Schaeffer's Trading Floor Blog

Signs of Complacency in the Volatility Complex

Investors are betting against VIX as it plumbs multi-year lows

by 8/22/2014 9:30 AM
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The CBOE Volatility Index (VIX) keeps drifting lower. And for a change, investors seem to want to play along. Interest in the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) is increasing, as per Bloomberg.

The Chicago Board Options Exchange Volatility Index, known as the VIX, has decreased 31 percent this month and investors are wagering on further declines. In the five weeks through Aug. 15, they put almost $320 million into the VelocityShares Daily Inverse VIX Short Term ETN (XIV) -- the longest stretch of weekly investments since the note began trading in 2010 ...

... After losing 12 percent in July as the Standard & Poor's 500 Index slipped 1.5 percent, both have rebounded in August, and shares outstanding of XIV have surged 33 percent this month, data compiled by Bloomberg show.

In a vacuum, that's somewhat bearish. VIX is pretty near multi-year lows again, and investors increasingly want to bet against it.

But perhaps it's more a function of the whole complex seeing increased interest.

XIV is the inverse of the iPath S&P 500 VIX Short-Term Futures ETN (VXX), and VXX almost always declines over time. So it's tough to ever argue with buying XIV. It can do well even in a flat VIX backdrop, as VXX will drift anyway. And it's not like the world has lost interest in VXX. It set a daily volume record on Aug. 1, and has a good shot at setting monthly records, as well.

What's more, VIX futures volume is soaring, as well. VIX futures volume averaged 292,683 contracts per day this month through Aug. 15, as per Matt Moran of the CBOE, vs. 159,498 in 2013.

Now, of course, not all that volume is generated by customers wanting to own VIX-something. There are many VXX and VIX futures shorts out there, as well. And all indications are that bearish bets on VIX are increasing all over the complex.

And prices of VIX protection have drifted, as well. Here's the VIX term structure now vs. on Jan. 15, a date where VIX was 12-ish. Hindsight tells us that was a four-month low in VIX. Chart courtesy of VIX Central.

VIX Term Structure

Investors are apparently increasing their bets against VIX at a time when they're getting less in the way of compensation to make those bets. The term structure still does slope upward; it's just flatter than before.

If you adopt a contrarian take to all things VIX, there are definitely signs of increasing complacency out there.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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Analyst Downgrades: Marvell Technology Group Ltd., Cyberonics, Inc., and Aeropostale Inc

Analysts issued bearish notes on MRVL, CYBX, and ARO

by 8/22/2014 9:26 AM
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Analysts are downwardly revising their ratings today on semiconductor concern Marvell Technology Group Ltd. (NASDAQ:MRVL), medical device maker Cyberonics, Inc. (NASDAQ:CYBX), and retailer Aeropostale Inc (NYSE:ARO). Here's a quick look at today's bearish brokerage notes on MRVL, CYBX, and ARO.

  • MRVL is getting hammered by analysts after issuing lackluster earnings guidance. No fewer than six brokerage firms cut their price targets on the stock, including Susquehanna and BMO, which both reduced their targets to $14 -- a hair's breadth from MRVL's current perch at $13.64. The initial earnings reaction doesn't bode well for the recent crop of Marvell Technology Group Ltd. bulls, who have picked up call options over puts at a faster-than-usual step recently.

  • CYBX gapped 6.1% lower to settle at $58.27 yesterday, as traders reacted to the company's weaker-than-expected fiscal first-quarter earnings. Canaccord Genuity is late to the party, but downgraded CYBX to "hold" from "buy," and sliced its price target to $52 from $63. There could be more downgrades in store for Cyberonics, Inc., as all but one of the analysts following CYBX offers up a "strong buy."

  • ARO is bracing for an 8% slide out of the gate, after the firm forecast a steeper-than-expected current-quarter loss. The equity is already down nearly 57% in 2014, and now sits at $3.91. On the analyst front, Jefferies cut its price target on Aeropostale Inc to $4 from $5, and offered up a "hold" rating. In light of the stock's dismal performance on the charts, it's not surprising to find most analysts are already in the bears' corner; not one of 22 brokerage firms deems it worthy of a "buy" rating.

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Analyst Upgrades:, inc., DISH Network Corp, and Dollar Tree, Inc.

Analysts issued bullish notes on CRM, DISH, and DLTR

by 8/22/2014 9:22 AM
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Analysts are upwardly revising their ratings today on cloud computing concern, inc. (NYSE:CRM), satellite TV provider DISH Network Corp (NASDAQ:DISH), and discount retailer Dollar Tree, Inc. (NASDAQ:DLTR). Here's a quick look at today's bullish brokerage notes on CRM, DISH, and DLTR.

  • CRM -- which settled at $55.71 on Thursday -- is pointed 2.5% higher in pre-market action, after the firm reported stronger-than-expected quarterly sales and upped its full-year guidance. As such, Pivotal Research raised its price target on CRM to $71 from $70, and offered up a "buy" rating. One group that may not be so happy about last night's earnings win:, inc. options traders, who bought to open puts over calls at a faster-than-usual clip leading up to the report.

  • Wunderlich hiked its price target on DISH by $4 to $60, after the firm said Senior VP of Programming Steve Swain will succeed Chief Financial Officer Robert Olson, who is retiring Oct. 15. The shares of DISH have added 12.8% in 2014, landing at $65.35 on Thursday. Nevertheless, more than half the analysts covering DISH Network Corp maintain "hold" or worse opinions, and the equity's 50-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 0.68 -- in the 99th percentile of its annual range. In other words, option buyers have picked up DISH puts over calls at a near-annual-high pace in recent weeks.

