Schaeffer's Trading Floor Blog

The New Face of Big-Cap Technology

Checking in on the price action of the VXN versus the VIX

by 4/17/2014 7:29 AM
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If you spent the first three-and-a-half months of 2014 in a cave well, first of all welcome back! We knew you were away, so we decided to make sure that SPDR S&P 500 ETF (SPY) didn't move much for you. It's up 0.8% in 2014 nothing to see here, move along.

Okay, of course I kid. I mean, who spends time in a cave in order to avoid watching the market anyway? It's a lazy way for me to say, "Hey, we're moving around a lot and going absolutely nowhere."

But alas, we're only not moving in an S&P 500 Index (SPX)-centered world; small-caps and momentum stocks and Nazz names are all over the place.

We noted a couple weeks ago how Nasdaq volatility has exploded on a relative basis versus S&P 500 volatility. And since then, the relative pop has gotten even more extreme. Here's the CBOE NASDAQ 100 Volatility (VXN) (the VIX of the Nazz) vs. the CBOE Volatility Index (VIX) over the past year. (Click on the charts to enlarge.)

Daily chart of VXN versus VIX Since April 2013

The ratio keeps figuratively jumping off the charts. It's the highest level since very early 2007.

VXN versus VIX Since 2001

It's important to remember that the nature of big-cap tech has changed over the years. Back in 2001, the typical bigger-tech name was some combo of newly listed, relatively small versus the Exxon Mobil Corporations (NYSE:XOM) of the world and/or much more volatile than the typical big-tech names today.

As time went on, some of the biggest Nazz names turned up as some of the biggest names overall. And they behaved just like regular, non-volatile large stocks. The volatility of the Nazz overall converged towards the volatility of the S&P 500.

Long story short, this is a pretty spectacular divergence we're seeing right now. This isn't 2001 bubbly tech taking a tumble.

The 10-day realized volatility (RV) in PowerShares QQQ Trust (QQQ) hit 27 earlier this week. That's not historically enormous, but it's the highest reading since December 2011. The 10-Day RV in SPY has lifted lately, too, but "only" to 17 -- a level it's hit probably 20 times since December 2011.

I'd like to make some grand-macro call based on all this, but it's not so simple. The ratio spiked from 1.12 to 1.65 over the course of 2006, then peaked almost exactly on New Year's Eve. The market as a whole then got shaky and would ultimately peak in a big way in October 2007. So, by that sample size of one, it suggests the market tops out 1-1.5 years from now. That sounds like a somewhat realistic timetable but again, that's based on squinting at a pattern that happened once.

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

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Options Check-Up: Nokia Corporation (ADR), Sirius XM Holdings Inc., and DuPont

Analyzing recent option activity for NOK, SIRI, and DD

by 4/16/2014 5:05 PM
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Among the stocks attracting attention from options traders lately are telecom specialist Nokia Corporation (ADR) (NYSE:NOK), streaming music provider Sirius XM Holdings Inc. (NASDAQ:SIRI), and diversified science and tech concern E I Du Pont De Nemours and Co (NYSE:DD), otherwise known as DuPont. Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on NOK, SIRI, and DD

  • Although NOK is down about 10% year-to-date to trade at $7.30, the stock sports a 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 4.55, with calls bought to open more than quadrupling puts. What's more, this ratio ranks in the 66th annual percentile, indicating the recent rate of call buying, relative to put buying, is faster than usual. Meanwhile, good news for short-term option bettors -- Nokia Corporation's (ADR) Schaeffer's Volatility Index (SVI) of 48% ranks just 7 percentage points from a 12-month low, meaning prices on short-term contracts are nearing annual-low levels, from a volatility perspective.

  • SIRI -- which has shed more than 7% over the past month to trade at $3.17 -- has been popular with option bulls of late. In fact, the equity's top-heavy 10-day ISE/CBOE/PHLX call/put volume ratio of 9.04 ranks higher than 77% of comparable readings from the past year, signifying bullish bets have been placed over bearish at an accelerated rate during the past two weeks. However, it is possible that puts have been relatively unpopular due to the limited profit potential on a downside move. Whatever the case may be, Sirius XM Holdings Inc.'s short-term options are more expensive now than they have been all year, relatively speaking, as the stock's SVI of 44% ranks in the 100th annual percentile.

