Trading Desk

1930 total posts

Implied Volatility

News Trading Desk Volatility Monitor

Volatility Monitor

posted by CAPIS on 05/04/2015 at 8:00 am
by CAPIS on 05/04/2015

S&P futures are up 6 points to 2107.50.  European names are up after the biggest weekly decline this year.  Manufacturing is up in the region more than estimated.  China’s PMI for April is up less than analysts’ estimated.  The cash VIX finished 12.70 on Friday.  The VIX futures are all lower in parallel fashion by a dime on average given the positive tone. Implied Volatility–  Occasionally, I’ll get an email or two that go something like this, “Why should I be so preoccupied with comparing realized stock volatility to that implied in the options if I’m just doing covered calls?”  Let’s take a step back. Definitively, volatility is simply the one standard deviation move in percentage terms of the underlying stock over a one year period.  Given the inputs in the options pricing formula (interest rates, dividends, time to expiration, stock price, strike, and volatility), the volatility is the biggest unknown and the “art” in pricing options.  The volatility input is the means by which one can artificially increase or decrease the price of the option.  That is why most market-makers quote in volatility and remember at what volatility they bought and sold particular months/strikes. Selling covered calls is essentially…

S&P futures are up 6 points to 2107.50.  European names are up after the biggest weekly decline this year.  Manufacturing is up in the region more than estimated.  China’s PMI for April is up less than analysts’ estimated.  The cash VIX finished 12.70 on Friday.  The VIX futures are all lower in parallel fashion by a dime on average given the positive tone. Implied Volatility–  Occasionally, I’ll get an email or two that go something like this, “Why should I be so preoccupied with comparing realized stock volatility to that implied in the options if I’m just doing covered calls?”  Let’s take a step back. Definitively, volatility is simply the one standard deviation move in percentage terms of the underlying stock over a one year period.  Given the inputs in the options pricing formula (interest rates, dividends, time to expiration, stock price, strike, and volatility), the volatility is the biggest unknown and the “art” in pricing options.  The volatility input is the means by which one can artificially increase or decrease the price of the option.  That is why most market-makers quote in volatility and remember at what volatility they bought and sold particular months/strikes. Selling covered calls is essentially…

May Day

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Morning Macro News

posted by CAPIS on 05/01/2015 at 7:21 am
by CAPIS on 05/01/2015

Happy May Day! Most European markets are closed today, and Japan is closed the next 3 business days for Golden Week, so expect this first day of the month to have comparatively low volume trading (especially for the 1st). So after the selling / brush off high made on Monday, April 27th at 2125.92, the SPX has moved to test the 2090-2100 value area, the 20 DMA near 2095, the 50 DMA at 2090… and below! Yesterday saw the SPX fall to the 2090-2100 value area and  stay there most of the day with S2 support. Just after 2:00 pm the market looked lower; breaking below S2 / 2090 / 50 DMA, and dropping to the 2080 level (where the bottom of the wedge I’ve drawn is). It found some support / value down there, and moved up to close down -1.01% to 2085.51. There was, of course, massive Market On Close (MOC) volume with the EOM, and I thought it was interesting that we couldn’t close above the 50 DMA / 2090 support level. So we’ve had a pretty nice sell-off from the new ATH’s on Monday, and it looks like we could get some follow through… but then…

Happy May Day! Most European markets are closed today, and Japan is closed the next 3 business days for Golden Week, so expect this first day of the month to have comparatively low volume trading (especially for the 1st). So after the selling / brush off high made on Monday, April 27th at 2125.92, the SPX has moved to test the 2090-2100 value area, the 20 DMA near 2095, the 50 DMA at 2090… and below! Yesterday saw the SPX fall to the 2090-2100 value area and  stay there most of the day with S2 support. Just after 2:00 pm the market looked lower; breaking below S2 / 2090 / 50 DMA, and dropping to the 2080 level (where the bottom of the wedge I’ve drawn is). It found some support / value down there, and moved up to close down -1.01% to 2085.51. There was, of course, massive Market On Close (MOC) volume with the EOM, and I thought it was interesting that we couldn’t close above the 50 DMA / 2090 support level. So we’ve had a pretty nice sell-off from the new ATH’s on Monday, and it looks like we could get some follow through… but then…

Put/Call Parity and Hard-to-Borrow

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Volatility Monitor

posted by CAPIS on 04/30/2015 at 8:07 am
by CAPIS on 04/30/2015

You can glean a lot of information from the put/call parity relationship. Put/call parity (illustrated below) must hold true for names to ensure there is no free lunch arbitrage. The relationship also demonstrates one of the most basic rules of options trading:  puts and calls are interchangeable to a market maker. To a market maker, it makes no difference whether you are long (short) puts or calls on the same strike due to delta hedging. What does matter is the net longs (shorts) on any given strike. As seen below, it is easy to synthetically replicate a put with a call or a call with a put. Call = Put + (Stock – Strike) + PV(Interest on the Strike) – PV(Dividends) Sometimes ,however, the equation gets so out of line you wonder what the heck is going on. In training young market makers, I would often point out that if something is way out of line, assume that you are wrong before jumping in and strapping on a bunch of reversals or conversions. Just as you solved for the call above, you can rearrange the equation (given the market price of the puts and calls) and solve for the dividends…

