The Prepared Mind: May 16, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

“Chance favors the Prepared Mind.” – Louis Pasteur

“Sometimes a pessimist is only an optimist with extra information.” ― Idries Shah

“In the Information Age, the first step to sanity is FILTERING.  Filter the information: extract for knowledge.” – Marc Stiegler

“The four most dangerous words in investing are: ‘this time it’s different.'” – Sir John Templeton

There was cognitive dissonance in the market with the Commerce Department announcing a 1.3% increase in April retail sales (beating consensus estimates by nearly 1%) and with several big brick and mortar retailers announcing disappointing first quarter numbers.  Almost every group in the retail sector showed gains. Several factors pushed and pulled the market last week.  Estimates of second quarter range as high as 3%.  Early May consumer sentiment rose sharply.  The dollar was stronger pushing large caps lower.  Analysts opined the week’s news increased the odds of a rate hike at June’s FOMC meeting..  The net effect on the markets was a sell-off of 0.5% to a bit over 1% in the major indexes.

Here is an overview of the market behavior last week:

Index 13-May Weekly Change % Weekly  2015 YTD Volatility of  Index
Dow Jones Industrials (DJIA) 17,535.32 (205.31) -1.16% 0.63% 15.35% (VXD)
S&P 500 (SPX) 2,046.61 (10.53) -0.51% 0.13% 15.04% (VIX)
NASDAQ 100 (NDX) 4,326.11 (2.60) -0.06% -5.90% 17.10% (VXN)
Russell 2000 (RUT) 1,101.67 (13.84) -1.24% -2.84% 19.07% (RVX)
S&P 100 (OEX) 907.87 (4.23) -0.46% -0.39% 15.82% (VXO)
Crude Oil (CL M6) 46.37 1.81 4.06% 25.09% 41.57%(OVX)

Data Source: OptionVue7

The VIX is holding steady despite the downward move in the S&P500.  This is a continuation of the relationship first exhibited two weeks ago when the VIX dropped despite the SPX falling in price.  VIX futures were down.  e VIX futures curve is relatively flat between July and August.  Pundits are conjecturing the Fed will be a non-factor between the summer conventions and November’s election. The net of such inaction would be calm for the financial markets.  However, discussion about Brexit has been muted.  Great Britain is holding a referendum is being held on Thursday, 23 June to decide whether Britain should leave or remain in the European Union.  Markets do not like the unknown.  I expect volatility to increase as the referendum date approaches.

Two weeks ago, I told you about a massive VIX 1X2 spread (Buy 1 contract at a strike and sell 2 contracts at a different strike.)  The July spread was a buy of 100,063 VIX Jul 23 Calls at 1.50 and the sale of 200,126 July 30 Calls at 0.75 for even money,  The VIX July 23/30 1X2 call spread closed on Friday May 13 at $0.09,  $1..75 and $0.83.  The trade is currently up $0.09 or a gain of over $900,000.   This trade appears to be part of an ongoing campaign.    I do not know if this is a directional trade or a hedge of a long equity position.  I will continue to follow the position.

Here is today’s video blog:


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

Indexes Ticker 13-May 6-May Change % Change
CBOE Volatility Index VIX 15.04 14.72 0.32 2.17%
VIX May  Future (5/18/2016) VXK6 15.875 15.725 0.150 0.95%
VIX June  Future (6/15/2016) VXM6 18.075 18.325 (0.250) -1.36%
VIX July Future (7/20/2016) VXN6 19.225 19.475 (0.250) -1.28%
VIX August Future (8/17/2016) VXQ6 19.675 19.875 (0.200) -1.01%
CBOE Short-term Volatility Index VXST 14.15 13.38 0.77 5.75%
CBOE 3 Month Volatility Index VXV 18.25 18.27 (0.02) -0.11%
CBOE Mid-term Volatility Index (6 month) VXMT 20.25 20.40 (0.15) -0.74%
VIX of VIX VVIX 94.00 88.86 5.14 5.78%
CBOE SKEW Index SKEW 121.46 120.82 0.64 0.53%
Long VIX ETP’s
 iPath S&P 500  VIX Short Term Futures ETN VXX 15.67 15.97 (0.30) -1.88%
ProShares VIX Short Term Futures ETF VIXY 10.38 10.56 (0.18) -1.70%
 iPath S&P 500  VIX Mid-Tem Futures ETN VXZ 11.22 11.30 (0.08) -0.71%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 53.93 53.56 0.37 0.69%
Daily Inverse VIX Short Term ETN XIV 27.66 27.43 0.23 0.84%

