Schaeffer's Trading Floor Blog

Are We In a Volatility Trough?

Is the VIX 'high' even at year-to-date lows?

by 2/23/2015 9:27 AM
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So, if all the market needed to make new highs was having me leave for a week, I'd have done this sooner. In fact, I'd have taken off for all of 2015!

Remember that volatility everyone was talking about? Not so much anymore. Ten-day realized volatility in SPDR S&P 500 ETF Trust (SPY) now sits below 8 -- its lowest level since back on Dec. 9.

CBOE Volatility Index (VIX) hasn't gone quite as long since seeing current levels, as it's back to Dec. 24 pricing. But remember, that's often an artificial reading right before a holiday, so we'll say it's pretty similar. Take away the holiday blip down and VIX is right where it was on Dec. 9 as well.

You can even make the case that VIX is high. It's a 6.5-point premium to realized volatility, versus a typical premium of about 4 points.

That's not unusual if realized volatility is very low and/or there's some expected news on tap. But neither is the case right now. The current "story to end all stories" is Greece, and that's now apparently on hold for four months. Earnings are mostly reported, there's no Fed news imminent … though we do have Yellen answering some always insightful politico questions this week on Capitol Hill. And realized volatility isn't particularly low, it had a full of "3" at times last year.

All clear on the Western front then, right? Well, the tradable VIX complex still hasn't given up the Volatility Ghost just yet. Here's the VIX term structure now versus Dec. 9.

VIX term structure, Dec. 9 vs. the present

The slope is similar, but it's about a point higher across the board, with a nearly identical reading in VIX itself. And now we're back to some impressive bid-ups as you go out in time. Go all the way out to October and VIX trades near 20.

In other words, we're back to the same old same old from the last few years. If VIX is in the mid-to-low teens, it clearly must be going back to the high teens. That's normal VIX!

Except as we noted a couple of weeks ago -- it's not. Long-term mean doesn't equal normal. I do still believe the VIX will be higher in 2015 than it was in 2014, if we define that by yearly median. That call has the wind at its back, though, seeing as we haven't had one close in 2015 that's below the 2014 median yet.

It's always important to remember, though, that buying a VIX product ahead of an anticipated volatility lift is generally a bad idea. Time is money. If you're early, you'll need an even bigger rally later on just to get back to even, no matter how you play it. And we're likely in a bit of a volatility trough now, so I'd sooner miss the bottom and pay up after it starts moving.

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

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Analyst Upgrades: Dollar General Corporation, Hewlett-Packard Company, and Valeant Pharmaceuticals International, Inc.

Analysts upwardly revised their ratings on Dollar General Corp. (DG), Hewlett-Packard Company (HPQ), and Valeant Pharmaceuticals Intl Inc (VRX)

by 2/23/2015 9:19 AM
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Analysts are weighing in today on discount retailer Dollar General Corp. (NYSE:DG), tech name Hewlett-Packard Company (NYSE:HPQ), and pharmaceutical company Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Here's a quick roundup of today's bullish brokerage notes on DG, HPQ, and VRX.

  • J.P. Morgan Securities resumed coverage on DG this morning, setting a price target of $85 with an "overweight" rating. As for the other analysts tracking the shares, sentiment remains mixed. Ten of the covering brokerage firms deem the stock a "strong buy," with the nine others calling it a "hold" or worse. In Dollar General Corp.'s options pits, though, speculators' outlook is decidedly bearish. At 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 1.18 is in its 96th annual percentile, meaning traders have bought to open puts versus calls at a faster clip only 4% of the time in the past year. DG has been solid of late, technically speaking, closing at $71.69 on Friday for a 7% month-to-date gain.

  • On a long-term basis, HPQ has been strong on the charts, adding roughly 29% in the past 52 weeks. In 2015, though, it's been a different story, with the stock off over 4%, finishing Friday at $38.39. BMO, however, is looking past the shares' recent struggles, raising its price target by $1 to $43, and keeping its "market perform" recommendation. The tentatively positive note, which has the stock 0.2% higher in electronic trading, comes ahead of Hewlett-Packard Company's earnings report, scheduled for tomorrow after the close. Ahead of this event, option traders are positioning themselves in the bulls' corner. The equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.43 is higher than four-fifths of all such readings from the past year.

