The Prepared Mind: May 23, 2016

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

“Chance favors the prepared mind.” — Louis Pasteur

By Frank Fahey

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

“Reality is that which, when you stop believing in it, doesn’t go away.” Philip K. Dick

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

The Dow was down for the fourth straight week. While other major indexes showed modest increases.  Stock market pundits were wearing their bear hats this week.  The two “facts’ highlighted by various analysts.  “Fact” #1: A bull market has not gone a full year without making a new high since Valentine’s Day 1995.  “Fact” #2:  If the Dow does not gain 800 points within the next 10 days, it will be the longest stretch without a new high since January 28, 1985.  I do not need these “fact” to increase my wariness.  Thirty years of professional trading experience has permanently left my wariness at 11 on a scale of 1 to 10.

The release of the minutes of the FOMC April meeting showed members might raise interest rates as soon as June if the economy cooperated – specifically employment and inflation.  The April Consumer Price Index was released on Tuesday.  The CPI showed the largest increase in consumer prices since February of 2013 and the fifth consecutive month of annual growth above 2%.  Per the minutes, “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation marking progress toward the Committee’s 2.0% objective, then it would likely be appropriate for the Committee to increase the target range for the federal funds rate in June.”

Here is an overview of the market behavior last week:

Index 20-May Weekly Change % Weekly  2015 YTD Volatility of  Index
Dow Jones Industrials (DJIA) 17,500.94 (34.38) -0.20% 0.44% 14.48% (VXD)
S&P 500 (SPX) 2,052.32 5.71 0.28% 0.41% 15.20% (VIX)
NASDAQ 100 (NDX) 4,360.13 34.02 0.79% -5.16% 16.40% (VXN)
Russell 2000 (RUT) 1,111.15 9.48 0.86% -2.01% 18.40% (RVX)
S&P 100 (OEX) 909.15 1.28 0.14% -0.25% 15.26% (VXO)
Crude Oil (CL M6) 48.48 2.11 4.55% 30.78% 40.17%(OVX)

Data Source: OptionVue7

 

The VIX and related products showed little movement this week,  The exceptions were  the CBOE Short-term Volatility Index (VXST)  and the VIX of the VIX (VVIX).  The perceived inevitability of a June interest rate increase, combined with an upcoming holiday,  may have impacted the perception of volatility for the VIX in the short-term.

Three 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 20 at $0..15,  $1.45 and $0.65.  The trade is currently up $0.15 or a gain (before commissions) of over $1,500,000.   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 wonder what commission a customer of this size has to pay?  I will continue to follow the position.

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

Indexes Ticker 20-May 13-May Change % Change
CBOE Volatility Index VIX 15.20 15.04 0.16 1.06%
VIX June  Future (6/15/2016) VXM6 17.320 18.075 (0.755) -4.18%
VIX July Future (7/20/2016) VXN6 18.950 19.225 (0.275) -1.43%
VIX August Future (8/17/2016) VXQ6 19.575 19.675 (0.100) -0.51%
CBOE Short-term Volatility Index VXST 12.73 14.15 (1.42) -10.04%
CBOE 3 Month Volatility Index VXV 18.05 18.25 (0.20) -1.10%
CBOE Mid-term Volatility Index (6 month) VXMT 20.32 20.25 0.07 0.35%
VIX of VIX VVIX 85.46 94.00 (8.54) -9.09%
CBOE SKEW Index SKEW 125.81 121.46 4.35 3.58%
Long VIX ETP’s          
 iPath S&P 500  VIX Short Term Futures ETN VXX 15.10 15.67 (0.57) -3.64%
ProShares VIX Short Term Futures ETF VIXY 9.99 10.38 (0.39) -3.76%
 iPath S&P 500  VIX Mid-Tem Futures ETN VXZ 11.18 11.22 (0.04) -0.36%
Inverse VIX ETP’s          
ProShares Short VIX Short Term Future ETF SVXY 55.88 53.93 1.95 3.62%
Daily Inverse VIX Short Term ETN XIV 28.55 27.66 0.89 3.22%

Data Source: OptionVue7

The focus will be on the Fed this week.  Seven speeches by members of the Fed are scheduled for this week.  On Monday three regional Fed presidents will be speaking.  The week culminates with a speech on Friday by Janet Yellen, Chair of the Fed Board of Governors. Economic reports will focus on housing and manufacturing.  The holiday shortened week of May 31 to June 3 will be highlighted by “employment week.”

Earnings reports have are nearly none existent over the next two weeks. The earnings highlights this week for widely held and actively traded stocks are Computer Sciences, Toll Brothers, Valspar, Autozone, Intuit, Best Buy,Tiffany & Co, HP, Guess?, Williams-Sonoma, Sanderson Farms, Dollar Tree, GameStop, Deckers Outdoor, Dollar General, Ulta Salon and Big Lots.   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 fjfahey@gmail.com if you would like it sent to you or if you would like to be removed from the distribution list.

Symbol Company Name May 20 Close IV30 B/A DATE  OPT VOL
QIHU Qihoo 360 Technology Co Ltd $70.85 30.19 AMC 31-May 10859
WDAY Workday Inc $73.58 51.42 AMC 31-May 3641
FIVE Five Below Inc $38.76 50.31 AMC 1-Jun 1694
KORS Michael Kors Holdings Ltd $40.70 59.40 BMO 1-Jun 7460
AMBA Ambarella Inc $37.67 57.82 AMC 2-Jun 6224
AVGO Broadcom Ltd $142.74 41.58 AMC 2-Jun 7117
LULU Lululemon Athletica inc. $61.10 53.38 AMC 7-Jun 11149
RHT Red Hat Inc $72.44 26.13 AMC 15-Jun 2712
KMX CarMax, Inc $51.32 30.51 BMO 17-Jun 4338

Data Source: OptionVue7

 

Monday May 23:

 

Economic:  PMI Manufacturing Index Flash – 9:45.

