Schaeffer's Trading Floor Blog

What We Definitely Maybe Know About VIX in 2015

After a big drop in February, what's next for CBOE Volatility Index (VIX)?

by 3/2/2015 9:04 AM
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Remember all those predictions that 2015 would see a return to "normal" volatility? Yeah, not so much anymore. As we noted the other day, the CBOE Volatility Index (VIX) has had its worst calendar month ever. And it's still overpriced. That's because realized volatility has utterly collapsed. Ten-day realized volatility in the SPDR S&P 500 ETF Trust (SPY) is now 3.9, roughly 30% of VIX. And that's high realized volatility compared to the iShares Russell 2000 ETF (NYSEARCA:IWM), which now checks in at an almost incomprehensible 3.1.

Just to quickly review: 4 volatility translates to two-thirds of trading days seeing a range of 0.25% or less in the underlying index. A volatility index looks forward, and (rightly) prices in an uptick in volatility. But over time, options owners lose money if they keep overpaying versus the actual volatility, so the numbers will converge, in some fashion, somewhere down the line.

So, does this "prove" all those 2015 volatility calls are wrong? Of course not. Volatility moves up and back over time, but never really gets anywhere. It mean-reverts. The "mean" eventually changes, but it's a slower process than we all give it credit for. We saw an up-wave all of about a month and a half ago. Now we're seeing a down-wave. It's probably safe to conclude that the mean really hasn't changed just yet. In other words, we're probably still in a low-volatility regime, though likely at the tail end.

But rest assured, all 2015 volatility calls still have a good chance of proving correct. It just depends on your metric. The VIX itself closed 2014 on an up-wave, ending the year at 19.20. So, there's a very good chance it will close down in 2015. Mean and/or median are a better gauge of VIX over a given time frame. Median is better, in my honest opinion, in that the mean can get thrown off by a few outliers.

Anyway, the VIX median in 2014 was 14. The 2015 median could very likely go out above that. I would have called that a "definite" a few weeks ago; I'll have to downgrade that to a "definite maybe" now.

These are just two ways to judge volatility. There are others (and other volatility indexes, for that matter). Regardless, it's likely we can get different answers depending on how the question is presented. But it shouldn't really matter. I did call for 2015 to see increased volatility on a median basis. I'll stick with that and say this is likely a down-wave in a slowly increasing volatility world.

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

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Markets Stay Open as Picture of Blue or White or Gold Dress Destroys the World

How the picture of one dress is changing humanity forever

by 2/27/2015 2:46 PM
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Just a couple days ago, everything was normal. People went on walks. Kids went to school. Adults went to work. But now, things are different, and it's unlikely they'll ever be the same.

The world is no stranger to division. Just here in America, we've seen all sorts of fierce rivalries: Republicans vs. Democrats; Team Edward vs. Team Jacob; Mayonnaise vs. Miracle Whip; Batman fans vs. Superman fans; The Coca Cola Co (NYSE:KO) vs. PepsiCo, Inc. (NYSE:PEP); Apple Inc. (NASDAQ:AAPL) vs. BlackBerry Ltd (NASDAQ:BBRY) (and everyone). But never before has this country -- this entire planet -- been so split, so polarized and confused.

All over a dress.

This picture has gone viral, as people cannot seem to figure out what color it is. Many see it as blue and black, while others see it as white or gold or I don't know what -- I'm a part of the Blue Dress Group.

The picture has sparked confusion beyond anything anyone has ever seen. Last night, at four in the morning, my girlfriend shook me out of my slumber and shoved her phone in my face. "What color is this dress?" she asked me. I told her it was unequivocally blue. I am now searching for another place to live, and a new girlfriend.

It's clear that people who see the dress as different colors cannot co-exist. For, if they can't agree on the color of a wardrobe, what hope do they have of ever accomplishing anything else? They'll spend all day, holding up random objects, asking each other, "What color is this!? Is this blue or gold?"

There have even been reports of people looking at the picture, and seeing it as blue, and looking back later, and seeing it as white or gold. Which makes one wonder: where did this dress come from? Is this all a conspiracy? If so, how high up does it go?

Apparently, as we speak, the populations of all major U.S. cities are being evacuated and separated based on what color they think the dress is. The divide between Blue Dress Group and Gold/White Dress Group is too deep, and irreparable. Special fenced-in areas are being set up for each group. Issues have arisen, however, since colored flags were used to designate each area, and citizens could not agree on which area belonged to which group. Things have gotten so bad, the world's brightest minds have put all else aside just to get to the bottom of this mystery.