  • VRX is seeing a pre-market surge, gaining 8.8%, after announcing it has finalized a $10.1 billion deal to acquire Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP). In response, Cantor Fitzgerald boosted its price target on VRX to $214 from $184, while maintaining its "buy" assessment -- mirroring the general sentiment on the Street. Specifically, 11 of 13 covering analysts call Valeant Pharmaceuticals Intl Inc a "buy" or better, with the remaining two handing out "hold" opinions. The stock had already been gaining on the charts in 2015, tacking on 21% since the start of the year. Regardless, short-term speculators have taken a put-biased approach. VRX's Schaeffer's put/call open interest ratio (SOIR) of 2.34 is only 4 percentage points from an annual high. Said differently, speculative traders have rarely been more put-skewed.

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Analyst Downgrades: Cyberark Software Ltd, Advanced Micro Devices, Inc., and The Boeing Company

Analysts downwardly revised their ratings on Cyberark Software Ltd (CYBR), Advanced Micro Devices, Inc. (AMD), and Boeing Co (BA)

by 2/23/2015 9:19 AM
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Analysts are weighing in today on cybersecurity stock Cyberark Software Ltd (NASDAQ:CYBR), chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD), and blue chip Boeing Co (NYSE:BA). Here's a quick roundup of today's bearish brokerage notes on CYBR, AMD, and BA.

  • CYBR is down 4.4% in electronic trading, after J.P. Morgan Securities downgraded the stock to "underweight" from "neutral," explaining, "A lot needs to go right to justify [the] current share price." The stock has been in rally mode in 2015 -- and more so, this month -- adding 77.4%, and hit a record high of $70.48 on Friday, before settling at $70.35. Against this backdrop, Cyberark Software Ltd's 14-day Relative Strength Index (RSI) has jumped to 89 -- comfortably in overbought territory -- suggesting a near-term pullback may have been in the cards.

  • Exane BNP Paribas started AMD with a lukewarm "underperform" rating, and a price target of $2.30 -- representing expected downside of nearly 25% to last Friday's close at $3.06. Although the stock has made some headway in 2015 -- tacking on 14.6% -- AMD remains a long-term laggard. Specifically, since hitting a two-year high of $4.80 last July, the equity has shed more than 36%. As such, put players have been betting big. In fact, Advanced Micro Devices, Inc.'s Schaeffer's put/call open interest ratio (SOIR) of 2.33 ranks in the 97th annual percentile, meaning short-term speculators have been more put-heavy just 3% of the time within the past year.

  • An upbeat analyst note sent BA to its highest perch on record of $158.83 Friday, before the stock settled at $158.31. Today, the shares are poised to pull back from this notable milestone, after Goldman Sachs cut its outlook on BA to "sell" from "neutral." (Stifel, meanwhile, upped its price target on Boeing Co by $15 to $175.) For the most part, the majority of analysts are optimistic toward a stock that's added 21.8% year-to-date. Of the 17 analysts covering the shares, 12 maintain a "strong buy" rating, versus five "holds," and not a single "sell" to be found.

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Buzz Stocks: Ocwen Financial Corporation, Bristol-Myers Squibb Company, and Spectrum Pharmaceuticals, Inc.

Today's stocks to watch include Ocwen Financial Corp (OCN), Bristol-Myers Squibb Co (BMY), and Spectrum Pharmaceuticals, Inc. (SPPI)

by 2/23/2015 9:18 AM
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U.S. benchmarks are poised to pull back from new highs, as traders keep an eye trained on the Greece situation. Among the equities in focus are loan issuer Ocwen Financial Corp (NYSE:OCN), as well as drugmakers Bristol-Myers Squibb Co (NYSE:BMY) and Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI).

  • OCN is set to soar 7.5% out of the gate, after the firm said it will sell $9.8 billion in residential mortgage servicing rights to Nationstar Mortgage Holdings Inc (NYSE:NSM). OCN has struggled on the charts in 2015, down 36.4% at $9.60, and short-term options players haven't been more put-heavy during the past year; the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.80 sits at an annual high. In the same vein, nearly one-third of Ocwen Financial Corp's float is dedicated to short interest, and just one out of seven analysts deems OCN worthy of a "strong buy."

  • BMY is also making M&A waves, after the company said it will buy privately held Flexus Biosciences for up to $1.25 billion. Separately, Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is set to soar after announcing a potentially lucrative collaboration with BMY. The shares of Bristol-Myers Squibb Co are sitting at $60.52 -- up 11.8% year-over-year, and just north of support at their 80-day moving average. Analysts are split when it comes to BMY, with eight out of 17 doling out "hold" or worse ratings. Meanwhile, the average 12-month price target of $63.88 sits within striking distance of the stock's current perch. Should BMY extend its steady trend higher, a round of price-target hikes could propel the equity into new-high territory.