You can glean a lot of information from the put/call parity relationship. Put/call parity (illustrated below) must hold true for names to ensure there is no free lunch arbitrage. The relationship also demonstrates one of the most basic rules of options trading:  puts and calls are interchangeable to a market maker. To a market maker, it makes no difference whether you are long (short) puts or calls on the same strike due to delta hedging. What does matter is the net longs (shorts) on any given strike. As seen below, it is easy to synthetically replicate a put with a call or a call with a put. Call = Put + (Stock – Strike) + PV(Interest on the Strike) – PV(Dividends) Sometimes ,however, the equation gets so out of line you wonder what the heck is going on. In training young market makers, I would often point out that if something is way out of line, assume that you are wrong before jumping in and strapping on a bunch of reversals or conversions. Just as you solved for the call above, you can rearrange the equation (given the market price of the puts and calls) and solve for the dividends…

Volatility Monitor – Synthetic Positions

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Volatility Monitor

posted by CAPIS on 04/29/2015 at 7:33 am
by CAPIS on 04/29/2015

SPX futures are off 8 points to 2104 in concert with European markets this morning.  The Fed will provide details on its monetary policy today.  The dollar is headed for its first monthly loss in nearly a year.  Bloomberg says that 73% of economists believe that the Fed will raise rates in September.  The spot VIX closed 12.41 yesterday.  The VIX futures are all modestly higher in a flattening of the term structure.  Synthetics–    In meeting with institutional portfolio managers, I’m still amazed at the connotation of risk that accompanies the word option.  But maybe it’s the old market-maker in me and my view that simply being long or short the actual stock is the risky part.  Many a manager always seems to preface his actual use of options by stating that, “Our firm is very conservative in what we want to do.  We will routinely buy puts in some of our names.  We will definitely sell some covered calls.  But that’s it.”   I counter with  ‘Would you ever sell naked puts or buy deep calls?’  “No, no.  No naked shorts.  And no speculative call buying.” I’ve touched on this point before, but I think it needs repeating:  anytime you…

SPX futures are off 8 points to 2104 in concert with European markets this morning.  The Fed will provide details on its monetary policy today.  The dollar is headed for its first monthly loss in nearly a year.  Bloomberg says that 73% of economists believe that the Fed will raise rates in September.  The spot VIX closed 12.41 yesterday.  The VIX futures are all modestly higher in a flattening of the term structure.  Synthetics–    In meeting with institutional portfolio managers, I’m still amazed at the connotation of risk that accompanies the word option.  But maybe it’s the old market-maker in me and my view that simply being long or short the actual stock is the risky part.  Many a manager always seems to preface his actual use of options by stating that, “Our firm is very conservative in what we want to do.  We will routinely buy puts in some of our names.  We will definitely sell some covered calls.  But that’s it.”   I counter with  ‘Would you ever sell naked puts or buy deep calls?’  “No, no.  No naked shorts.  And no speculative call buying.” I’ve touched on this point before, but I think it needs repeating:  anytime you…

GDP and FOMC

News Trading Desk Morning Macro News

Morning Macro News

posted by CAPIS on 04/29/2015 at 7:29 am
by CAPIS on 04/29/2015

Happy Wednesday! What an eventful couple days. Yesterday I wrote that Monday candle was a bearish engulfing of Friday’s, leading me to believe that we should see a further decline before the Fed day. I also stated, “For me, I’m looking for this drop to find support in the 2090-2100 levels, which I think we’ll reach down to test going into FOMC tomorrow.” This proved rather succinct as the SPX dropped precipitously from the PDC level going into the 2nd bracket (i.e. the 10:00-10:30 AM timeframe) with news of Iran hitting a US cargo ship. We dropped, in 15 minutes, from PDC to S2 perfectly. S2 was at 2095.08, right where the 20 DMA was for support as well (and, perfectly in the middle of my 2090-2100 range I mentioned). Our Low of Day (LOD) was made there at 2094.89, and we quickly bought the rumor/news from there back to PDC and beyond. The Initial Balance area (the high and low of the first hour trading) was broken to the upside at 11:00 am: confirming the “V” shapped bottom and allowing market makers to lean long. We fiddled around the PP most of the rest of the day; closing higher by…

Happy Wednesday! What an eventful couple days. Yesterday I wrote that Monday candle was a bearish engulfing of Friday’s, leading me to believe that we should see a further decline before the Fed day. I also stated, “For me, I’m looking for this drop to find support in the 2090-2100 levels, which I think we’ll reach down to test going into FOMC tomorrow.” This proved rather succinct as the SPX dropped precipitously from the PDC level going into the 2nd bracket (i.e. the 10:00-10:30 AM timeframe) with news of Iran hitting a US cargo ship. We dropped, in 15 minutes, from PDC to S2 perfectly. S2 was at 2095.08, right where the 20 DMA was for support as well (and, perfectly in the middle of my 2090-2100 range I mentioned). Our Low of Day (LOD) was made there at 2094.89, and we quickly bought the rumor/news from there back to PDC and beyond. The Initial Balance area (the high and low of the first hour trading) was broken to the upside at 11:00 am: confirming the “V” shapped bottom and allowing market makers to lean long. We fiddled around the PP most of the rest of the day; closing higher by…