  • DLTR could be in a win-win situation, according to analysts at Sterne Agee. If the company's planned purchase of Family Dollar Stores, Inc. (NYSE:FDO) comes to fruition, DLTR's consensus fiscal 2015 earnings estimates could rise 5% to 7%, the brokerage opined. On the other hand, should Dollar General Corp. (NYSE:DG) up the ante and win the heart of the FDO board, Dollar Tree, Inc. can just use its $305 million termination fee and buy stores that DG and FDO may need to put up for sale in order to gain regulatory approval, reports Kevin Kingsbury with The Wall Street Journal. DLTR closed at $54.28 on Thursday, and is down 3.8% year-to-date.

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Buzz Stocks: Dynegy Inc., Sprint Corporation, T-Mobile US Inc, and El Pollo Loco Holdings Inc

Today's stocks to watch include DYN, S, TMUS, and LOCO

by 8/22/2014 9:17 AM
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Markets are poised for a slow start, as traders await this morning's speech from Federal Reserve Chair Janet Yellen. In company news, here are some names to watch.

  • Dynegy Inc. (NYSE:DYN) is positioned more than 17% higher ahead of the bell, after the company said it will scoop up roughly $6.3 billion worth of coal and gas assets from Duke Energy Corp (NYSE:DUK) and Energy Capital Partners. The acquisition -- which is expected to triple DYN's 2015 adjusted earnings -- will boost the energy firm's generating capacity in various parts of the Northeast, including Pennsylvania and New Jersey. (FOX Business)

  • Sprint Corporation (NYSE:S) and T-Mobile US Inc (NYSE:TMUS) continue to try and one-up each other on the pricing-plan front. The former announced an unlimited data plan for $60 a month -- in the wake of a change to its family plan unveiled earlier this week -- undercutting a similar plan from the latter by $20. TMUS is striking back, though, by offering existing subscribers free upgrades to unlimited data plans if they refer friends. (CNN Money)

  • El Pollo Loco Holdings Inc (NASDAQ:LOCO) is expanding its presence in the Southwest. The quick-service restaurant has signed a 20-franchise agreement with AA Pollo Inc. to build new restaurants in Houston and San Antonio. LOCO is also hoping an additional expansion into areas such as California and Nevada will help it achieve its 8-10% growth target. (MarketWatch)

  • A federal judge ruled against Allergan, Inc. (NYSE:AGN) on Thursday, saying the court would not accelerate the company's insider-trading lawsuit against Valeant Pharmaceuticals Intl Inc (NSYE:VRX) and Pershing Square Capital Management -- AGN's largest shareholder. Additionally, the judge did not delay a special shareholder meeting with VRX, which, with Pershing, is attempting a hostile takeover of AGN. (The New York Times)

  • Citigroup Inc (NYSE:C) is unable to sell its clients investments in both hedge and private-equity funds, due to restrictions stemming from its settlement with the Securities and Exchange Commission (SEC). C is in the process of resolving the issue with the SEC, and in the meantime, is still able to sell investments to large institutions. (Reuters, via CNBC)

  • A number of retailers reported earnings, including Aeropostale Inc (NYSE:ARO), Ann Inc (NYSE:ANN), Foot Locker, Inc. (NYSE:FL), GameStop Corp. (NYSE:GME), and The Gap Inc. (NYSE:GPS). (AP, via CNBC; Bloomberg Businessweek; MarketWatch; FOX Business)

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Options Check-Up: Biogen Idec Inc, Outerwall Inc, and AT&T Inc.

Analyzing recent option activity on BIIB, OUTR, and T

by 8/22/2014 7:43 AM
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Among the stocks attracting attention from options traders lately are biotechnology firm Biogen Idec Inc (NASDAQ:BIIB), kiosk concern Outerwall Inc (NASDAQ:OUTR), and telecom titan AT&T Inc. (NYSE:T). Below, we'll break down how option buyers are positioning themselves, and how much speculators are willing to pay for their bets on BIIB, OUTR, and T.

  • Put buyers have been active on BIIB recently, despite the stock's proven technical tenacity. In fact, shares are up roughly 60% year-over-year, yet BIIB's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.30 ranks in the bearishly skewed 88th percentile of its annual range. Given the equity's impressive gains, a portion of this put buying could be a result of shareholders protecting paper profits. Regardless, those purchasing BIIB's front-month options are able to do so at a relative bargain -- the stock's Schaeffer's Volatility Index (SVI) of 25% ranks lower than 87% of comparable readings taken in the past 12 months. On Thursday, Biogen Idec Inc closed at $338.65.

  • OUTR has rallied 12% month-to-date to trade at $61.66, thanks to a lift from its 10-day moving average. The stock is still sitting in the red on a year-to-date basis, though, and option traders are expecting the equity to resume its longer-term downtrend. At the ISE, CBOE, and PHLX, OUTR's 10-day put/call volume ratio of 8.42 ranks in the 92nd annual percentile, meaning puts have been bought to open over calls with more rapidity just 8% of the time within the past year. Front-month Outerwall Inc options are pricing in extremely low volatility expectations at the moment, as evidenced by the stock's SVI of 28%, which arrives lower than 97% of similar readings taken in the previous 52 weeks.

  • T has spent the past two weeks churning in a tight range between $34.20 and $35, and on Thursday, the stock settled right in the middle, at $34.64. Against this tepid technical backdrop, the equity has racked up a 10-day ISE/CBOE/PHLX put/call volume ratio of 3.81, which ranks just 6 percentage points from a bearish peak. At present, premium on AT&T Inc.'s front-month options is relatively inexpensive, per the equity's SVI of 12%, which ranks in the 12th percentile of its annual range.

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