  • Finally, DD option players have bought to open puts, relative to calls, at a quicker-than-usual speed recently, with the equity's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.63 ranking in the 67th annual percentile. Short-term options on E I Du Pont De Nemours and Co remain at a relatively decent price, as evidenced by the fact that the equity's SVI of 19% ranks in the 46th percentile of its 12-month range. Meanwhile, on the charts, DD shares are positioned about 36% higher on a year-over-year basis to trade at $67.72. Looking ahead, the company's first-quarter earnings report will hit the Street tomorrow morning.

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Stocks to Watch Thursday: Alcoa Inc, Halliburton Company, and AOL, Inc.

Analyzing AA, HAL, and AOL ahead of tomorrow's trading

by 4/16/2014 4:40 PM
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Momentum names that made notable moves on Wednesday and could continue to do so into Thursday's session include aluminum producer Alcoa Inc (NYSE:AA), oil-and-gas concern Halliburton Company (NYSE:HAL), and Internet issue AOL, Inc. (NYSE:AOL). Here is a quick look at these stocks ahead of tomorrow's opening bell.

Alcoa Inc (NYSE:AA)

Alcoa scored a fresh two-year high of $13.44 today, before closing the session with a 2.8% gain at $13.42. The stock has been on the up-and-up for the past three trading days now, adding about 7% to its value during this time period. Stepping back even further, AA has outperformed the broader S&P 500 Index (SPX) by more than 49 percentage points during the past six months -- so it may come as a surprise that AA's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.00 ranks the highest of all similar readings from the past year. This indicates that speculators have bought to open puts, relative to calls, at an annual-high rate during the past two weeks. Widening the time frame to 10 weeks shows a similar trend, as AA's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.55 also ranks above all other readings taken in the past year. With that being said, a continuation of Alcoa Inc's upward trajectory may cause bearish bettors to hit the exits, which could give the shares an additional boost.

Halliburton Company (NYSE:HAL)

Halliburton explored record-high territory at $60.74 earlier today, after receiving a $5 price-target lift to $60 at Morgan Stanley. Although the stock fell slightly below this technical milestone by the end of the session, it still finished 0.9% above breakeven, at $60.50. Option players responded enthusiastically today, as call volume more than tripled the typical amount traded in one session. What's more, eight of the 10 most active options of the day were short-term calls, and at the top of the list was the May 62.50 strike, where more than one-fourth of HAL's total options volume crossed. On the fundamental front, HAL is scheduled to report first-quarter earnings before next Monday's open.


AOL spent its second consecutive day in the green, after announcing a "new premium video experience" for its home page. Today, the stock jumped 4.4% to $44.36, marking a two-day uptick of 6.6%. Subsequently, calls changed hands at a rate that nearly doubled the average norm, with the four most active options being of the soon-to-expire front-month variety. Considering short interest accounts for 8.1% of AOL's available float, perhaps some of today's call activity can be attributed to short sellers hedging against additional upside.

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Why Freescale Semiconductor Ltd (FSL) Could Be Ready to Rally

The bearish sentiment levied toward FSL could create contrarian tailwinds

by 4/16/2014 2:57 PM
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Put players have not been shy about making their presence known in Freescale Semiconductor Ltd's (NYSE:FSL) options pits of late. During the course of the past five sessions, in fact, traders at the International Securities Exchange (ISE) have bought to open 3,734 puts on FSL, compared to just 40 calls.

This growing bearish bias is also evident when including data from the Chicago Board Options Exchange (CBOE) and NASDAQ OMX PHLX (PHLX) -- and extending the time frame to 10 weeks. Specifically, the equity's 50-day ISE/CBOE/PHLX put/call volume ratio has grown to 1.55 from its April 1 reading of 0.11, and the current ratio ranks in the 98th percentile of its annual range. Simply stated, puts have been bought to open over calls at a near-annual-high clip in recent months.