Of course, amazingly, the stock market has remained open amid of all this. We're still awaiting word from President Obama.

Personally, I don't know where to go next. My entire family belongs to the Gold/White Group, and I'm unsure if I'll ever see them again. I just hope someone out there can provide answers, and start to piece together the world I once loved.

Luckily, we were given a response by the person who would know best. Finally, it appears as though we can have some clarity. I'm glad she's in my group.

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Earnings Preview: Halozyme Therapeutics Inc., Palo Alto Networks, Inc., and Stratasys, Ltd.

Analyzing recent option activity on Halozyme Therapeutics, Inc. (HALO), Palo Alto Networks Inc (PANW), and Stratasys, Ltd. (SSYS)

by 2/27/2015 2:34 PM
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Among the stocks gearing up to report earnings on Monday are biopharmaceutical firm Halozyme Therapeutics, Inc. (NASDAQ:HALO), network security firm Palo Alto Networks Inc (NYSE:PANW), and 3-D printing specialist Stratasys, Ltd. (NASDAQ:SSYS). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on HALO, PANW, and SSYS.

  • HALO, which will release its fourth-quarter earnings report Monday night, has been on a hot streak, with the shares up 54.9% year-to-date -- despite a 2.1% drop so far today -- to hit $14.95. Accordingly, call activity is popular in Halozyme Therapeutics, Inc.'s options pits, as its 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 11.89 sits in the 68th percentile of its annual range. Meanwhile, in the session following its last four earnings reports, the shares of HALO have dropped an average of 3%. Traders are paying below-average prices for their near-term bets on the stock, as its Schaeffer's Volatility Index (SVI) of 62% sits in the 30th percentile of all similar readings taken over the past year.

  • PANW has also been a technical outperformer, with the shares notching a fresh all-time high of $146.28 yesterday. In today's session, the stock was last seen lingering near $142.36, which translates into a 99.1% year-over-year gain. Not surprisingly, sentiment in the Palo Alto Networks Inc's options pits is nearing a bullish peak ahead of Monday night's fiscal second-quarter earnings report. Specifically, the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.98 sits just 8 percentage points away from the highest similar reading taken over the past year. Traders hoping for PANW to continue its uptrend may have history on their side -- in the session following its last four earnings reports, the shares have advanced 6.6%, with the equity failing to have a negative post-earnings session since May 31, 2013. Historically speaking, speculators are paying inexpensive prices for their bets on the stock, as its SVI of 45% sits in the 27th percentile of its annual range.

  • On the other hand, SSYS, with the shares down 53.3% year-over-year to trade near $61.23. However, sentiment in the stock's options pits is call-heavy ahead of Monday morning's fourth-quarter earnings report -- which the company offered up a poorly received outlook for earlier this month. Drilling down, Stratasys, Ltd.'s 50-day ISE/CBOE/PHLX call/put volume ratio of 1.71 sits in the 79th percentile of its annual range. Additionally, in the session following its last eight earnings reports, SSYS has gained an average of about 3%, including a 14.9% pop on Aug. 7, 2014. Near-term options for the security are available for slightly above-average prices, as its SVI of 54% sits in the 60th percentile of its annual range.

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Analyst Update: Aruba Networks, Inc., Infoblox Inc., and Potbelly Corporation

Analysts adjusted their ratings on Aruba Networks, Inc. (ARUN), Infoblox Inc (BLOX), and Potbelly Corp (PBPB)

by 2/27/2015 11:52 AM
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Analyst Update: Aruba Networks, Inc., Infoblox Inc., and Potbelly Corporation Subtitle: Analysts adjusted their ratings on Aruba Networks, Inc. (ARUN), Infoblox Inc (BLOX), and Potbelly Corp (PBPB) Description: Analysts adjusted their ratings on Aruba Networks, Inc. (NASDAQ:ARUN), Infoblox Inc (NYSE:BLOX), and Potbelly Corp (NASDAQ:PBPB) Keywords: Aruba Networks Inc, ARUN, Infoblox Inc, BLOX, Potbelly Corp, PBPB

Analysts are weighing in today on network solutions providers Aruba Networks, Inc. (NASDAQ:ARUN) and Infoblox Inc (NYSE:BLOX), as well as restaurant chain Potbelly Corp (NASDAQ:PBPB). Here's a quick look at today's brokerage notes on ARUN, BLOX, and PBPB.

