Schaeffer's Trading Floor Blog

Betting on VXX? Better Get Your Timing Right

More and more people are putting money into the iPath S&P 500 VIX Short-Term Futures ETN (VXX)

by 3/31/2015 8:30 AM
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Don't look now, but our old friend the iPath S&P 500 VIX Short-Term Futures ETN (VXX) has gotten trendy again. This, via Callie Bost of Bloomberg:

"Speculators are again piling into an exchange-traded note that lets them bet on how long days of calm will last in the U.S. stock market.

"The trade, using a six-year-old security known as VXX that sees more average daily volume than shares of Microsoft Corp. and Facebook Inc., has usually backfired amid the biggest bull market since the 1990s. That hasn't curbed its popularity, with the iPath S&P 500 VIX Short-Term Futures ETN poised for an eighth straight week of inflows, a streak not seen in three years. Shares outstanding in the note are at an all-time high."

Just how big has VXX gotten? The story continues:

"VXX, one of the most popular ways to bet on bigger market swings, has absorbed $715 million in seven consecutive weeks of inflows, its longest streak of inflows since one ending in July 2012. The infusion of fresh cash has continued this week, swelling its market value to $1.5 billion, the highest since September 2013.

"At the same time, short-sellers in VXX -- people effectively betting the bull market will persist -- have dropped out. Short interest has slid 35 percent since October, falling to the lowest in more than seven months last week, data compiled by Markit Ltd. show."

On the one hand, it looks like they at least piled in at/near VXX lows. On the other hand ... that's not a concept that matters much. VXX has no tangible value; it's essentially a CBOE Volatility Index (VIX) path-driven mathematical concoction. It makes some modest sense to buy VXX when you expect VIX itself to lift on the presumption that the VIX lift will spill over into a VIX futures lift.

But, as we all hopefully know, timing well is beyond essential. VXX will almost surely drift over any time frame. So, even if you catch a VIX bottom, you may not profit from the VXX trade. The better question, though, is how well did rushes into VXX predict the future course of volatility? We only have two data points to work with here, but neither suggests we had "smart" money behind the VXX push.

In July 2012, VIX had an average close of 17.57. That dropped to 15.69 in August, and to 15.29 in September. Buying volatility worked modestly better in September 2013, the last time VXX had a market value this large. VIX averaged 14.69 in September 2013, and that measure popped all the way to ... 15.43 in October. Unfortunately, it then dropped to 12.97 in November. Results may vary, but that's mediocre at best.

All of this makes sense, of course. A move into volatility "assets" at a time when volatility is either "eh" or falling should classically turn into a contrary indicator. Throw in the fact that VXX shorts have backed away and we have more fuel to the contra fire. It's all stuff on the margins, of course, but it's always very unlikely that the masses will time their volatility purchases well.

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


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Earnings Preview: Conn's, Inc., E-Commerce China Dangdang Inc., and Vitae Pharmaceuticals, Inc.

Analyzing recent option activity on CONN'S, Inc. (CONN), E Commerce China Dangdang Inc (ADR) (DANG), and Vitae Pharmaceuticals Inc (VTAE)

by 3/30/2015 2:28 PM
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Among the stocks gearing up to report earnings tomorrow are consumer products concern CONN'S, Inc. (NASDAQ:CONN), Beijing-based Internet merchant E Commerce China Dangdang Inc (ADR) (NYSE:DANG), and biotech firm Vitae Pharmaceuticals Inc (NASDAQ:VTAE). Below, we'll gauge the pre-earnings temperature of CONN, DANG, and VTAE.

  • CONN has been in recovery mode, with the shares up 103% since notching a three-year low of $14.02 on Dec. 16. Today, however, the equity is 4.4% lower to linger near $28.47. Some traders see downside in CONN's future, as nearly 36% of the stock's available float is sold short, which would take about 13 sessions to cover, at average trading volumes. Meanwhile, in the session immediately following its last two earnings reports, the shares have shed an average of 35.7%. Short-term options for CONN are available for historically inexpensive prices, as its Schaeffer's Volatility Index (SVI) of 105% sits in the 27th percentile of its annual range.

