon and Friday for the major indexes.

Here is an overview of the market behavior last week:

Index 18-Sep Weekly Change % Weekly 2015 YTD Volatility of Index
Dow Jones Industrials (DJIA) 16384.79 (48.30) -0.29% -8.07% 21.36% (VXD)
S&P 500 (SPX) 1958.08 (2.97) -0.15% -4.90% 22.28% (VIX)
NASDAQ 100 (NDX) 4337.12 12.54 0.29% 2.31% 23.60% (VXN)
Russell 2000 (RUT) 1165.81 5.97 0.51% -3.23% 23.70% (RVX)
S&P 100 (OEX) 861.39 (1.62) -0.19% -5.18% 23.20% (VXO)
CBOE Volatility Index (VIX) 22.28 (0.92) -3.97% NA  

Data Source: OptionVue7

 

Market implied volatility showed a minor decrease despite the indexes going lower. The VIX behaved much the same way equities due prior to an earnings announcement/event. Expect future Fed announcements to stimulate VIX levels. Earnings announcements and Fed/FOMC meetings are both volatility events. It should be noted volatility levels held for longer term CBOE volatility futures and indexes. The VXV – the CBOE 3 Month Volatility Index showed greater relative strength than other volatility indexes. This three month window coincides with the next FOMC meeting. Stay tuned for the Fed meetings in October and November and December’s FOMC meeting.

 

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

Indexes Ticker 18-Sep 11-Sep Change % Change
CBOE Volatility Index VIX 22.28 23.20 (0.92) -3.97%
VIX October Future VXV5 21.525 22.925 (1.400) -6.11%
VIX November Future VXX5 20.975 22.725 (1.750) -7.70%
VIX December Future VXZ5 20.800 22.350 (1.550) -6.94%
CBOE Short-term Volatility Index VXST 21.78 23.43 (1.65) -7.04%
CBOE 3 Month Volatility Index VXV 23.20 24.68 (1.48) -6.00%
CBOE Mid-term Volatility Index (6 month) VXMT 22.90 24.87 (1.97) -7.92%
VIX of VIX VVIX 116.26 119.09 (2.83) -2.38%
Long VIX ETP’s      
iPath S&P 500 VIX Short Term Futures ETN VXX 24.68 26.04 (1.36) -5.22%
pShares VIX Short Term Futures ETF VIXY 16.42 17.35 (0.93) -5.36%
iPath S&P 500 VIX Mid-Tem Futures ETN VXZ 12.56 13.44 (0.88) -6.55%
Inverse VIX ETP’s      
Daily Inverse VIX Short Term ETN XIV 25.89 25.27 0.62 2.45%
ProShares Short VIX Short Term Future ETF SVXY 50.64 49.38 1.26 2.55%

Data Source: OptionVue7

China’s President Xi Jinping holds a summit meeting with President Barack Obama in Washington. This summit will heighten focus by the media on concerns about the Chinese economy. Economic reports will focus on housing and Durable Goods Orders on Thursday, culminating with Friday’s final reading on Q2 GDP. A potential wild card is the threat by some Republican members of Congress to force a shutdown the government over Planned Parenthood and the treaty with Iran. Any movement in this direction would increase the volatility of an already skittish market.

Earnings will not impact the market this week. During my time as a market maker in equity pits at the CBOE , I was either trading earnings or preparing to trade earnings. It is time to start laying the groundwork for the next earnings cycle. Earnings announcements this week include: Neogen, Thor Industries, General Mills, Autozone, CarMax,, Fuller, ConAgra, Worthington Industries, Nike, KB Home, and Bed Bath & Beyond. It is time to lay groundwork for the next earnings cycle. 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 and confirm earnings dates with the individual company’s investor relations department. The October and November monthly expirations encompass over 90% of the 3nd 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 > 200 contracts. Once again, it is your responsibility to confirm these earnings dates. The date and time of earnings announcements can and do change.

Advice to stimulate your imagination:

 

“Chance favors the Prepared Mind.” – Louis Pasteur

“It is not certain that everything is uncertain.” – Blaise Pascal
“We’re not going to be disrespected,” We have to get something out of this.

