Trader Talk Archives - Cboe Blogs

  • Market News | Trader Talk | Trade Ideas | Jan 22, 2016, 10:23 AM

    Earnings Week of 1/25 - 1/29

    Earnings Week of 1/25 - 1/29

    Next week is the heaviest part of earnings season as you can see on the table below.  It is a holiday shortened week next week, but there’s plenty going on in the world of earnings as we start to move into the heavier part of earnings season.  The numbers below represent three years of history with a couple of exceptions which have not been around long enough to provide a full three years of history.  In those cases the data appears in italics.   After the ticker the columns[...]

  • Market News | VIX | Trader Talk | Trade Ideas | Jan 21, 2016, 7:28 AM

    VIX Backwardation Streak Updates

    VIX Backwardation Streak Updates

    Despite a late day recovery for the equity markets, all three measures of backwardation remained in place as of yesterday (1/20). The new front month is February.  VIX closed at 27.59 and the February VIX futures settlement came in at 24.725.  This is the 10th day in a row that VIX has closed higher than the front month future. The relationship between the front month and second month is most important to traders focused on the VIX related ETPs (VXX, SVXY, UVXY, etc) and the front month[...]

  • Weekly Review - Russell 2000 Index and Volatility 1/11 - 1/15

    Weekly Review - Russell 2000 Index and Volatility 1/11 - 1/15

    The Chicago Bears are doing the same thing the rest of us did this weekend, watching the playoffs from home.  However, the stock market bears have been dominate in 2016.  Russell 2000 (RUT) history goes back to 1987 so there is not a lot to work with, but the first ten days of 2016 are the worst first ten days on record for RUT.  The table below shows the first ten days for every year when RUT started off in the red followed by what the small cap oriented index did for the balance[...]

  • Caution on Using VIX vs. Oil as a Stock Market Signal

    Caution on Using VIX vs. Oil as a Stock Market Signal

    I awoke this morning to an email from the matriarch of CBOE-TV Holly Goodhart.  She was preparing for her day with CNBC on in the background and something caught her eye.  The following comes directly from her email – I have CNBC on this morning, and they just spent a segment discussing this headline: "Markets bottom when VIX is greater than oil." This didn’t sound right to me for a few reasons, primarily because I recall many years with the price of oil in the teens.[...]

  • Market News | VIX | Trader Talk | Futures | Jan 17, 2016, 1:07 PM

    Weekly Review - VIX Futures and Options - 1/11 - 1/15

    Weekly Review - VIX Futures and Options - 1/11 - 1/15

    Two tomatoes are walking down the street, momma tomato and baby tomato.  Baby tomato can’t keep and momma tomato keeps getting angrier and angrier.  Finally she stops, turns around and stomps on baby tomato.  She then states, “Catch up”. That’s what the VIX futures did this past week, with the stock market playing the role of baby tomato and getting stomped on.  When the dust settled this week VIX was actually up by 0.01 with VIX futures narrowing the gap. [...]

  • A Quick Look at VIX Backwardation Streaks

    A Quick Look at VIX Backwardation Streaks

    When VIX is relatively high the VIX term structure moves into what we commonly refer to as backwardation.  The way this may be defined varies among market participants, but most focus on the shorter end of the VIX curve.  That is what I’ve been doing lately as well.  It turns out, regardless of how you define VIX backwardation 2016 has experienced more instances of it than not for the first ten days of 2016.  The tables below rank the consecutive day streaks for VIX backwardation[...]

  • Trader Talk | Trade Ideas | Jan 13, 2016, 6:34 PM

    Earnings Week of 1/19 - 1/22

    Earnings Week of 1/19 - 1/22

    It is a holiday shortened week next week, but there's plenty going on in the world of earnings as we start to move into the heavier part of earnings season.  The numbers below represent three years of history with one exception (SYF) which hasn't been around long enough to provide a full three years of history.   After the ticker the columns show the biggest gain, biggest drop, average move (non-directional) and stock price reaction last quarter.

  • VIX | Trader Talk | Education | Jan 12, 2016, 3:40 PM

    The Blame Game

    The Blame Game

    Plenty of ink has been spilled about the selloff in global equity markets including SPX and RUT. We have been witness to an escalating VIX and RVX, albeit with significantly lower highs (to this point) when compared to the late August selloff. Psychologically, we like to be able to attribute market pullbacks to something specific. People want a narrative. They prefer to have something to point to and affix blame. Jesse Livermore famously spouted, “There is only one side of the market and it[...]