Failure to break

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Morning Macro News

posted by CAPIS on 04/28/2015 at 8:05 am
by CAPIS on 04/28/2015

Happy Tuesday! Pardon my lack of comments yesterday; I had a few trades to get ready for with the last T+3 day of the month to trade, and my daughter kept me up all night. Coffee is a beautiful thing! As I wrote on Friday, “In my humble opinion, we need a big volume break / close above 2120 for this wedge break higher to be confirmed as a ‘new ST upward trend’. Without this, it’s another failed attempt at a breakout, and another place for ST shorties to get more short.”  We did not get this, but we also didn’t get a huge sell-off per se. We peaked above 2120, but a selling tail still existed. Caution was warranted. Monday, we all wake-up to the market printing above the Friday highs / making new highs. SPX opened right at 2120, rose to R2… and slowly made its about face. From R2 we dropped to R1 and PDC for supports, bounced around them for a while, and during lunch made our real new intraday trend lower. SPX sliced through its PP en route to the S1 level where it stayed most of the day. The last hour saw further selling…

Happy Tuesday! Pardon my lack of comments yesterday; I had a few trades to get ready for with the last T+3 day of the month to trade, and my daughter kept me up all night. Coffee is a beautiful thing! As I wrote on Friday, “In my humble opinion, we need a big volume break / close above 2120 for this wedge break higher to be confirmed as a ‘new ST upward trend’. Without this, it’s another failed attempt at a breakout, and another place for ST shorties to get more short.”  We did not get this, but we also didn’t get a huge sell-off per se. We peaked above 2120, but a selling tail still existed. Caution was warranted. Monday, we all wake-up to the market printing above the Friday highs / making new highs. SPX opened right at 2120, rose to R2… and slowly made its about face. From R2 we dropped to R1 and PDC for supports, bounced around them for a while, and during lunch made our real new intraday trend lower. SPX sliced through its PP en route to the S1 level where it stayed most of the day. The last hour saw further selling…

Options – Interest Rate/Dividend Plays

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Volatility Monitor

posted by CAPIS on 04/28/2015 at 8:04 am
by CAPIS on 04/28/2015

SPX futures are off 5 points to 2099.75 even against the backdrop of expecations of no rate change by the Fed.  September is generally the expected first date of any increase.  The value of global equities rose to a record $72.2 trillion yesterday (Bloomberg).  Gold is unchanged and crude oil is slightly lower.  The spot VIX finished 13.12 yesterday.  The VIX futures are in a bit of a flattening move with the front months up a bit more than the later months. Option Sensitivity-  In the very least most people associate options trading with gaining exposure (long or short) to a stock/index/etf/etc.  Delta exposure, as it’s called, to the underlying is the most obvious exposure to be sure.  There are, however, many other exposures that complicate things and make options a bit more exciting than simply being long or short a stock.  Volatility trading is another play that I’ve discussed ad nauseum and will not get into here.  But many people don’t realize that you can put on an interest rate or dividend play using options as well. Put-call parity necessitates that options of the same strike and month trade on the same volatility.  If not, an arb can be…

SPX futures are off 5 points to 2099.75 even against the backdrop of expecations of no rate change by the Fed.  September is generally the expected first date of any increase.  The value of global equities rose to a record $72.2 trillion yesterday (Bloomberg).  Gold is unchanged and crude oil is slightly lower.  The spot VIX finished 13.12 yesterday.  The VIX futures are in a bit of a flattening move with the front months up a bit more than the later months. Option Sensitivity-  In the very least most people associate options trading with gaining exposure (long or short) to a stock/index/etf/etc.  Delta exposure, as it’s called, to the underlying is the most obvious exposure to be sure.  There are, however, many other exposures that complicate things and make options a bit more exciting than simply being long or short a stock.  Volatility trading is another play that I’ve discussed ad nauseum and will not get into here.  But many people don’t realize that you can put on an interest rate or dividend play using options as well. Put-call parity necessitates that options of the same strike and month trade on the same volatility.  If not, an arb can be…

Skew – MDY (S&P 400 MidCap ETF)

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Volatility Monitor

posted by CAPIS on 04/27/2015 at 8:07 am
by CAPIS on 04/27/2015

SPX futures are up nearly 5 points to 2116.75 as the Greece v. Eurogroup creditors bailout negotiating decended into name calling on Friday.  All eyes will be on Apple earnings today after the close.  Gold is up nearly a percent while crude is trading flat.  The VIX futures are all lower in a fairly parallel shift of the term structure.  Spot VIX closed 12.29 on Friday. Skew– Elevated skew levels remain entrenched in several indices.  Skew is roughly defined as the degree in volatility points to which downside puts trade in excess of upside calls.  You can see this daily, as a matter of fact, in the Index Collar Tracker below.  The Index Collar Tracker gauges the premium cost for a 5% out-of-the-money put purchase in excess of the 5% out-of-the-money call sale for a three-month term.  It also shows the premium as a percent of the underlying index as well as the exact spread in volatility points.  Often, skew will be represented as a ratio (90% of spot strike/110% of spot strike).  The 90%/110% skew ratio for the S&P MidCap 400 ETF (MDY) is presently over 2, a reading in the top 3% over the past five years (graph below).…

