Schaeffer's Trading Floor Blog

Amid Signs of Fear, Is the VIX Keeping Up?

The CBOE Volatility Index (VIX) is riding along its widening upper Bollinger Band

by 9/30/2014 8:52 AM
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So, in the past couple of weeks, we've noted many signs of fear spiking.

We have the CBOE SKEW Index (SKEW) hitting 16-year highs. Volatility in currencies has spiked. The CNN Fear and Greed Index tilts way toward fear. The Russell 2000 Index (RUT) has hit multi-year lows vs. the S&P 500 Index (SPX). The iPath S&P 500 VIX Short-Term Futures ETN (VXX) and the CBOE Volatility Index (VIX) are acting relatively well -- and on and on.

But, there's one spot that hasn't gotten extreme in all this. And that is, oddly enough, the VIX itself.

Sure, VIX has crept up lately. In fact, it has more than crept -- it's rallied about 35% since the middle of last week (click chart to enlarge).

CBOE Volatility Index (VIX)

It really hasn't broken out, though. It's riding along the widening upper Bollinger Band, but it's stopping short of stretching too far from its 10-day moving average. We haven't quite met the "20% above the 10-day" threshold that I use as the "official" marker for overbought. You could really make the case that we deserve overbought by now.

Meanwhile, 10-day historical volatility in SPX has continued to pick up. It's now about 13, which is far from enormous, but a nice steady lift of readings below 4 at the beginning of September.

And, the volatility is picking up steam. This, via Dan Nathan:

So, in a way, VIX isn't quite keeping up. It averages about a 4-point premium to realized volatility -- now it's more like 2-to-3. Granted, that "premium" tends to contract when realized volatility actually does lift. VIX does tend to expect mean-reversion. It's just that the "mean" sure feels like it will stay a bit elevated for now. I'm on the fence directionally, but I do believe volatility will hang in as the calendar flips to October.

I want to make clear that I'm only referring to VIX itself. The VIX futures term structure still slopes upward, as it always does. So, while I believe it makes sense to price options as if the market will remain somewhat volatile in the next few weeks, I don't really see the need to pay for VIX futures that expire half a year from now. Someday that will work, but no reason to think the current hypothetical VIX spike is the one.

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


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Around midday, three of the market's biggest movers are oil-and-gas issues Athlon Energy Inc (NYSE:ATHL) and Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), as well as biotechnology name Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP). Here's a quick roundup of how ATHL, PBR, and TNXP are performing on the charts so far.

  • ATHL has soared nearly 25% to $58.26 -- and earlier tagged a record high of $58.30 -- after Canada-based Encana Corporation (USA) (NYSE:ECA) said it would buy the company in an all-cash deal totaling $5.9 billion, or $58.50 per share. Heading into today's session, Athlon Energy Inc was already enjoying a healthy 54.5% lead on the year. In the stock's options pits, meanwhile, short-term speculators have shown a distinct preference for calls over puts, as evidenced by ATHL's Schaeffer's put/call open interest ratio (SOIR) of 0.34, which ranks lower than 85% of similar readings taken in the past year.

  • PBR has stumbled 9.9% today to trade at $14.83, as uncertainty surrounding Brazil's upcoming election -- and signs of increased support for President Dilma Rousseff -- has sparked a sell-off in Ibovespa components. However, Petroleo Brasileiro Petrobras SA (ADR) has been losing ground since hitting an annual high of $20.94 earlier this month, off 29%. Against this backdrop, not only have PBR's short-term options been growing more expensive, but sentiment has been drifting toward the bearish side of the aisle. Specifically, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.64 ranks just 8 percentage points from a 52-week peak.

  • TNXP has lost roughly half its value today, after its lead pain management drug failed to meet expectations in a mid-stage study. The security is now sitting 33.5% below its year-to-date breakeven line to churn near $6.85. The stock could find some additional headwinds, should analysts begin to re-evaluate their ratings in the wake of today's sharp decline. In fact, all three brokerage firms covering the security maintain a "strong buy" recommendation, while the consensus 12-month price target of $13.34 roughly doubles Tonix Pharmaceuticals Holding Corp.'s current price.

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Analyst Update: Baidu Inc (ADR), FedEx Corporation, and F5 Networks, Inc.

Analysts offered their two cents on BIDU, FDX, and FFIV

by 9/29/2014 12:19 PM
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U.S. stocks are lower at midday, as protests in Hong Kong have rattled the markets. Meanwhile, among the equities in focus are Chinese Internet issue Baidu Inc (ADR) (NASDAQ:BIDU), shipping bigwig FedEx Corporation (NYSE:FDX), and tech concern F5 Networks, Inc. (NASDAQ:FFIV), which have all attracted analyst attention.

  • BIDU is bucking the broad-market trend lower, up 0.9% at $221.05. Bolstering the shares was an upgrade to "buy" at UBS, which echoes the optimism already surrounding Baidu Inc (ADR). In fact, the stock boasts 11 "strong buy" endorsements, compared to two lukewarm "holds" and not a single "sell." From a longer-term perspective, BIDU has tacked on more than 24% in 2014, yet option traders are either gambling on or hedging against a pullback. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 50-day put/call volume ratio of 0.61 stands higher than 86% of all other readings from the past year, pointing to a healthier-than-usual appetite for long puts over calls of late.