And I don’t know what that even is.” – Marlin Stutzman, Indiana Congressman

 

 

 

Monday September 21:

 

Economic: Existing Home Loans – 10:00, Atlanta Fed Business Inflation Expectations – 10:00.

 

International Economic: Germany PPI – 2:00 AM. Markets closed in Japan.

 

Other: Atlanta Federal Reserve Bank President Dennis Lockhart speech in Atlanta – 1:00.

 

Optionable Earnings:

Symbol Company Name Sept 18 Close IV30 B/A
LEN Lennar Corporation $52.98 33.29 BMO
RHT Red Hat Inc $71.38 43.53 AMC

 

 

Tuesday September 22:

 

Economic: Rebook – 8:55, FHFA House Price Index – 9:00, Richmond Fed Manufacturing Index – 10:00..

 

International Economic: Great Britain CBI Industrial Trends Survey – 6:00 AM, China PMI Flash Manufacturing – 9:45 PM.

 

Other:   Atlanta Federal Reserve Bank President Dennis Lockhart speech in speech in Montgomery, Alabama -7:00.

 

Optionable Earnings:

Symbol Company Name Sept 18 Close IV30 B/A
AZO AutoZone, Inc. $734.62 25.07 BMO
CAG ConAgra Foods Inc $42.75 26.23 BMO
CCL Carnival Corp $52.74 30.33 BMO
KMX CarMax, Inc $61.96 40.95 BMO
DRI Darden Restaurants, Inc. $70.28 31.61 AMC

 

 

 

Wednesday September 23:

 

Economic: MBA Mortgage Applications – 7:00, PMI Manufacturing Index Flash 9:45, EIA Petroleum Status Report – 10:30.

 

International Economic: France GDP – 2:45 AM.

 

Other: Atlanta Federal Reserve Bank President Dennis Lockhart speech in Columbus, Georgia – 12:30.

 

Optionable Earnings: None meeting criteria.

 

 

Thursday September 24:

 

Economic: Weekly Jobless Claims – 8:30, Durable Goods Orders – 8:30, Chicago Fed National Activity Index – 8:30, Bloomberg Consumer Comfort Index – 9:45, New Home Sales – 10:00, EIA Natural Gas Report – 10:30, Kansas City Fed Manufacturing Index – 11:00.

 

International Economic: France Business Climate Indicator – 3:45 AM, Japan CPI – 7:30 PM.

 

Other: Federal Reserve Chair Janet Yellen speech at the University of Massachusetts, Amherst – 5:00 PM.

 

Optionable Earnings:

Symbol Company Name Sept 18 Close IV30 B/A
JBL Jabil Circuit, Inc. $20.23 38.86 AMC
ACN Accenture Plc $98.53 28.17 BMO
CTAS Cintas Corporation $86.64 25.10 AMC
NKE Nike Inc $115.27 26.50 AMC
BBBY Bed Bath & Beyond Inc. $61.88 34.68 AMC

 

 

Friday September 25:

 

Economic: GDP – 8:30, Corporate Profits – 8:30, PMI services Flash – 9:45, University of Michigan Consumer Sentiment – 10:00, Baker-Hughes Rig Count – 1:00.

 

International Economic:  EMU M3 Money Supply – 4:00 AM.

 

Other: Kansas City Federal Reserve Bank President Esther George speech on the economy and monetary policy, in Omaha – 1:25 PM.

 

Optionable Earnings:

Symbol Company Name Sept 18 Close IV30 B/A
FINL Finish Line Inc $25.27 50.89 AMC

 

 

Monday September 28:

 

Economic: Personal Income and Outlays – 8:30, Pending Homes Sales Index – 10:00, Dallas fed Manufacturing Survey – 10:30.

 

International Economic: No major announcements.

 

Other: New York Federal Reserve Bank President William Dudley interviewed by the Wall Street Journal – 7:45 AM, Chicago Federal Reserve Bank President Charles Evans speech on monetary policy, in Milwaukee – 1:30 PM, San Francisco Federal Reserve Bank John Williams speech to UCLA Anderson Forecast conference, in Los Angeles – 5:00PM.

 

Optionable Earnings:

Symbol Company Name Sept 18 Close IV30 B/A
CALM Cal-Maine Foods Inc $57.49 45.90 BMO

 

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