SPX futures are up nearly 5 points to 2116.75 as the Greece v. Eurogroup creditors bailout negotiating decended into name calling on Friday.  All eyes will be on Apple earnings today after the close.  Gold is up nearly a percent while crude is trading flat.  The VIX futures are all lower in a fairly parallel shift of the term structure.  Spot VIX closed 12.29 on Friday. Skew– Elevated skew levels remain entrenched in several indices.  Skew is roughly defined as the degree in volatility points to which downside puts trade in excess of upside calls.  You can see this daily, as a matter of fact, in the Index Collar Tracker below.  The Index Collar Tracker gauges the premium cost for a 5% out-of-the-money put purchase in excess of the 5% out-of-the-money call sale for a three-month term.  It also shows the premium as a percent of the underlying index as well as the exact spread in volatility points.  Often, skew will be represented as a ratio (90% of spot strike/110% of spot strike).  The 90%/110% skew ratio for the S&P MidCap 400 ETF (MDY) is presently over 2, a reading in the top 3% over the past five years (graph below).…

“Wedge” way now?

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Morning Macro News

posted by CAPIS on 04/24/2015 at 7:27 am
by CAPIS on 04/24/2015

Happy Friday! Ok. So we broke above the wedge I mentioned the last week or so (lower highs / higher lows), and we tested / made a new All Time High (ATH) on SPX. 50k ESM5 contracts were bought when we broke last week’s 2112 highs as traders leaned long and took out buy-stops on the way up. The new ATH is now 2120.49. Now! After we made those new ATH’s, we immediately turned around and sold off the last hour to close higher by +0.24% to 2112.93. This was pretty much the midpoint for the day. Without this, it’s another failed attempt at a breakout, and another place for ST shorties to get more short. That all said, the Naz did break above it’s March 10, 2000 Closing high of 5048.62 (it closed up 0.41% to 5056.06), which means the Tech Bubble has officially been washed (sort of). This “should” make people feel better as valuations, while high, are no where near the levels from the late 90’s / early aughts. Good luck today and everyone have a super great weekend! Per this morning’s Bloomberg Daybook: (Bloomberg) — European stocks rise as euro-zone finance ministers gather to discuss issues…

Happy Friday! Ok. So we broke above the wedge I mentioned the last week or so (lower highs / higher lows), and we tested / made a new All Time High (ATH) on SPX. 50k ESM5 contracts were bought when we broke last week’s 2112 highs as traders leaned long and took out buy-stops on the way up. The new ATH is now 2120.49. Now! After we made those new ATH’s, we immediately turned around and sold off the last hour to close higher by +0.24% to 2112.93. This was pretty much the midpoint for the day. Without this, it’s another failed attempt at a breakout, and another place for ST shorties to get more short. That all said, the Naz did break above it’s March 10, 2000 Closing high of 5048.62 (it closed up 0.41% to 5056.06), which means the Tech Bubble has officially been washed (sort of). This “should” make people feel better as valuations, while high, are no where near the levels from the late 90’s / early aughts. Good luck today and everyone have a super great weekend! Per this morning’s Bloomberg Daybook: (Bloomberg) — European stocks rise as euro-zone finance ministers gather to discuss issues…

Early Exercise – Puts

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Volatility Monitor

posted by CAPIS on 04/23/2015 at 8:01 am
by CAPIS on 04/23/2015

SPX futures are down 5 points to 2095.25 following European shares lower after a Chinese manufacturing gauge dropped to the lowest in twelve months and the PMI for the euro region unexpectedly slowed.  Initial jobless claims came in slightly higher than expected, 295,000.  Gold and crude are both modestly higher this morning.  The spot VIX finished 12.71 yesterday.  The VIX futures are a mixed bag as the first seven are up slightly and the last two down modestly.  All are under the 20 handle. Early Exercise (Puts)– As a follow up to yesterday’s discussion on call exercises, we discuss when to expect that puts will be exercised.  Just as with the call, a put exercise decision will once again simply be a comparison between costs and benefits.  Put exercises are most easily demonstrated from the market-maker perspective.  If a market-maker is long a deep put, he will hedge his risk by being long stock against it.  Being long stock and long a deep put ties up capital, and has an interest cost (carry) associated with it.  If the market-maker exercises his put, he will no longer have to pay carry on the stock (and put) he once owned.  This is…

SPX futures are down 5 points to 2095.25 following European shares lower after a Chinese manufacturing gauge dropped to the lowest in twelve months and the PMI for the euro region unexpectedly slowed.  Initial jobless claims came in slightly higher than expected, 295,000.  Gold and crude are both modestly higher this morning.  The spot VIX finished 12.71 yesterday.  The VIX futures are a mixed bag as the first seven are up slightly and the last two down modestly.  All are under the 20 handle. Early Exercise (Puts)– As a follow up to yesterday’s discussion on call exercises, we discuss when to expect that puts will be exercised.  Just as with the call, a put exercise decision will once again simply be a comparison between costs and benefits.  Put exercises are most easily demonstrated from the market-maker perspective.  If a market-maker is long a deep put, he will hedge his risk by being long stock against it.  Being long stock and long a deep put ties up capital, and has an interest cost (carry) associated with it.  If the market-maker exercises his put, he will no longer have to pay carry on the stock (and put) he once owned.  This is…

“Wedge” way will we go?