  • FDX -- which is hosting its annual shareholder meeting today -- is also flying in the face of broad-market headwinds, up 1.2% at $161.70. In fact, the equity notched a new record high of $162.33 earlier in the session, after Cowen and Company hiked its price target to $210 from $155, and upgraded the shares to "outperform" from "market perform." Analysts have grown increasingly optimistic toward FedEx Corporation (NYSE:FDX), which now harbors 10 "strong buys" and nine "holds." Option players are also upping the bullish ante on FDX, which boasts a year-to-date gain of 12.5%. On the ISE, CBOE, and PHLX, the stock's 50-day call/put volume ratio of 1.26 sits just 4 percentage points from an annual peak.

  • Finally, FFIV is down 1.4% at $119.38, after Baird downgraded the stock to "neutral" from "outperform." Bearish brokerage notes are relatively rare for F5 Networks, Inc., as 16 out of 28 analysts offer up "buy" or better opinions. The shares of FFIV have soared 31.3% in 2014, yet option players have been buying to open puts over calls at a near-annual-high rate during the past two weeks. Specifically, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.77 stands higher than 97% of all other readings from the past year. Of course, in light of FFIV's technical tenacity, some of the puts may have been purchased by FFIV shareholders looking for options insurance ahead of the company's turn in the earnings confessional in late October.

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Analyst Downgrades: Ctrip.com International, Ltd. (ADR), Delta Air Lines, Inc., and Transocean LTD

Analysts downwardly revised their ratings on CTRP, DAL, and RIG

by 9/29/2014 9:36 AM
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Analysts are weighing in today on China-based travel service Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP), air-travel provider Delta Air Lines, Inc. (NYSE:DAL), and offshore drilling issue Transocean LTD (NYSE:RIG). Here's a quick roundup of today's bearish brokerage notes on CTRP, DAL, and RIG.

  • CTRP saw its price target cut by $3 to $77 at Deutsche Bank, despite the stock's 17.3% year-to-date gain to trade at $58.19. By contrast, traders in the options pits have been more optimistic than usual toward the shares in recent weeks -- buying to open calls over puts at an accelerated clip. Specifically, Ctrip.com International, Ltd.'s (ADR) 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 6.66 ranks in the bullishly skewed 86th percentile of its annual range.

  • Wolfe Research downgraded DAL to "peer perform" from "outperform." This bearish note is virtually unheard of for the stock, as all 11 covering analysts have doled out "buy" ratings -- including 10 "strong buys." On the charts, Delta Air Lines, Inc. has tacked on more than 30% year-to-date to rest at $35.77. Recently, however, the security has struggled, shedding 9.6% of its value in September.

  • Finally, Jefferies cut its price target on RIG to $37. This isn't surprising, given the equity's more than 34% year-to-date deficit to rest at $32.52. What's more, the shares have underperformed the broader S&P 500 Index (SPX) by about 25 percentage points during the past three months. As such, bearish betting has heated up in Transocean LTD's options pits. Specifically, at the ISE, CBOE, and PHLX, RIG has racked up a put/call volume ratio of 1.51 during the past two weeks. This number is higher than 88% of all other readings from the past 12 months, signaling a stronger-than-usual preference for bearish bets over bullish of late.

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Buzz Stocks: Tibco Software Inc., GoPro Inc, and Microsoft Corporation

Today's stocks to watch in the news include TIBX, GPRO, and MSFT

by 9/29/2014 9:25 AM
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The major market indexes are set to open broadly lower this morning, following suit with a bearish bias overseas amid pro-democracy protests in Hong Kong. In company news, today's stocks to watch include tech issue Tibco Software Inc. (NASDAQ:TIBX), photographic equipment firm GoPro Inc (NASDAQ:GPRO), and software giant Microsoft Corporation (NASDAQ:MSFT).

  • TIBX has vaulted to a 21% gain in pre-market trading, after Vista Equity Partners offered to buy the company for $4.3 billion, including debt -- or $24 per share. The buyout price represents a premium of roughly 23% to Tibco Software Inc.'s Friday close at $19.51. Prior to the takeover offer, it had been a rough year for TIBX, with the stock down more than 13% in 2014. Meanwhile, growing rumors of an acquisition had pushed short-term option prices higher in recent sessions. TIBX's Schaeffer's Volatility Index (SVI) stands at 51%, in the 65th percentile of its annual range -- revealing that front-month calls and puts are pricing in higher-than-normal volatility expectations.

  • GPRO introduced its lineup of new cameras, with all three models set to debut in stores as of Oct. 6. The top-of-the-line Black Edition camera is priced at $499 -- the highest price tag yet for one of GoPro Inc's models. GPRO has rallied roughly 149% since opening at $33 back on June 26, with the stock settling Friday at $82.10. Despite this stellar price action, most analysts are reluctant to endorse GPRO. Among the nine brokerage firms tracking the shares, six have doled out tepid "hold" ratings.

  • Chinese gaming fans lined up around the block to get their hands on the Xbox One from MSFT when it went on sale in the mainland today. Due to a ban on the devices, the Xbox One is the first home gaming console to go on sale in China since Sony Corp's (ADR) (NYSE:SNE) PlayStation 2 debuted more than a decade ago. MSFT is set to open fractionally lower, dragged down by broad-based weakness in U.S. stock futures, but the shares have notched an impressive gain of 24.1% year-to-date to trade at $46.41. Nevertheless, pessimism still prevails toward Microsoft Corporation. During the past 10 sessions, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 0.96 put for every call on MSFT. This ratio registers in the 91st percentile of its annual range, as traders have rarely shown a greater preference for bearish options over bullish.

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