Education Archives - Cboe Blogs

  • Market News | VIX | Trader Talk | Education | Sep 3, 2015, 3:17 PM

    Block Trade - RUT Bull Put Spread That's More Like Just Shorting a Put

    Block Trade - RUT Bull Put Spread That's More Like Just Shorting a Put

    Before getting to the trade, indulge me for a second while I show the value of selling puts in a broad based market index... The CBOE S&P 500 PutWrite Index (PUT) is an excellent depiction of the benefits of selling puts.  The chart below shows the performance of PUT versus the total return for the S&P 500 from January 1990 through the end of August 2015.  Both returns are displayed assuming $100 was invested at the beginning of 1990.  Note over time PUT outperforms[...]

  • Education | Sep 2, 2015, 5:31 PM

    Flash Crash 2015:  Did You Miss It?

    Flash Crash 2015:  Did You Miss It?

    When markets opened on Monday, August 24, a slew of sell orders were already lined up, causing many computer systems to go haywire. Many brokers were locked out, and with market makers and specialists unwilling to take action, we saw enormous bid/ask spreads, stops being hit at very low levels, and frozen markets. This all occurred at the opening bell, and it was quickly fixed when some traders saw opportunity and dove right in on the buy side. This was flash crash 2015, and it happened so quickly[...]

  • Trader Talk | Education | Aug 19, 2015, 2:44 PM

    Unusual Option Pricing in SHAK Explained

    Unusual Option Pricing in SHAK Explained

    After what seemed like a long wait for some anxious traders, options on Shake Shack (SHAK) commenced trading last week. The chart below is a depiction of weekly price action in SHAK since the company went public early this year.   I can see why traders were clamoring for the listing of SHAK options. Something in the SHAK option arena that has gotten a lot of attention is what appears to be a breakdown in put-call parity. Using options, a trader can create a synthetic long position in SHAK[...]

  • Trader Talk | Education | Trade Ideas | Aug 18, 2015, 4:33 AM

    Gilead Sciences Inc. (GILD) Risk, Did Option Market Price It Correctly?

    Gilead Sciences Inc. (GILD) Risk, Did Option Market Price It Correctly?

    Editor’s note:  Park Research LLC @ParkResearch is a relative newcomer to the CBOE Options Hub family.  “Gilead Sciences Inc. (GILD) has 12 products in the Phase II trials and 7 products in the Phase III trials. Everything about the company’s fundamentals can change in a single day when the FDA makes a definitive decision on a late stage drug trial.” (http://www.cmlviz.com/cmld3b/lite.php?app=rc&ticker=GILD) As option traders, we constantly look for[...]

  • Market News | Education | Aug 7, 2015, 4:14 PM

    TYVIX Weekly Review: Is Fed Fatigue Setting In?

    TYVIX Weekly Review: Is Fed Fatigue Setting In?

      As market participants returned to the view this week that a September (rather than December) fed fund hike may be more likely, backed up in part by an as-expected U.S. July employment report on Friday, expected Treasury volatility measures through December 2015 decreased, but just barely. At week’s end, the TYVIX Index was still about 1 index point below its value at the beginning of July, as were futures on TYVIX.  This suggests the 10-Year Treasury market is indifferent to whether[...]

  • CBOE Continues to Empower Investors with its Acquisition of Livevol, Inc. Technology

    CBOE Continues to Empower Investors with its Acquisition of Livevol, Inc. Technology

    Today is a fantastic and exciting day for CBOE Holdings and Livevol, Inc., but more importantly for the sophisticated investor community who trade equity and index options.  As you may know, the CBOE announced today that its acquisition of the market data services and trading analytics platforms of Livevol, Inc. has officially closed.  Livevol is the leader and industry authority on equity and index options technology and market data services, which are widely used by both institutional[...]

  • Education | Aug 6, 2015, 12:46 PM

    DIARY of a FIRST TIME TRADER – Oops I did it again!

    DIARY of a FIRST TIME TRADER – Oops I did it again!

    So I just started trading…about 2 weeks ago.  I’d been thinking about it for years, I’ve watched thousands of options videos.  Literally thousands!  I’m the producer of CBOETV so, yeah, I’ve created…edited…filmed…reviewed ohhhhhhhh about 10K options related videos.  BUT I’d never placed a single options trade.  I decided it was time to stop buying shoes, and start trading options! Of all the strategy content I’ve[...]