Looking at the soon-to-be front-month series, peak put open interest can be found at the May 24 strike, where 7,692 contracts are currently in residence. A number of these positions have been bought to open in recent weeks, meaning traders are potentially pleased with today's 0.9% drop, which has brought Freescale Semiconductor south of the strike price.

However, this bearish bias isn't confined to the options arena. Short interest, for example, accounts for a healthy 13.9% of the stock's available float, representing more than six sessions' worth of pent-up buying demand, at the average daily volume. Meanwhile, the consensus 12-month price target of $24.53 stands at a slim 2.4% premium to FSL's current perch at $23.95. However, it appears analysts may be changing their tune, as just yesterday Topeka Capital upped its price target for the equity to $30 from $23.

From a contrarian perspective, such bearish sentiment levied toward an outperforming equity could have bullish implications down the road. In fact, FSL has rallied more than 49% in 2014, and has outpaced the broader S&P 500 Index (SPX) by more than 47 percentage points over the past three months. Assisting the stock in its trek higher has been its 40-day moving average. This trendline helped usher FSL to a record high of $26 on April 3, and more importantly, is containing today's pullback.

Additionally, the company is slated to report earnings after next Thursday's close. Following its last quarterly report in late January, shares of the semiconductor concern rallied nearly 15% the subsequent day. Another well-received earnings report for Freescale Semiconductor Ltd (NYSE:FSL) could shake some of the weaker bearish hands loose, creating a fresh wave of buying power for FSL.

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Analyst Update:, Inc., Cree, Inc., and hhgregg, Inc.

Analysts are weighing in on AMZN, CREE, and HGG

by 4/16/2014 2:16 PM
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The broad-market indexes are higher this afternoon, as Wall Street applauds solid tech earnings and comments from Fed Chair Janet Yellen. Meanwhile, among the equities in focus are e-commerce giant, Inc. (NASDAQ:AMZN), LED issue Cree, Inc. (NASDAQ:CREE), and electronics retailer hhgregg, Inc. (NYSE:HGG), which have all attracted the attention of analysts.

  • AMZN is 0.1% higher at $316.50, after Argus upgraded the equity to "buy" from "hold." Despite its year-to-date deficit of more than 20%,, Inc. remains beloved on Wall Street. In fact, 21 analysts deem the stock worthy of a "strong buy," while another pair dish out "buy" ratings. For comparison, AMZN harbors six lukewarm "holds" and not a single "sell" recommendation. Likewise, short-term options players haven't been more call-heavy during the past year, as evidenced by the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.88, which stands at an annual low. The company is slated to report first-quarter earnings after the close next Thursday, and a weaker-than-expected report could spook some of the bulls into hitting the exits. An unwinding of optimism in the options pits, or a flood of downgrades, could exacerbate selling pressure on the security.

  • CREE is 1.5% higher at $56.34, thanks to an upgrade to "buy" from "hold" at Needham & Co. Ahead of Cree, Inc.'s turn in the earnings confessional after the close next Tuesday, option buyers are picking up calls over puts at an accelerated clip. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 5.30 sits just 15 percentage points from a 52-week peak. However, it's worth noting that short interest accounts for nearly 10% of CREE's total available float, meaning some of the recent call buying -- especially at out-of-the-money strikes -- could be attributable to short sellers picking up pre-earnings hedges.

  • Finally, HGG is taking the red road less traveled today, down 0.3% at $7.85, after a price-target cut to $8 from $9 at Jefferies. Beleaguered hhgregg, Inc. yesterday warned of a sharp, weather-induced drop in fiscal fourth-quarter revenue, which translated into a 9.6% bear gap for HGG on the charts. From a longer-term perspective, the equity has surrendered more than 43.8% in 2014, and underperformed the broader S&P 500 Index (SPX) by nearly 30 percentage points during the past three months. As such, it's no surprise to find a bearish bias on Wall Street. Not one of the 12 analysts following HGG deems it a "buy," and short interest accounts for a whopping 60% of the stock's total available float. In the same vein, the security has racked up a 10-day ISE/CBOE/PHLX put/call volume ratio of 22.54, which rests just 2 percentage points from an annual acme.

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