  • On the other hand, DANG has been a technical laggard, with the shares down about 50% from their Aug. 13 annual high of $16.42 to hit $8.25. Accordingly, sentiment in the options pits has been bearish, as E Commerce China Dangdang Inc's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.21 ranks in the 78th percentile of its annual range. Traders anticipating post-earnings downside for the security have history on their side -- in the session immediately following its last four earnings reports, DANG has lost an average of 9.1%, including a 14.5% drop last May. Near-term options for the security are available for relatively attractive prices, as its SVI of 73% stands in the 42nd percentile of all equivalent readings taken over the past year.

  • VTAE has been sliding as well, with the shares falling 51.8% from their Dec. 11 all-time high of $23.35 to trade around $11.25. However, the brokerage bunch is still universally optimistic on the security, as 100% of covering analysts rate it a "strong buy." Looking elsewhere, in the session immediately following its last trip to the earnings confessional on Nov.12, Vitae Pharmaceuticals Inc dropped 7.4%. Short sellers are apparently gambling on an extended slump for VTAE, as short interest grew 22.5% during the last reporting period.

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Analyst Update: GoPro, Inc., Ambarella, Inc., and Tekmira Pharmaceuticals Corporation

Analysts adjusted their ratings on GoPro Inc (GPRO), Ambarella Inc (AMBA), and Tekmira Pharmaceuticals Corp (TKMR)

by 3/30/2015 11:44 AM
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Analysts are weighing in today on wearable camera maker GoPro Inc (NASDAQ:GPRO), semiconductor firm Ambarella Inc (NASDAQ:AMBA), and biotech issue Tekmira Pharmaceuticals Corp (NASDAQ:TKMR). Here's a quick look at today's brokerage notes on GPRO, AMBA, and TKMR.

  • GPRO is up 1.3% to hit $43.27, after Dougherty & Company raised its opinion on the stock to "buy" from "neutral." The upgrade is somewhat surprising, given the shares of GoPro Inc have fallen about 31.6% year-to-date, and are struggling to conquer resistance at their 40-day moving average. The rest of the brokerage bunch is divided on GPRO, though, as 46% of covering analysts rate the stock a "strong buy," with only 8% doling out "strong sell" recommendations. What's more, the security's average 12-month price target of $63.92 stands at a 47.7% premium to current trading levels, leaving the door wide open for a round of analyst downgrades and/or price-target cuts to create headwinds.

  • Canaccord Genuity lifted its price target on AMBA by $7 to $81 -- in uncharted territory -- while underscoring its "buy" rating, sending the shares 3.9% higher today to reach $73.05. Including today's positive price action, the shares of Ambarella Inc have now advanced an impressive 44% year-to-date. In fact, AMBA tagged a record peak of $73.50 just a week ago. Accordingly, sentiment in the options pits has been bullish, as AMBA's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.75 sits in the 83rd percentile of its annual range.

  • Nomura initiated coverage on TKMR with a "buy" rating and a lofty $32 price target, which represents an 83% premium to the shares' current perch at $17.49, and sits in unexplored terrain. After initially jumping out of the gate, the shares of Tekmira Pharmaceuticals Corp are down about 0.5%, chipping away at a 15.6% year-to-date gain. Calls have been prominent in the options pits, as TKMR's Schaeffer's put/call open interest ratio (SOIR) of 0.23 ranks higher than only 15% of all equivalent readings taken over the past 12 months. Simply stated, near-term speculators have rarely been this call-skewed over the past year. Traders aren't the only ones who are optimistic, either, as all five analysts covering the stock rate it a "buy" or "strong buy."

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Analyst Downgrades: Microsoft Corporation, Altera Corporation, and Xilinx, Inc.

Analysts downwardly revised their ratings on Microsoft Corporation (MSFT), Altera Corporation (ALTR), and Xilinx, Inc. (XLNX)

by 3/30/2015 9:43 AM
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Analysts are weighing in on blue chip Microsoft Corporation (NASDAQ:MSFT), as well as semiconductor concerns Altera Corporation (NASDAQ:ALTR) and Xilinx, Inc. (NASDAQ:XLNX). Here's a quick roundup of today's bearish brokerage notes on MSFT, ALTR, and XLNX.

  • RBC cut its price target on MSFT by $3 to $47, but reiterated an "outperform" rating. Nevertheless, MSFT is higher along with its blue-chip peers. The company over the weekend said it's extending its deadline to re-negotiate its search partnership with Yahoo! Inc (NASDAQ:YHOO) by 30 days. What's more, Microsoft Corporation announced the release date (Oct. 27) for the fifth installment in its extremely popular "Halo" videogame series via a live-action commercial during the season finale of AMC's "The Walking Dead" television show. On the charts, MSFT has been a technical laggard of late -- largely due to a dismal earnings report in January -- with the shares down 10.9% year-to-date at $41.40. However, sentiment in the options pits has been nearing a bullish peak, as MSFT's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.15 ranks higher than 98% of all similar readings taken over the past year.