Data Source: OptionVue7

Manufacturing and housing are the major themes with this coming week with reports on housing starts, industrial production, and existing home sales. The CPI will be released on Tuesday.  Analysts expect it to be higher due to increases in oil prices, and strengthening of the housing sector.  The highlight of the week will be the release on Wednesday of the minutes from the April FOMC meeting.  Positive reports are expected for the Thursday’s Philadelphia Fed Business Outlook Survey and the release of the Existing Home Sales Report on Friday.

Earnings reports have entered the doldrums between two earnings’ seasons.  Major retailers will be announcing earnings this week.  The first quarter earnings season winding down  The  The earnings highlights this week for widely held and actively traded stocks are Akorn, TJX Co., Home Depot, Synopsis. Staples. Hormel Foods, L Brands, Analog Devices, Urban Outfitters, Target, Williams-Sonoma, American Eagle Outfitters. Lowe’s,, Ross Stores, Gap, Dollar Tree, Advance Auto Parts, Wal-Mart, Autodesk, Toro, Dicks Sporting Goods, Footlocker, and Deere & Co.   Announcement dates and times can and do change.  It is your responsibility to confirm these times.

The following table will assist you in preparing for the upcoming earnings announcement cycle.  OptionVue7 has the ability to identify stocks 30 days out with a new enhanced Earnings Search feature.  I have done a quick search 7 to 35 days forward for candidates for double calendars. I generally put on earnings double calendars anywhere from one week to thirty days in advance of the announcement.   I usually take the calendars off at the last possible moments prior to the announcement.  I make the final decision exit prior to announcement or hold through the announcement on the last trading day prior to announcement.

I am continually reminded by the importance of liquidity in trading options.  A lack of liquidity in options is enough to make me walk away from a trade.  I have added option volume in to my earnings announcement tables.    I use the daily volume as an indicator of liquidity.  In addition, I have increase the minimum level of average daily option volume from 300 to 1,000 for these reports.

Here are the results of my initial scan for double calendar candidates.  You should further filter any of the stocks with your own risk/reward criteria.  This scan is available as a PDF.  Contact me a if you would like it sent to you or if you would like to be removed from the distribution list.

Symbol Company Name May 13 Close IV30 B/A DATE  OPT VOL
YY YY Inc (ADR) $45.07 57.51 AMC 24-May 2991
WUBA Inc (ADR) $50.43 50.29 BMO 25-May 1549
TIF Tiffany & Co. $66.37 38.07 BMO 25-May 4739
PVH PVH Corp $84.16 45.39 AMC 25-May 3082
DG Dollar General Corp. $83.69 30.83 BMO 26-May 3884
ULTA Ulta Salon, Cosmetics & Fragrance $207.43 41.52 AMC 13-Jan 4549
SPLK Splunk Inc $47.04 58.57 AMC 13-Jan 3011
SIG Signet Jewelers Ltd. $104.10 49.19 DMT 13-Jan 3484
DECK Deckers Outdoor Corp $53.27 51.37 AMC 13-Jan 1171
PANW Palo Alto Networks Inc $129.53 59.14 AMC 13-Jan 6904
WDAY Workday Inc $71.05 53.17 AMC 31-May 3584
KORS Michael Kors Holdings Ltd $43.79 62.10 BMO 1-Jun 7068
FIVE Five Below Inc $38.86 48.44 AMC 1-Jun 1567
AVGO Broadcom Ltd $141.04 41.55 AMC 2-Jun 7226
AMBA Ambarella Inc $35.38 60.59 AMC 2-Jun 6805
LULU Lululemon Athletica inc. $61.62 46.48 AMC 7-Jun 10932
BURL Burlington Stores Inc $53.51 42.82 BMO 7-Jun 1005
RH Restoration Hardware Holdings Inc $35.04 67.57 AMC 9-Jun 3995

Data Source: OptionVue7


Monday May 16:


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


International Economic:   No major announcements.


