Volatility Expectations Surge as CBOE Stock Seeks Earnings Comeback

The options market is expecting the biggest earnings move from CBOE in over two years

by Josh Selway

Published on Feb 8, 2018 at 11:35 AM

Exchange operator Cboe Global Markets Inc (NASDAQ:CBOE) was one of the biggest losers in the recent market pullback, with J.P. Morgan Securities yesterday suggesting the historic drop in leveraged volatility ETNs will hurt trading volumes going forward. The brokerage firm cited a similar development in 2011 when volatility spiked and VIX trading volumes declined substantially afterward. As such, the firm downgraded CBOE stock to "neutral" from "overweight," and cut its price target to $110 from $131, just ahead of the company's earnings release tomorrow morning.

Taking a closer look at the recent slide in the shares, the security touched a record high of $138.54 back on Jan. 29, but has since pulled back to trade at just $113.32 -- an 18.2% correction. Still, the equity has seemingly bottomed just above the 200-day moving average, and remains up 47.2% over the past year.

As for earnings, the stock will be looking for its first post-earnings win since May, with the shares pulling back 0.9% and 1.6% in the sessions after the last two reports, respectively. On average over the past two years Cboe Global Markets has moved 1.9% in either direction the day after earnings, but volatility expectations are way higher this time around. Specifically, implied volatility data is pricing in a swing of 7.1%.

The shares do have a history of topping volatility expectations. This is according to their Schaeffer's Volatility Scorecard (SVS) of 96, which shows a strong tendency to make moves bigger than the options market was expecting over the past year.

Speaking of options traders, many are taking a put-skewed approach ahead of the quarterly event. For instance, the Schaeffer's put/call open interest ratio (SOIR) for CBOE stands at 1.08, putting it in the 94th annual percentile. This means put open interest outweighs call open interest among contracts expiring within three months by a much wider-than-normal margin. This is partly due to peak open interest at the February 130 put.

a schaeffer's exclusive


We're celebrating 38 years with this FREE insider report!



NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories

The Market-Moving Event Just 60 Days Away
This analyst predicts a major market moving event happening as soon as August 13.
Chinese Stock Swings Higher on Buyout Bid
Ritter Pharmaceuticals stock is among the worst on the Nasdaq today
Stocks Grab Another Weekly Win as Trade Picture Brightens
Stocks spent most of the week in positive territory
The Market-Moving Event Just 60 Days Away
This analyst predicts a major market moving event happening as soon as August 13.