  • ARUN has had a big week in the news, as the company released an impressive fiscal second-quarter earnings report last night, following earlier rumors that Hewlett-Packard Company (NYSE:HPQ) might buy the company out. In response, no fewer than 14 brokerage firms upped their price targets on the equity, boosting the shares to hit an annual high of $24.48 before falling to $24 for a 6.2% gain. Drilling down, the loftiest hikes came from Cowen and Company and Dougherty & Company, which raised their respective price targets to $34 and $29. Aruba Networks, Inc. has been skyrocketing on the charts lately, with the shares up 32.3% year-to-date. However, traders have been buying to open puts over calls, as ARUN's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.60 sits in the 71st percentile of its annual range. What's more, short interest accounts for over 10% of the stock's available float, which would take more than four days to cover, at average daily trading volumes.

  • BLOX reported a fiscal second-quarter earnings beat last night, prompting no fewer than eight brokerage firms to raise their price targets on the equity. Specifically, the most ambitious targets came from Cowen and Company and JMP Securities, which upped their respective price targets to $30 and $29, with both firms keeping a "market outperform" rating. This morning, the shares of Infoblox Inc hit an annual high of $25 before settling at $23.55 for a 10.7% gain. Year-to-date, the equity is up about 16.5%. Despite BLOX's technical fortune, sentiment in the options pits is put-skewed, as its 50-day ISE/CBOE/PHLX put/call volume ratio of 0.18 sits in the 78th percentile of its annual range.

  • Last night, PBPB announced that Chief Financial Officer Charles Talbot is resigning from his position to take a job outside of the restaurant business. Reacting was Piper Jaffray, which cut its price target to $12 from $16 and downgraded its opinion to "underweight" from "overweight," sending the shares 7.4% lower this morning to hit $13.60. Looking back, Potbelly Corp has been struggling, down about 36.5% year-over-year. Surprisingly, calls are popular in the options pits, as PBPB's 50-day ISE/CBOE/PHLX call/put volume ratio of 2.48 sits in the bullishly-skewed 78th percentile of its annual range. However, short interest accounts for almost 24% of the stock's available float, which would take nearly 22 trading days to cover, at average daily trading volumes. In other words, some of the call buyers may be short sellers picking up insurance against an upside move in PBPB.

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Buzz Stocks: Biogen Idec Inc., Vitae Pharmaceuticals, Inc., and Horizon Pharma Public Limited Company

Today's stocks to watch include Biogen Idec Inc (BIIB), Vitae Pharmaceuticals Inc (VTAE), and Horizon Pharma PLC (HZNP)

by 2/27/2015 9:51 AM
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U.S. benchmarks are slightly lower this morning, as traders take in an in-line fourth-quarter gross domestic product (GDP). Among the equities in focus are drugmakers Biogen Idec Inc (NASDAQ:BIIB), Vitae Pharmaceuticals Inc (NASDAQ:VTAE) and Horizon Pharma PLC (NASDAQ:HZNP).

  • This morning, BIIB and Swedish Orphan Biovitrum AB announced positive top-line efficacy and safety results for the hemophilia drug, alprolix, in their phase 3 pediatric study. The news has the shares of the former stock up slightly out of the gate, gaining 0.2% at $410.19. Biogen Idec Inc's year-to-date lead now stands at roughly 21%, yet put buyers have been piling on recently. BIIB's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.09 ranks higher than 71% of all similar readings from the past year. In other words, puts have been bought to open over calls at a faster-than-normal rate recently. Meanwhile, analysts have shown confidence in the security, with 76% of covering brokerage firms calling it a "buy" or better.

  • VTAE is getting walloped this morning, down 13.3% at $11.51, after partner Boehringer Ingelheim put a temporary clinical hold on its experimental Alzeimer's drug to investigate potential side effects. The stock is used to disappointment, considering it's lost 51% since hitting an all-time high of $23.35 on Dec. 11. Brokerage firms have maintained their faith, though. All the analysts covering Vitae Pharmaceuticals Inc say it's a "strong buy," while the equity's consensus 12-month price target of $21.75 comes in at a 47% premium to current trading levels. However, just this morning, JMP Securities reduced its price target on VTAE to $16 from $21.

  • Last night, HZNP reported fourth-quarter net sales and profit that beat analysts' expectations, and also upped its full-year revenue forecast. As such, the stock is up 11.9% this morning at $21.33 -- and earlier touched a record high of $21.39. The shares have been blazing a path higher for some time now, tacking on 74.5% year-over-year. In the options pits, call open interest outweighs put open interest by a wide margin among options with a lifespan of three months of less, per Horizon Pharma PLC's Schaeffer's put/call open interest ratio (SOIR) of 0.18. This reading ranks in the 29th percentile of its annual range, meaning short-term speculators are more call-skewed than normal.

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