Other:  Minneapolis Federal Reserve Bank President Neel Kashkari will host a town hall about too big to fail issues in Minneapolis – 7:00PM.



Symbol Company Name May 13 Close IV30 B/A AVGVOL
AKRX Akorn, Inc. $26.41 75.95 BMO 2391



Tuesday May 17:


Economic:  Consumer Price Index – 9:30, Housing Starts – 8:30, Redbook – 8:55, Industrial Production – 9:15, E-Commerce Retail Sales – 10:00.


International Economic:  China Producer and Import Price Index – 3:17Am, EMU Merchandise Trade – 5:00AM, Japan GFP – 7:50PM.


Other:  San Francisco Federal Reserve Bank President John Williams and Atlanta Federal Reserve Bank President Dennis Lockhart will speak at a Politico event in Washington DC – 12:00PM, Dallas Federal Reserve Bank President Robert Kaplan is speaking in a moderated Q&A session followed by media availability at a community forum in Midland, Texas – 1:15PM,  Last day to trade May VIX futures and options.


Symbol Company Name May 13 Close IV30 B/A AVGVOL
VOD Vodafone Group Plc (ADR) $32.84 31.28 DMT 2432
HD Home Depot Inc $134.19 24.05 BMO 20258
TJX TJX Companies Inc $74.28 29.55 BMO 2389




Wednesday May 18:


Economic:  MBA Mortgage Applications – 7:00, Atlanta Fed Business Inflation – 9:15, EIA Petroleum Status Report – 10:30.


International Economic:  Japan Machine Orders – 7:50PM.


Other:  FOMC Minutes – 2:00PM.



Symbol Company Name May 13 Close IV30 B/A AVGVOL
HRL Hormel Foods Corp $40.21 27.86 BMO 1363
LOW Lowe’s Companies, Inc. $75.40 26.00 BMO 8660
TGT Target Corporation $75.60 29.59 BMO 14171
URBN Urban Outfitters, Inc. $26.90 55.97 BMO 1799
ADI Analog Devices, Inc. $54.90 30.13 AMC 1439
CRM, inc. $75.89 43.41 AMC 15732
CSCO Cisco Systems, Inc. $26.67 29.50 AMC 49035
CTRP International, Ltd. (ADR) $43.08 50.51 AMC 11314
LB L Brands Inc $67.42 31.52 AMC 3313


Thursday May 19

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

International Economic:   EMU European Central Bank Minutes – 7:30AM.

Other:  New York Federal Reserve Bank President William Dudley will speak on trends at NY Fed event followed by Q&A session in New York- 10:30AM.


Symbol Company Name May 13 Close IV30 B/A AVGVOL
DKS Dicks Sporting Goods Inc $42.06 45.49 BMO 3107
DLTR Dollar Tree, Inc. $80.29 33.52 BMO 3821
ROST Ross Stores, Inc. $55.09 35.53 BMO 2261
ADSK Autodesk, Inc. $58.06 40.07 AMC 3974
WMT Wal-Mart Stores, Inc. $66.85 24.96 29653


 Friday May 20:

Economic:  Existing Home Sales – 10:00, Baker Hughes Rig Count – 1:00.

International Economic:  Germany PPI – 2:00AM, Great Britain Industrial Trends Survey – 6:00AM.

Other:  May Options Expiration – Last day to trade expring standard equity, ETF, ETN options and PM-settled index options.


Symbol Company Name May 13 Close IV30 B/A AVGVOL
CPB Campbell Soup Company $66.50 22.74 BMO 5988
DE Deere & Company $84.15 30.34 BMO 16891
FL Foot Locker, Inc. $59.04 34.80 AMC 3560

Monday May 23:

Economic:  No major announcements

International Economic:   No major announcements.

Earnings: None meeting criteria.




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