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Morning Macro News

posted by CAPIS on 04/22/2015 at 7:51 am
by CAPIS on 04/22/2015

Good Morning, The SPX has worked itself into a nice looking wedge the last two months, as I mentioned Monday, as you can see in my “SPX Current” chart below. We’re almost through Peak Earnings Season, so I’m eagerly awaiting the moment it pops out of it, with volume, either up or down. As Mr. Miyagi would say, “Patience, Daniel san!” I truly don’t have much to add like I normally do. Monday we gained back almost all of Friday’s drop; bouncing off the flat 20 & 50 DMA’s, as the market continues to go sideways in a process of making higher lows and lower highs (a wedge, if you will). You can draw this wedge on your chart in any way you like, as it tells the same story: the market is looking for direction. It needs a catalyst. Nothing has happened yet. There’s no major eco today, again, so I’m looking for further tests of the downside to find support at either S2 @ 2085.18, or a test of the lower part of the wedge (where the 20 & 50 DMAs are) near 2080. Hopefully you’re long near 2040, hedged to the downside, and waiting. Put some Christopher…

Good Morning, The SPX has worked itself into a nice looking wedge the last two months, as I mentioned Monday, as you can see in my “SPX Current” chart below. We’re almost through Peak Earnings Season, so I’m eagerly awaiting the moment it pops out of it, with volume, either up or down. As Mr. Miyagi would say, “Patience, Daniel san!” I truly don’t have much to add like I normally do. Monday we gained back almost all of Friday’s drop; bouncing off the flat 20 & 50 DMA’s, as the market continues to go sideways in a process of making higher lows and lower highs (a wedge, if you will). You can draw this wedge on your chart in any way you like, as it tells the same story: the market is looking for direction. It needs a catalyst. Nothing has happened yet. There’s no major eco today, again, so I’m looking for further tests of the downside to find support at either S2 @ 2085.18, or a test of the lower part of the wedge (where the 20 & 50 DMAs are) near 2080. Hopefully you’re long near 2040, hedged to the downside, and waiting. Put some Christopher…

Early Exercise – Calls

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Volatility Monitor

posted by CAPIS on 04/22/2015 at 7:15 am
by CAPIS on 04/22/2015

SPX futures are off nearly 4 points to 2087.25 as Europe is setting the tone with its first decline in three days.  The Stoxx Europe 600 is off .4% while the Nikkei 225 is over 20,000 for the first time since 2000.  Both oil and gold are slightly lower.  The BOE officials have unanimously voted to leave the UK’s main interest rate unchanged.  The spot VIX finished 13.25 yesterday.  The VIX futures are all higher modestly on the negative equity tone. Early Exercise (Calls)–  I’ve heard many portfolio managers voice concern about early assignment after writing call options on a position that he/she has no intention of selling.  In fact, the mere possibility of assignment has even precluded some from writing calls.  To be sure, when options are sold the right to exercise is entirely in the hands of the owner of the option.  However, any rational owner of a call option would never exercise his right to call the stock prior to expiration but for one exception:  a dividend* (and only the day before ex-div). Like most things, we could say that you would only exercise a call when the benefits are greater than the costs.  A dividend is…

SPX futures are off nearly 4 points to 2087.25 as Europe is setting the tone with its first decline in three days.  The Stoxx Europe 600 is off .4% while the Nikkei 225 is over 20,000 for the first time since 2000.  Both oil and gold are slightly lower.  The BOE officials have unanimously voted to leave the UK’s main interest rate unchanged.  The spot VIX finished 13.25 yesterday.  The VIX futures are all higher modestly on the negative equity tone. Early Exercise (Calls)–  I’ve heard many portfolio managers voice concern about early assignment after writing call options on a position that he/she has no intention of selling.  In fact, the mere possibility of assignment has even precluded some from writing calls.  To be sure, when options are sold the right to exercise is entirely in the hands of the owner of the option.  However, any rational owner of a call option would never exercise his right to call the stock prior to expiration but for one exception:  a dividend* (and only the day before ex-div). Like most things, we could say that you would only exercise a call when the benefits are greater than the costs.  A dividend is…

No eco = less volatility.

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Morning Macro News

posted by CAPIS on 04/20/2015 at 7:43 am
by CAPIS on 04/20/2015

Good Morning! Well another interesting way to close out the week as Friday gave us all a look at the potential for downside in equities… but did it really do much? The SPX sliced through supports on the daily chart with a huge drop to start the morning to S3 during the first hour! This was mostly predicated on the move in China to curb margin trading. SPX hung around this S3 / 2080-2085 level for the majority of the day, lining up with its 20 & 50 DMAs on the daily chart as well. It had one small move lower going into the 2:00 pm big boy hours to see if shorts would continue to lean that way; but it found support at the 2075 level (from earlier this month). It also put us slightly ST oversold on the daily chart for the first time in weeks. SPX closed lower Friday by -1.13% to 2081.18, which was -0.99% for the week. Our grind sideways continues with all ST and MT trends flat, still. SPX is finding resistance near 2100, and support near 2050. Same story different day. We’re still quite in the middle of Peak Earnings Season with a…