  • No fewer than three brokerage firms revised their opinions on ALTR this morning, after The Wall Street Journal reported that Intel Corporation (NASDAQ:INTC) is considering buying out the semiconductor firm. The report hit the Street late Friday, sending INTC significantly higher and ushering ALTR to a three-year peak of $45. Drilling down, Macquarie and Morgan Stanley both downgraded Altera Corporation to "neutral" or equivalent ratings, with the former raising its price target by $3 to $45, and the latter bumping its price target by $8 to $44. Today, the shares of ALTR -- which closed Friday at $44.39 -- are about 3.7% lower to hit $42.75, bringing their year-to-date lead to 15.7%. Puts have been prominent in the stock's options pits, as ALTR's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.49 reads in the 80th percentile of its annual range.

  • XLNX -- which followed sector peer ALTR higher Friday -- woke up to a pair of downgrades, as both Morgan Stanley and MKM lowered their rating on the equity to "neutral" or equivalent opinions. At last check, Xilinx, Inc. is 2.2% lower at $41.40, steepening its year-over-year deficit to 23.7%. However, calls have been popular in the options pits, as XLNX's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.54 ranks in the 67th percentile of all similar readings taken over the past year.

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Buzz Stocks: UnitedHealth Group Inc., Teva Pharmaceutical Industries Ltd, and Horizon Pharma PLC

Today's stocks to watch in the news include UnitedHealth Group Inc. (UNH), Teva Pharmaceutical Industries Ltd (ADR) (TEVA), and Horizon Pharma PLC (HZNP)

by 3/30/2015 9:41 AM
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U.S. benchmarks are following their European counterparts into the green today. Meanwhile, M&A Monday is in full swing, with healthcare concern UnitedHealth Group Inc. (NYSE:UNH), as well as drugmakers Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Horizon Pharma PLC (NASDAQ:HZNP) unveiling new acquisitions.

  • UNH is up 4% at the open -- and hit a fresh record high of $123.76 -- after the blue chip said it will purchase pharmacy benefit manager Catamaran Corp (USA) (NASDAQ:CTRX) in a deal valued at roughly $12.8 billion, or $61.50 per CTRX share. CTRX, meanwhile, has soared 24.6% to its own all-time peak of $60.24. Today's price move for UNH is more of the same, with the stock boasting a 50% year-over-year lead. Should UnitedHealth Group Inc. continue this momentum, another round of upbeat analyst attention could be on the horizon. Currently, the average 12-month price target for UNH sits at $127.19, just 3.5% from the equity's current perch at $122.87.

  • TEVA, meanwhile, announced it will acquire biotherapeutic firm Auspex Pharmaceuticals Inc (NASDAQ:ASPX) for about $3.2 billion in cash, or $101 per share of ASPX. This represents a roughly 42.4% premium to the latter's close at $70.91 on Friday. Technically speaking shares of Teva Pharmaceutical Industries Ltd have put in a solid performance this month, adding 10% thus far. Additionally, the stock hit a multi-year peak last Monday, but was last seen trading at $62.79. In the options pits, put buying has picked up speed in recent weeks. Specifically, TEVA's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio has jumped to 0.74 from 0.06 over the past two weeks, and now ranks in the 69th annual percentile.

  • HZNP will increase its portfolio for treating genetic disorders with its roughly $1.1 billion purchase of Hyperion Therapeutics Inc (NASDAQ:HPTX). This equates to about $46 per share of HPTX, which closed Friday at $42.74. HZNP is up 14.2% out of the gate -- and hit its highest perch on record of $25.50 in early trading. However, the stock has already put in a strong showing in 2015 -- thanks in part to a stellar quarterly earnings report in late February -- tacking on 93% to trade at $24.91. Against this backdrop, sentiment is skewed toward the bullish side. At the ISE, CBOE, and PHLX, Horizon Pharma PLC's 50-day call/put volume ratio of 6.38 rests higher than 79% of similar readings taken in the past year. Additionally, five analysts have levied a "strong buy" rating toward the equity, versus one "hold" and not a single "sell."

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