CBOE turns 44 today, and we thought we'd provide 44 "fun facts" to mark the occasion.
The first day of trading for CBOE was April 26, 1973.
911 option contracts traded on the first day in 1973.
There were only 16 stocks with options on the first day.
Seats at CBOE were originally offered at $10,000.
Initially put options were not permitted for trading.
In 1973, the Black Scholes model was published in the Journal of Political Economy.
In 1977 CBOE was permitted[...]
I have a handful of former Options Institute students who like to keep me up on their trading. Yesterday morning I got an email from one who decided to take the other side of the big move to the upside in the S&P 500 (SPX). Just after the market open, when the SPX was at 2374, the trader sold the SPX Apr 24th 2370 Call for 6.40 and purchased the SPX Apr 24th 2380 Call for 1.45 and a net credit of 4.95. These options are Monday Weeklys and they expired on the close yesterday. [...]
Today I came across an Iron Condor initiated using MCD options expiring Friday and in anticipation of tomorrow morning's earnings announcement. Click on the image to watch today's episode and then read below for some more color on this neutral earnings play.
The colorful payout diagram below notes the short strikes were 3.5% higher and 3.9% lower than where MCD was trading. The average move for MCD stock is up or down just over 2% in reaction to earnings (based on the last 12 quarters). [...]
Small caps had a good week last week as the Russell 2000 (RUT) rose about 2.5% which places it up 1.67% for the year. The large cap focused Russell 1000 (RUI) was up just under 1% and is not up 4.96% for 2017.
VIX has worked higher as geopolitical risks have risen in the past couple of weeks and the Russell 2000 Volatility Index (RVX) has done the same. The result is a lower RVX to VIX risk premium, with this measure actually closing at a 2017 low on Friday.
On Friday there[...]
April VIX was retired last week and May became the front month. We have a volatility event this weekend which has resulted in a bit of front month vs spot VIX backwardation. I have a feeling that will not be the case as the election results are digested starting Sunday night.
The curve below shows VSTOXX versus the available VSTOXX futures contracts. Like VIX, April VSTOXX was retired with a settlement level in the mid-20's. Backwardation is a bit more obvious here which[...]
The VXST – VIX – VXV – VXMT curve is a textbook, “here’s what it looks like in front of an event”. The event being the first round (yes it doesn’t end Sunday) of the French Election. We will know when the markets open Monday morning who the two finalists are to be the next Presidence del al Republique. I do expect VXST to fall back in line come Monday morning, either with the longer dated contracts rallying but more likely due to VXST dropping[...]
We hit the busiest part of earnings season this week. The stocks below have Weeklys available for trading and the numbers represent the last 12 quarters of one day price reactions to their announcement (with one exception - PYPL). As always double check the dates as none have been confirmed.
The first round of the French Election occurs this coming weekend and the implied volatility of broad based options in Europe is taking notice. The European version of VIX is VSTOXX which is based on Euro Stoxx 50 Index options. Today VSTOXX closed over 24.00 as Euro Stoxx 50 options are pricing in high volatility over the next few weeks in anticipation of the market’s reaction to the French Election.
The VSTOXX futures market also (correctly) anticipated a rise in VSTOXX[...]
Earnings season is back in full swing. The stocks below have Weeklys available for trading and the numbers represent the last 12 quarters of one day price reactions to their announcement. As always double check the dates as none have been confirmed.
I was discussing the current state of the markets with a trader today and noted that VIX is perking up based on the uncertainty surrounding the upcoming French election. He challenged me on this and said the geopolitical situation had more to do with the recent rise in VIX, not the French election. I know I’m right and the picture below proves it.
Above is a depiction of the at the money implied volatility for SPX options expiring each Monday, Wednesday, and Friday for the[...]
Today’s What’s Trading episode was a discussion of a SPX Broken Wing Iron Butterfly expiring this coming Thursday April 13th. Link to the video is below and after that some additional commentary about today's trade.
Click Here for Today's Video
The payoff diagram below shows the outcome if this trade is held through Thursday’s close. Between 2345.60 and 2374.40 this trade makes a profit. The payoff diagram below also highlights that the risk of loss is bigger[...]
An emerging theme in 2017 is that when stocks come under pressure the Russell 2000 (RUT) seems to take it on the chin a bit more than the Russell 1000 (RUI). Last week the large cap focused RUI was lower by 0.33% while RUT lost just over 1.5%. This widens the lead that RUI has on RUT to about 4.5% for 2017.
With small caps leading stocks lower the relative level of small cap volatility remains high compared to large cap volatility. The best way to measure this is the CBOE[...]
When there is not a whole lot going on to impact the financial markets we can get fixated on different topics. Maybe that is what is going on with me and the French Election process. The steep difference between VXST and VIX on the chart below may reflect the time frame being measured by VXST being just short of the pending rise in implied volatility that is expected in front of round one of the election in a couple of weeks. It will be interesting to see if we get a relative rise[...]
The S&P 500 lost about 0.3% last week and VIX rose. I think the VIX to S&P 500 relationship is only part of the story related to VIX rising last week. It appears the pending election process in France is starting to influence US volatility. Note that April is a bit higher than May volatility in the orange circle on the chart below. This is a fairly rare occurrence for the futures considering the current low level of VIX. As long as there is a cloud of uncertainty[...]
About a year ago, we were all starting to focus on the Brexit referendum which we ‘knew’ wasn’t going to pass. There were several lessons from the Brexit experience with the top one being do not discount an election until all the votes are counted. This played out again in November, but that’s not what this blog is about. This blog is about how VSTOXX and VIX are behaving in front of the pending French election process.
First, going back to June 2016[...]