Good Morning! Well another interesting way to close out the week as Friday gave us all a look at the potential for downside in equities… but did it really do much? The SPX sliced through supports on the daily chart with a huge drop to start the morning to S3 during the first hour! This was mostly predicated on the move in China to curb margin trading. SPX hung around this S3 / 2080-2085 level for the majority of the day, lining up with its 20 & 50 DMAs on the daily chart as well. It had one small move lower going into the 2:00 pm big boy hours to see if shorts would continue to lean that way; but it found support at the 2075 level (from earlier this month). It also put us slightly ST oversold on the daily chart for the first time in weeks. SPX closed lower Friday by -1.13% to 2081.18, which was -0.99% for the week. Our grind sideways continues with all ST and MT trends flat, still. SPX is finding resistance near 2100, and support near 2050. Same story different day. We’re still quite in the middle of Peak Earnings Season with a…

FXI (iShares China) Skew

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Volatility Monitor

posted by CAPIS on 04/17/2015 at 11:15 am
by CAPIS on 04/17/2015

Post Written (4/16/15)* SPX futures are off 8 points to 2091.75 as Jobless Claims came in below 300k for the sixth straight week.  Housing Starts increased less than forecast last month.  Oil is trading off roughly $1, slipping from 2015 highs.  The spot VIX finished 12.84 yesterday.  The VIX futures are all higher before the open on the negative equity tone. The Hang Seng Index and Shanghai Composite Index have been on a tear lately.  In fact, both have moved up by 11% this month alone.  The returns have pushed skew to near its lowest levels of the past decade.  In fact, the skew is negative… meaning the 10% OTM put is actually trading on a cheaper implied volatility than the 10% OTM calls.  Take a look at the graph below for FXI (iShares China Large-Cap ETF).  The white line at the bottom shows a value today of -.692 and a blip low of -1.79 back in late November for the 3-month options.  The present reading is obviously in the top 1% of readings for the last decade.  The mean and median reading are both right around 4.77 vol points (puts > calls).  As Goldman notes, “inverted or negative skew…

Post Written (4/16/15)* SPX futures are off 8 points to 2091.75 as Jobless Claims came in below 300k for the sixth straight week.  Housing Starts increased less than forecast last month.  Oil is trading off roughly $1, slipping from 2015 highs.  The spot VIX finished 12.84 yesterday.  The VIX futures are all higher before the open on the negative equity tone. The Hang Seng Index and Shanghai Composite Index have been on a tear lately.  In fact, both have moved up by 11% this month alone.  The returns have pushed skew to near its lowest levels of the past decade.  In fact, the skew is negative… meaning the 10% OTM put is actually trading on a cheaper implied volatility than the 10% OTM calls.  Take a look at the graph below for FXI (iShares China Large-Cap ETF).  The white line at the bottom shows a value today of -.692 and a blip low of -1.79 back in late November for the 3-month options.  The present reading is obviously in the top 1% of readings for the last decade.  The mean and median reading are both right around 4.77 vol points (puts > calls).  As Goldman notes, “inverted or negative skew…

Earnings, US Eco and ECB.

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Morning Macro News

posted by CAPIS on 04/15/2015 at 7:18 am
by CAPIS on 04/15/2015

Good Morning! Monday the SPX opened higher, marking a HOD at 2107.65 during the first hour… and then began the sell-off. As I mentioned that morning, it wouldn’t surprise me if the 2100 level (which has been a good short for a while now) was a place that people take profits / hedge / renew shorts going into earnings. The SPX took the bait and started a sell-off that morning from R1 to test 2100, then the PP, then S1, until we closed at the LOD; down -46 bps to 2092.43. This was not a particularly scary sell-off, though, and the market is still in the 2080-2100 resistance / value range. Tuesday we saw some weaker eco put a little fear in the morning hearts as SPX dropped to make LODs at 2083.24… which, looking at the daily chart, is the 10, 20, and 50 DMA’s! SPX loved that support and quickly made its way back to the PDC level by 11:00 am. From there we slowly made our way to the PP to make a HOD; going sideways at 2095 for the majority of the day with a close up +16 bps to 2095.84. So while the daily chart…

Good Morning! Monday the SPX opened higher, marking a HOD at 2107.65 during the first hour… and then began the sell-off. As I mentioned that morning, it wouldn’t surprise me if the 2100 level (which has been a good short for a while now) was a place that people take profits / hedge / renew shorts going into earnings. The SPX took the bait and started a sell-off that morning from R1 to test 2100, then the PP, then S1, until we closed at the LOD; down -46 bps to 2092.43. This was not a particularly scary sell-off, though, and the market is still in the 2080-2100 resistance / value range. Tuesday we saw some weaker eco put a little fear in the morning hearts as SPX dropped to make LODs at 2083.24… which, looking at the daily chart, is the 10, 20, and 50 DMA’s! SPX loved that support and quickly made its way back to the PDC level by 11:00 am. From there we slowly made our way to the PP to make a HOD; going sideways at 2095 for the majority of the day with a close up +16 bps to 2095.84. So while the daily chart…

Peak Earnings Season!

