The VIX closed at a pre-election high, as rhetoric between Trump and North Korea intensified
The Dow started the week strong, extending its streak of
record highs and daily wins. However, rising geopolitical tensions took their toll mid-week, after President Donald Trump hurled threats of "
fire and fury" at North Korea -- which responded by warning of a potential attack on
Guam, a U.S. territory. As the rhetoric intensified, the
stock market logged its biggest one-day percentage loss since May, with the Dow and NYSE Composite Index (NYA) retreating from key
millennium levels. And just after this
rare stock volatility signal flashed, the CBOE Volatility Index (VIX) closed at its highest mark since the U.S. presidential election on Thursday -- keeping this
seasonal volatility trend alive, and likely catching unhedged VIX shorts off guard.
VIX Options Traders Rewrite the Record Book
In fact,
VIX options volume hit record levels in the wake of the massive stock selloff, which saw the Dow shed more than 274 points over three days, and put the S&P 500 Index (SPX) on track for its
worst week since June. Call options continued to be in high demand on the market's "fear gauge," too, but with a record net short position on VIX futures, some of this is a result of hedges being initiated against these
bearish volatility bets. Regardless, these are some of the
best stocks to buy after a VIX spike.
Nuclear Fears Boost Defense Stocks
The Dow's retreat also had Home Depot snapping its impressive
winning streak ahead of the retailer's turn in the earnings confessional next Wednesday. And while the threat of a nuclear attack translated into a boon for
defense stocks, with Lockheed Martin bringing its daily win streak to nine, put buyers bet on bigger declines for
South Korea and Japan ETFs -- with the two countries caught in the crossfire.
Apple Hits New Highs; Disney Smacks Netflix
FAANG stocks were also in focus, with Apple shares hitting new highs -- and drawing a fresh batch of
weekly options bulls and
positive analyst attention. Facebook, meanwhile, seemed immune to a negative
earnings reaction for rival social media stock Snap. On the flip side,
Netflix took a nosedive after Disney said it was ending its content deal with the streaming giant to start its own direct-to-consumer platform. Alphabet, meanwhile, made waves after Google fired engineer
James Damore, while
Amazon claimed Live Nation as its latest victim.
Earnings Spark Volatility in Retail Stocks
It was a volatile week for the retail sector, as earnings season started to heat up. While
Michael Kors stock gapped higher after earnings, a number of its sector peers weren't so resilient. Shares of
department store Dillard's, for instance, plunged 17.5% -- possibly rewarding
straddle players -- while J C Penney is pacing for a 16% post-earnings loss, after hitting a
record low earlier. Accessories designer
Fossil also sold off sharply, closing Thursday's session down more than 20%. With an onslaught of retailers still left to report, XRT
options traders loaded up on long puts to bet on near-term headwinds for the sector.
Travel Sector Dip Creates Buying Opportunity
Earnings stoked volatility in other sectors, too, with
TripAdvisor stock sinking after travel name's results -- though sector headwinds may be flashing
buy signals for these two stocks. And while
Valeant Pharmaceuticals didn't make as big of a post-earnings move as some options traders were anticipating, shares of fellow drugmaker Horizon Pharma popped in the wake of its results -- while trial data sent these two
drug stocks swinging wildly.
Inflation Data Brings Fed Meeting Minutes in Focus
Looking ahead, retail earnings will continue to pour in next week, while the release of the July
Fed meeting minutes will also dominate the conversation. Soft
inflation data this week has Wall Street wondering about the central bank's timeline for rate hikes -- and whether the upcoming September meeting will result in
no action from the Fed.