 

International Economic:   Japan All Industry Index – 1:30AM, EMU/EC Consumer confidence Flash – 10:00AM..

 

Other:  St. Louis Federal Reserve Bank President James Bullard speech on the economy and monetary policy in Beijing followed by media availability – 5:30AM, San Francisco Federal Reserve Bank President John C. Williams speech on monetary policy in New York followed by media availability – 8:00am, Philadelphia Fed President Patrick Harker will speak to the Philadelphia Council for Business Economics followed by press availability in Philadelphia – 6:30PM.

 

 

Earnings: None meeting criteria.

 

 

 

Tuesday May 24:

 

Economic:  Redbook – 8:55, New Home Sales – 10:00, Richmond Fed Manufacturing Index – 10:00.

 

International Economic:  Germany GDP – 5:00.

 

Earnings:

Symbol Company Name May 20 Close IV30 B/A  OPT VOL
BBY Best Buy Co Inc $31.53 47.26 BMO 8500
TOL Toll Brothers Inc $26.75 33.21 BMO 1887
YY YY Inc (ADR) $44.45 53.02 AMC 3110

 

 

 

Wednesday May 25:

 

Economic:  MBA Mortgage Applications – 7:00, International Trade in Goods – 8:30, EIA Petroleum Status Report – 10:30, FHFA House Price Index – 9:00, PM I Services Flash = 9:45.

 

International Economic:  No Major Announcements.

 

Other:  Dallas Federal Reserve Bank President Robert Kaplan will speak in a moderated question and answer session in Houston – 1:00PM

 

Earnings:

Symbol Company Name May 20 Close IV30 B/A  OPT VOL
COST Costco Wholesale Corporation $142.70 22.53 BMO 9536
TIF Tiffany & Co. $63.28 44.20 BMO 5169
WUBA 58.com Inc (ADR) $49.01 50.02 BMO 1440
CTRP Ctrip.com International, Ltd. (ADR) $42.67 49.32 AMC 11180
NTAP NetApp Inc. $23.40 39.45 AMC 1740
PVH PVH Corp $86.42 49.48 AMC 2942
WSM Williams-Sonoma, Inc. $49.12 50.61 AMC 3539

 

 

Thursday May 26:

 

Economic:  Weekly Jobless Claims – 8:30, Durable Goods Orders – 8:30, Bloomberg Consumer Comfort Index – 9:45, Pending Home Sale Index – 10:00, EIA Natural Gas Report – 10:30, Kansas City Manufacturing Index – 11:00.

                                                                                                                                                                     

International Economic:   Great Britain GDP – 4:30AM, Japan CPI – 7:30PM.

 

Other:  St. Louis Federal Reserve Bank President James Bullard will give a speech on the economy and monetary policy followed by media availability in Singapore – 5:15AM, Federal Reserve Gov. Jerome Powell speech on the economy and monetary policy, in Washington – 12:15PM.

 

Earnings:

 

Friday May 27:

 

Economic:  GDP – 8:30, Corporate Profits – 8:30, Consumer Sentiment – 10:00, Baker Hughes Rig Count – 1:00.

 

International Economic:  No Major Announcements.

 

 

Other:  Federal Reserve Chair Janet Yellen will receive an award from the Radcliffe Institute for Advanced Study at Harvard University, and speak with Harvard Professor Gregory Mankiw – 10:30AM.

 

Earnings:

Symbol Company Name May 20 Close IV30 B/A  OPT VOL
SIG Signet Jewelers Ltd. $108.67 51.47 DMT 3575
ANF Abercrombie & Fitch Co. $23.88 64.30 BMO 5777
BURL Burlington Stores Inc $53.32 47.30 BMO 1295
DG Dollar General Corp. $82.00 31.65 BMO 3905
DLTR Dollar Tree, Inc. $76.91 37.07 BMO 4457
GME GameStop Corp. $28.55 48.35 BMO 7310
DECK Deckers Outdoor Corp $49.42 53.06 AMC 1111
PANW Palo Alto Networks Inc $139.21 51.52 AMC 6889
SPLK Splunk Inc $50.51 57.40 AMC 2907
ULTA Ulta Salon, Cosmetics & Fragrance, $207.89 43.80 AMC 4224

 

 

 

Monday May 30:

 

US Holiday – Memorial Day

All Markets Closed.

 

International Economic:   France GDP – 1:30Am, Germany CPI – 8:00AM, Japan Household Spending and Unemployment Rate – 7:30PM.

 

Earnings: None meeting criteria.

 

Tuesday May 31:

 

Economic:  Personal Income and Outlays – 8:30, S&P Case-Shiller HPI – 9:00, Chicago PMI – 9:45, Consumer Confidence – 10:00, Sate Street Investor Confidence Index – 10:00, Dallas Fed Manufacturing Survey – 10:30, Farm Prices – 3:00.

 

International Economic:  Germany Retail Sales – 2:00AM, France CPI and PPI – 2:45AM, Germany Unemployment Rate – 3:55AM, EMU Unemployment Rate – 5:00AM, China PMI Manufacturing Index – 9:45PM.

 

Earnings:

Symbol Company Name May 20 Close IV30 B/A  OPT VOL
QIHU Qihoo 360 Technology Co Ltd $70.85 30.19 AMC 10859
WDAY Workday Inc $73.58 51.42 AMC 3641

 

 

 

 

 

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