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Morning Macro News

posted by CAPIS on 04/13/2015 at 7:33 am
by CAPIS on 04/13/2015

Happy Monday, It’s Peak Earnings Season, so I will be “relatively” brief in my speculative assessments. Friday, the market followed my morning thoughts pretty well. We climbed to, and hung around, 2100 most of the day. The “up” was in, so it was nice to see us close above 2100… even if it wasn’t a resounding bullish close. SPX settled up 0.52% on the day, and +1.70% for the week! Now we’re in Peak Earnings Season which really gets going tomorrow (with the likes of JNJ, JPM, FAST, WFC, CSX, INTC, etc.). There’s no big eco today beyond a minor Monthly Budget Statement at 2:00 pm ET, so tomorrow also marks the beginning of eco for the week with BIG Retail Sales and PPI at 8:30 am. Wednesday we get a spattering of interesting eco with Beige Book in the afternoon, but Thursday (building Permits, jobless claims, Philly Fed Manuf, start of G20 Meetings and FOMC members speaking) and Friday (CPI, UofMich Sentiment, Leading Indicators, Day2 of G20 and Day1 of IMF Meetings) is the big news days with earnings to push us around. Through all the eco, earnings are going to give us the real trade as we’ll get…

Happy Monday, It’s Peak Earnings Season, so I will be “relatively” brief in my speculative assessments. Friday, the market followed my morning thoughts pretty well. We climbed to, and hung around, 2100 most of the day. The “up” was in, so it was nice to see us close above 2100… even if it wasn’t a resounding bullish close. SPX settled up 0.52% on the day, and +1.70% for the week! Now we’re in Peak Earnings Season which really gets going tomorrow (with the likes of JNJ, JPM, FAST, WFC, CSX, INTC, etc.). There’s no big eco today beyond a minor Monthly Budget Statement at 2:00 pm ET, so tomorrow also marks the beginning of eco for the week with BIG Retail Sales and PPI at 8:30 am. Wednesday we get a spattering of interesting eco with Beige Book in the afternoon, but Thursday (building Permits, jobless claims, Philly Fed Manuf, start of G20 Meetings and FOMC members speaking) and Friday (CPI, UofMich Sentiment, Leading Indicators, Day2 of G20 and Day1 of IMF Meetings) is the big news days with earnings to push us around. Through all the eco, earnings are going to give us the real trade as we’ll get…

Friday “Possible” Wedge Break

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Morning Macro News

posted by CAPIS on 04/10/2015 at 9:22 am
by CAPIS on 04/10/2015

Good Morning everyone! I’ve been out the past few days dealing with plumbing issues, but that’s now resolved and the market is getting curious-or… Wednesday, the market followed my general thesis from my morning comment; hanging around the PP / 2080 level going into the FOMC Meeting minutes. With some volatility during hte day, ultimately we closed in that Point of Control (POC) level of 2080 (close was 2081.90). Thursday gave us some minor profit taking to start the day, bouncing back to the PP and PDC levels for testing going into lunch, and then a lift-off the last hour to break the morning high with the GE news (also energy names were higher all day). Now we’re hanging out pre-market with S&P futures up 2.00 points to 2087.75 (which is 2095 for spot). Futures were mostly flat overnight until 6:00 am when we saw a move to test a Globex High of Day (HOD) of 2090.50 which is 2098 on SPX. That marks the highs on SPX, pre-market, at R1 (2098.23) which is in the 2080-2100 resistance level, going into Peak Earnings Season, I’ve been writing about. Now, this is a pretty nice move in my book going into Peak…

Good Morning everyone! I’ve been out the past few days dealing with plumbing issues, but that’s now resolved and the market is getting curious-or… Wednesday, the market followed my general thesis from my morning comment; hanging around the PP / 2080 level going into the FOMC Meeting minutes. With some volatility during hte day, ultimately we closed in that Point of Control (POC) level of 2080 (close was 2081.90). Thursday gave us some minor profit taking to start the day, bouncing back to the PP and PDC levels for testing going into lunch, and then a lift-off the last hour to break the morning high with the GE news (also energy names were higher all day). Now we’re hanging out pre-market with S&P futures up 2.00 points to 2087.75 (which is 2095 for spot). Futures were mostly flat overnight until 6:00 am when we saw a move to test a Globex High of Day (HOD) of 2090.50 which is 2098 on SPX. That marks the highs on SPX, pre-market, at R1 (2098.23) which is in the 2080-2100 resistance level, going into Peak Earnings Season, I’ve been writing about. Now, this is a pretty nice move in my book going into Peak…

FOMC Meeting Minutes

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Morning Macro News

posted by CAPIS on 04/08/2015 at 7:16 am
by CAPIS on 04/08/2015

Happy Wednesday to ya! Well, I’m glad to know I wasn’t the only one fooled pre-market on Monday by the post-NFP decline! We were hanging around 2050, and it seemed like it wasn’t going to keep going lower… but I had no way of knowing the move when we opened would happen. Most, if not all, was predicated on FOMC voting member Dudley’s dovish comments at the New Jersey Performing Arts Center. at 8:30 am that morning. Monday, the SPX opened at 2064.87, quickly declined to catch “down” to futures, and making its LOD during the first 5 minutes at 2056.52. Within an hour we were testing 2077 from below, en route to an R2 test at 2080. Oh, and we blew through the flat 5, 10, and 20 DMA Short Term “trend” lines. We rose as high as 2086.99 before settling off to 2080.62; right on R2. Looking at the daily chart, the candle shows a buy near the 2014 Close, with failure to break last weeks Highs. Tuesday, with no eco to speak of, we performed a balancing act. We rose to test / break above last week’s highs; making new highs for this week at 2089.81. 2085 was…