  • Market News | VIX | Trader Talk | Trade Ideas | Jan 11, 2016, 6:19 PM

    Block Trade Analysis - Huge 1 x 2 Jan VIX Call Spread from Monday

    Block Trade Analysis - Huge 1 x 2 Jan VIX Call Spread from Monday

    Today, while I was teaching at the Options Institute, a roar came up from the VIX pit about an hour into the trading day.  Despite the tumultuous market activity that we have experienced to begin the year, the audible volume from the open outcry pits has been fairly tame.  What got the guys going today was a very large ratio spread using January VIX Calls that expire on the open next Wednesday. The specific trade sold well over 100,000 of the 22 Calls and purchased twice as many of the[...]

  • Market News | Trader Talk | Jan 10, 2016, 9:00 AM

    Weekly Review - Russell 2000 Index and Options - 1/4 - 1/8

    Weekly Review - Russell 2000 Index and Options - 1/4 - 1/8

    With only one week behind us it is tough to show year to date charts for the Russell 1000 (RUI) and Russell 2000 (RUT).  I’ll just note that the bad week was broad based with RUI losing 6.04% and RUT dropping a whopping 7.90%.  The Russell 2000 drop is particularly noteworthy since it out did the late August one week drop by over 2%.  Small cap stocks had a tough 2015 and the underperformance has extended into the first week of 2016. On the trading front I noticed a big IWM trade[...]

  • Market News | VIX | Trader Talk | Futures | Jan 9, 2016, 9:00 AM

    Weekly Review - VIX Futures and Options 1/4 -1/8

    Weekly Review - VIX Futures and Options 1/4 -1/8

    The VIX curve moved from flat to backwardation as the S&P 500 dropped almost 5% to begin the year.  We finished the previous week with the curve pretty flat which is often considered an indication of uncertainty among volatility traders.  As a stretch of a visual I think about a flat volatility curve replicating a ‘fair coin’ which is the proper academic way to introduce a true 50 / 50 prospect.  That coin toss turned out to be extremely bearish for the equity markets[...]

  • Market News | VIX | Trader Talk | Futures | Jan 8, 2016, 7:30 PM

    Weekly Review - Volatility Indexes and ETPs - 1/4 - 1/8

    Weekly Review - Volatility Indexes and ETPs - 1/4 - 1/8

    The S&P 500 experienced the second worst week in performance since 2011.  For those with short memories, the worst week came about four months ago in late August.   What both these weeks have in common is China which continues to experience financial market woes and, despite their leader’s best efforts, there seems to be no end to the volatility coming out of that part of the world for the foreseeable future. The market action pushed all four S&P 500 related volatility[...]

  • Market News | Trader Talk | Strategy | Jan 7, 2016, 9:40 AM

    Earnings Week of 1/11 - 1/15

    Earnings Week of 1/11 - 1/15

    Next week things start to heat up in the earnings world.  AA reports on Monday which some consider the beginning of earnings season.  INTC and some financials finish out the week.  The numbers below represent three years of stock price reaction history to earnings announcements with the biggest gain, biggest drop, average move (non-directional) and stock price reaction last quarter.

  • Market News | VIX | Trader Talk | Strategy | Jan 6, 2016, 1:22 PM

    Small Caps in Turmoil, Albeit with Lower Anticipated Volatility

    Small Caps in Turmoil, Albeit with Lower Anticipated Volatility

    The Russell 2000 (RUT) is trading at 1094, 15% off all-time highs, and has only closed lower than this level on one occasion (9/29/15) in the past 14+ months. In October of 2014, amidst the worldwide Ebola scare, RUT closed at 1068 and traded as low as 1018. Implied volatility of RUT options however, is rather sanguine despite the selloff in the benchmark Small Cap index. The CBOE Russell 2000 Volatility Index (RVX) “measures the market’s expectation of 30-day volatility implicit in the[...]

  • Market News | VIX | Trader Talk | Strategy | Trade Ideas | Jan 5, 2016, 8:22 AM

    Block Trade Analysis - VXX Bearish and Bullish Trades from Monday

    Block Trade Analysis - VXX Bearish and Bullish Trades from Monday

    Days like yesterday get me searching for volatility oriented option trades.  I found two that caught my eye in the VXX option market and debated which one to discuss in this space.  After about three seconds of internal debate I decided to just talk about both. Both trades occurred in the middle of the day yesterday, one is bearish on VXX while the other benenfits if VXX spikes to the upper 20’s.  First the bearish trade. When VXX was at 21.90 there was a seller of the VXX Jan[...]