  • Finally, fellow biotech issue SPPI is bracing for a 25% drop to multi-year lows at the open, after a Nevada court deemed two of its Fusilev patents "invalid" -- a ruling Spectrum Pharmaceuticals, Inc. said it intends to appeal. As a result, analysts at Roth Capital lowered their rating on SPPI to "neutral" from "buy," and more than halved their price target to $7 from $15. There could be more cuts on the way for SPPI, which settled Friday at $7.46, as the stock's consensus 12-month price target sits at $13.25. One group likely celebrating, though: short sellers. Short interest accounts for 33.7% of SPPI's total available float, representing more than four weeks' worth of pent-up buying demand, at the security's average pace of trading.

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The Week Ahead: The Home Depot, Inc. and Hewlett-Packard Company Report; Plus, Yellen Testimony and GDP

Next week's calendar features Yellen testimony, the release of fourth-quarter GDP and earnings from Home Depot Inc (HD) and Hewlett-Packard Company (HPQ)

by 2/20/2015 1:52 PM
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Fed Chair Janet Yellen's trip to Capitol Hill and Friday's release of fourth-quarter gross domestic product (GDP) data will highlight next week's economic docket. Reporting earnings are a slew of retailers, including Home Depot Inc (NYSE:HD), Macy's , Inc. (NYSE:M), Gap Inc (NYSE:GPS), and Target Corporation (NYSE:TGT); television providers Dish Network Corp (NASDAQ:DISH) and Comcast (NASDAQ:CMCSA); solar concerns First Solar, Inc. (NASDAQ:FSLR) and SunPower Corporation(NASDAQ:SPWR); and computer maker Hewlett-Packard (NYSE:HPQ).

Below is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.


  • Existing home sales and the Dallas Fed's manufacturing index kick off a busy week of economic news. On the earnings front, we'll hear from Agrium (AGU), Cooper Tire (CTB), Dish Network (DISH), and Express Scripts (ESRX).


  • On Tuesday, the S&P/Case-Shiller home price index is due out, along with the Conference Board's latest consumer confidence index. Meanwhile, Fed Chair Janet Yellen will deliver her semi-annual testimony on monetary policy to the Senate Banking Committee. Earnings are expected from Home Depot (HD), Hewlett-Packard (HPQ), Comcast (CMCSA), Cracker Barrel (CBRL), Domino's Pizza (DPZ), Dreamworks Animation (DWA), First Solar (FSLR), Macy's (M), MannKind (MNKD), Office Depot (ODP), SunPower (SPWR), Toll Brothers (TOL), and Valeant Pharmaceuticals (VRX).


  • New home sales and crude inventories headline Wednesday's docket, while Yellen concludes her two-day tour of Capitol Hill by addressing the House Financial Services Committee. Cablevision (CVC), Campbell Soup (CPB), Chesapeake Energy (CHK), Dollar Tree (DLTR), Gulfport Energy (GPOR), Lowe's (LOW), (CRM), SodaStream (SODA), Sturm Ruger (RGR), Target (TGT), and Transocean (RIG) will report earnings.


  • Traders on Thursday will be reacting to the latest reports on durable goods and jobless claims, along with the consumer price index (CPI). Around midday, Atlanta Fed President Dennis Lockhart will take the podium at a banking conference. Among the day's earnings reporters are 3D Systems (DDD), Crocs (CROX), Cyberonics (CYBX), Gap (GPS), Gogo (GOGO), Herbalife (HLF), Kohl's (KSS), J.C. Penney (JCP), Mobileye (MBLY), Monster Beverage (MNST), OmniVision Technologies (OVTI), Seadrill (SDRL), Sears (SHLD), SeaWorld (SEAS), Splunk (SPLK), and Weight Watchers (WTW).


  • The preliminary fourth-quarter gross domestic product (GDP) hits the Street on Friday. Also on the agenda are pending home sales, the Chicago purchasing managers index (PMI), and the Thomson Reuters/University of Michigan consumer sentiment index. More remarks on monetary policy could impact markets, with Fed Vice Chair Stanley Fischer, New York Fed President William Dudley, and Cleveland Fed President Loretta Mester all slated to speak at a forum in New York. Rounding out the week's slate of earnings reports are Goodrich Petroleum (GDP), ISIS Pharmaceuticals (ISIS), and NRG Energy (NRG).

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