Happy Wednesday to ya! Well, I’m glad to know I wasn’t the only one fooled pre-market on Monday by the post-NFP decline! We were hanging around 2050, and it seemed like it wasn’t going to keep going lower… but I had no way of knowing the move when we opened would happen. Most, if not all, was predicated on FOMC voting member Dudley’s dovish comments at the New Jersey Performing Arts Center. at 8:30 am that morning. Monday, the SPX opened at 2064.87, quickly declined to catch “down” to futures, and making its LOD during the first 5 minutes at 2056.52. Within an hour we were testing 2077 from below, en route to an R2 test at 2080. Oh, and we blew through the flat 5, 10, and 20 DMA Short Term “trend” lines. We rose as high as 2086.99 before settling off to 2080.62; right on R2. Looking at the daily chart, the candle shows a buy near the 2014 Close, with failure to break last weeks Highs. Tuesday, with no eco to speak of, we performed a balancing act. We rose to test / break above last week’s highs; making new highs for this week at 2089.81. 2085 was…

NFP, yeah you know me!

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Morning Macro News

posted by CAPIS on 04/06/2015 at 7:19 am
by CAPIS on 04/06/2015

Good Morning, Non-Farm Payrolls hit Good Friday morning… and were not so good. Surveys expected a +245k increase, while we came in well short at 126k (almost half what was expected!). They also revised the previous month’s lower by -30k. For the short amount of time equity index futures were open on Friday, they dropped to 2040 in a hurry. Not surprisingly, bonds rallied (10-year yield dropped from a 1.92 to a 1.80 Low Of Day (LOD) before reaching back to 1.83ish). With data trailing even the most pessimistic forecasts, speculation that the Fed will raise rates much later than originally expected is increasing. Concern over corporate profits getting worse will only be exacerbated if the economy appears weaker than we want. So! With today being Easter Monday, and the majority of Europe is closed for business, volume’s (even with the NFP number from Friday) should be below average. We’re near 2040 support, so any move lower to that level on light volume and I’m a general buyer. If we break 2040, on volume, then I”m looking to the 200 DMA and 2000 tests for next big daily chart supports. ESM5 is trading lower by -15.50 points (2044) vs. Thursday’s Close, hanging around…

Good Morning, Non-Farm Payrolls hit Good Friday morning… and were not so good. Surveys expected a +245k increase, while we came in well short at 126k (almost half what was expected!). They also revised the previous month’s lower by -30k. For the short amount of time equity index futures were open on Friday, they dropped to 2040 in a hurry. Not surprisingly, bonds rallied (10-year yield dropped from a 1.92 to a 1.80 Low Of Day (LOD) before reaching back to 1.83ish). With data trailing even the most pessimistic forecasts, speculation that the Fed will raise rates much later than originally expected is increasing. Concern over corporate profits getting worse will only be exacerbated if the economy appears weaker than we want. So! With today being Easter Monday, and the majority of Europe is closed for business, volume’s (even with the NFP number from Friday) should be below average. We’re near 2040 support, so any move lower to that level on light volume and I’m a general buyer. If we break 2040, on volume, then I”m looking to the 200 DMA and 2000 tests for next big daily chart supports. ESM5 is trading lower by -15.50 points (2044) vs. Thursday’s Close, hanging around…

April Fool’s Day!

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Morning Macro News

posted by CAPIS on 04/01/2015 at 7:24 am
by CAPIS on 04/01/2015

Happy April Fool’s everyone! I missed yesterday dealing with some plumbing problems at the house, so let’s recap the EOM/EOQ and then get into what we can expect from today. Monday we rose higher than my expectations from the morning (I thought we’d top out at R3 near 2077 or so). Instead we broke through R3 (and the 20 DMA) during the first 10 minutes! We then tested the 10 DMA from below for resistance, finding some there for the first 2.5 hours with support at R3. When noon lunch began we broke the morning highs and slowly made our way north to a HOD of 2088.97 before settling back at 2086.24 (right on my white upward sloping trend line in the below “SPX Current” chart). Then we got Tuesday and the EOM/EOQ volume. Tuesday saw us give up most of those gains from Monday. We opened near the weekly PP (around 2074), found our support, rose to break the daily PP en route to marking our HOD with a test, from below, of the 10 DMA (resistance again). We then just bounced around for the majority of the day until the last hour when selling pressure saw us break…

Happy April Fool’s everyone! I missed yesterday dealing with some plumbing problems at the house, so let’s recap the EOM/EOQ and then get into what we can expect from today. Monday we rose higher than my expectations from the morning (I thought we’d top out at R3 near 2077 or so). Instead we broke through R3 (and the 20 DMA) during the first 10 minutes! We then tested the 10 DMA from below for resistance, finding some there for the first 2.5 hours with support at R3. When noon lunch began we broke the morning highs and slowly made our way north to a HOD of 2088.97 before settling back at 2086.24 (right on my white upward sloping trend line in the below “SPX Current” chart). Then we got Tuesday and the EOM/EOQ volume. Tuesday saw us give up most of those gains from Monday. We opened near the weekly PP (around 2074), found our support, rose to break the daily PP en route to marking our HOD with a test, from below, of the 10 DMA (resistance again). We then just bounced around for the majority of the day until the last hour when selling pressure saw us break…

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