  • Education | Aug 3, 2015, 3:35 PM

    Options Strategy: The Iron Butterfly

    Options Strategy: The Iron Butterfly

    The curiously-named "iron butterfly" is a complex strategy offering limited losses and limited profits. It is an expanded version of the basic butterfly (two separate spreads offsetting one another). The "iron" version is a combined straddle consisting of four options instead of the butterfly's three. An iron butterfly can be either long or short. The long version consists of a long call and long put at the same strike; and a lower-strike short put plus higher-strike short call.[...]

  • Education | Trade Ideas | Aug 3, 2015, 8:08 AM

    SPX Version of SPY Hedge from Barron's

    SPX Version of SPY Hedge from Barron's

    Over the weekend, there was a discussion of hedging portfolios with options in my favorite column, The Striking Price, which appears every weekend in Barron’s. Steve Sears relayed a reader request to Stephen Solaka who manages money for Belmont Capital out in sunny but dry California. The question was basically, “How do I go about hedging a $1 million portfolio if I am concerned about the equity market over the near term?” The response, formulated when the SPY ETF was trading around[...]

  • VIX | Education | Strategy | Trade Ideas | Aug 2, 2015, 5:17 PM

    July: Tricky by Anyone's Standards

    July:  Tricky by Anyone's Standards

    Editors note – we would like to welcome Meredith Kelley Zidek as a new contributor to the CBOE Options Hub.  Meredith is a private investor whose interests include equities, options, and commodities.  She began trading equities in 2007, and since then has cultivated interests in corn, energy, and most recently, index and equity options. Almost all of her trading, which can be seen on grapestrades.blogspot.com, involves short options on volatility-related instruments.  She studies[...]

  • Education | Aug 2, 2015, 11:30 AM

    Options: Delta Neutral Trades

    Options: Delta Neutral Trades

    A delta neutral trade is one in which a long and short option contain offsetting delta so that the net delta is at or near zero. Delta is a measurement of the degree in an option's price movement when the underlying moves. The theme of delta neutrality can refer to many differently constructed strategies including spreads (covered and uncovered) and straddles. When an option position is covered with long stock (one short call offsetting 100 shares of stock), the delta neutrality creates an equivalent[...]

  • Market News | Education | Jul 31, 2015, 1:44 PM

    Volatility of VXTY Futures in an Illiquid Treasury Market

    Volatility of VXTY Futures in an Illiquid Treasury Market

    A recurring topic of discussion among market participants is how illiquid the Treasury market has become and what impact this will have on volatility.   In particular, there is concern over a possible repeat of the “flash crash” of October 15, 2014, when a surge of volume in the CME’s 10-year Treasury futures pushed down Treasury yields and added two index points to the TYVIX Index in the course of 15 minutes. Figure 1. TYVIX on October 15, 2014  From the point of[...]

  • Education | Jul 23, 2015, 4:00 PM

    VIX Futures Spread: A Favorite Tool for Picking Bottoms of S&P-500 Cash Index

    VIX Futures Spread: A Favorite Tool for Picking Bottoms of S&P-500 Cash Index

    As the S&P-500 Cash Index (SPX) has become the de-facto benchmark for the US equity markets (DJIA belongs to the abacus era), picking tops and bottoms of the SPX has become a favorite of many market timers. As we all know, volatility at market tops tend to be relatively low, while at the bottoms it tends to spike. Taking that information and turning it into a time series provides a reasonable quantitative tool with which we can reliably pick bottoms—and perhaps also tops—in SPX within[...]

  • Technical Analysis & Charts | Education | Jul 22, 2015, 1:26 PM

    Options Income Strategies:  Understanding the Technicals

    Options Income Strategies:  Understanding the Technicals

    One of the things I am asked the most about is options income strategies. As a technician, my answer is always the same - you need to have a deep understanding of the technicals and the patience and discipline to analyze the charts. At its core, technical analysis is simply interpreting behavioral patterns on a chart. The goal is to interpret the patterns correctly; if you do, you can expect them to occur again in the future. That's because when it comes to money, human behavior does not change on[...]

  • Market News | Education | Jul 21, 2015, 2:09 PM

    VIX Near the Bottom?

    VIX Near the Bottom?

    The VIX has a highly negative correlation to the SPX. The VIX is priced upon the time value that is embedded in the premium of SPX options. When stocks fall they usually move much more rapidly to the downside than they move to the upside. As the stocks fall investors rush  to scoop up puts that provide downside protection or grabbing calls should there be a correction. Insurance for a beachside cottage is much more expensive when a hurricane hits ten miles offshore than when there hasn’t[...]