The Prepared Mind: March 24, 2014

The markets reversed the previous week’s five consecutive down days.  The back and forth in week-to week price movement brings to mind this week’s market word – “whipsaw.”  A whipsaw is when a market or security heads in one direction and is followed quickly by movement in the opposite direction.  The origins of the term are from a two person “whipsaw” which was operated by pushing and pulling the saw from opposite ends.  The market has exhibited classic whipsaw activity the past month.  The back and forth movement has not be limited to security prices alone.  Consumer sentiment, financial news reporting, and movement in the in option implied volatility are all showing signs of being whipsawed.

The best defense against being “whipsawed” is to not respond to every market gyration.  There are many strategies and tactics traders may use when trading this type of market.  The first approach is to implement strategies which work over broader price ranges.  Many option traders will use low beta or gamma strategies.  These strategies do not move one-to-one to market movements up or down.  This market action activity rewards two seemingly contradictory stances – patience and nimbleness.   Applications of these states of mind are the product of trading experience.  Be aware of how your strategies are behaving and will behave in relations to movements in price, time and implied volatility.

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,302.70

237.03

1.48%

-2.09%

14.29% (VXD)

S&P 500 (SPX)

1,866.40

25.27

1.37%

1.26%

15.00% (VIX)

NASDAQ 100 (NDX)

3,647.21

19.08

0.53%

2.07%

17.35% (VXN)

Russell 2000 (RUT)

1,190.31

9.29

0.79%

3.14%

19.38% (RVX)

S&P 100 (OEX)

823.64

13.69

1.69%

-0.03%

13.26% (VXO)

CBOE Volatility Index (VIX)

15.00

-2.82

-15.82%

NA

 

VIX options and futures continue to be very active over the past week.  The futures and the spot cash showed less of a reaction to this week’s rally versus previous rallies.  Higher lows in the VIX appear to be yet another reaction to whipsawing.  Block trades in the VIX are leaning towards strategies which profit from market range rather than market direction.

 

 

 

 

 

 

 

Economics reports will focus on housing and manufacturing.  The most important reports are  new home sales and pending home sales.  Will home prices move upwards from past month’s sluggish movement?  Regional Fed manufacturing surveys will provide the first readings of post-Winter factory activity.  Fed Governors are on tour this week.  Traders and financial analysts will be parsing their comments in an attempt to geain clarification of Janet Yellen’s comments last week about QE2.

This will be one of the quietest weeks of the quarter for earnings. Be aware of future earnings dates.  The two current front month options (April and May) include the bulk of upcoming earnings announcements. If you trade a stock, always know when earnings announcements will occur. I scan stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  It is your responsibility to confirm these earnings dates. Earnings dates can and do change.

 

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“One of the funny things about the stock market is that every time one person buys,

another sells, and both think they are astute.” – William Feather

 

Monday March 24:

Economic:  Chicago Fed National Activity Index – 8:30, PMI Manufacturing Index Flash – 9:45.

International Economic:  China PMI Flash Index – Sunday @ 9:45 PM, EMU PMI Composite Flash – %:00 AM,.

Other:  Federal Reserve Gov. Jeremy Stein welcoming remarks at Fed conference in Washington – 9:00 AM, Dallas Federal Reserve Bank President Richard Fisher speech on forward guidance, in London – 1:45 PM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

SONC Sonic Corporation

21.59

36.1

A

$0.06

 

Tuesday March 25 :

Economic:  ICSC-Goldman Store Sales – 7:45, Redbook – 8:55, FHFA House Price Index – 9:00, S&P Case-Shiller HPI, New Home Sales – 10:00, Consumer Confidence – 10:00, Richmond Fed Manufacturing Index – 10:00, State Street Investor Confidence – 10:00. 

International Economic:  Great Britain CPI and PPI – 5:30 AM.

Other:  Atlanta Federal Reserve Bank President Dennis Lockhart fireside chat on the economic outlook, in Atlanta – 4:00 PM, Philadelphia Federal Reserve Bank President Charles Plosser speech on economic outlook and monetary policy in New York – 7:00 PM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

CCL Carnival Corporation

$39.99

27.8

B

($0.08)

HDS HD Supply Holdings Inc

$23.32

37.8

B

($0.02)

WAG Walgreen Company

$66.50

27.7

B

$0.93

FIVE Five Below Inc

$38.83

54.3

A

$0.45

PVH PVH Corp

$119.12

31.2

A

$1.44

 

Wednesday March 26:

Economic:  MBA Purchase Applications – 7:00, Durable Goods Orders – 8:30, PMI Services Flash – 9:45,  EIA Petroleum Status Report –10:30.

International Economic: Great Britain GDP – 4:30 AM.

Other:  St Louis Federal Reserve Bank President James Bullard on panel discussing unconventional monetary policy, in Hong Kong – 2:00 AM.

Optionable Earnings:

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

FRAN Francesca’s Holdings Corp

$20.02

61.0

B

$0.28

LNN Lindsay Corporation

$80.82

30.9

B

$1.13

 

Thursday March 27:

Economic:  Jobless Claims – 8:30,  GDP – 8:30, Corporate Profits – 8:30, Bloomberg Consumer Comfort Index – 9:45,  Pending Home Sales – 10:00, EIA Natural Gas Report – 10:30,  Kansas City Fed Manufacturing Index – 11:00.

International Economic: EMU EC Economic Sentiment – 6:00 Am.

Other:  Cleveland Federal Reserve President Sandra Pianalto speech to RISE student conference at the University of Dayton, Ohio – 8:30AM, Chicago Fed President Charles Evans speech on the economy and monetary policy in Hong Kong – 9:30 PM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

ACN Accenture Plc

$83.06

24.7

B

$1.07

CONN CONN’S, Inc.

$33.31

71.3

B

$0.80

GME GameStop Corp.

$38.44

46.3

B

$0.78

LDOS Leidos Holdings Inc

$42.10

30.0

B

$0.43

LULU Lululemon Athletica inc.

$48.74

60.0

B

$0.72

SIG Signet Jewelers Ltd.

$102.01

31.4

B

$2.15

RHT Red Hat Inc

$58.47

40.3

A

$0.26

RH Restoration Hardware Holdings Inc

$64.78

58.3

A

$0.83

 

Friday March 28:

Economic:  Personal Income and Outlays – 8:30, Consumer Sentiment – 9:55, Farm Prices 3:00.

International Economic: No major announcements.

Other: Kansas City Federal Reserve President Esther George speech on the economy in Kansas City – 1:15 PM. 

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

CEO CNOOC Limited (ADR)

$150.47

26.0

 

Monday March 31:

Economic:  Chicago PMI – 9:45. Dallas Fed Manufacturing Survey – 10:30.

International Economic:  EMU HICP Flash – 5:00 AM.  

Optionable Earnings:  None meeting criteria

 

Papale on Trading Weeklies

Our regularly scheduled blog will be interrupted today due to massive amounts of NCAA Tournament Basketball.   Due to the extreme nature of this once a year event, all unessential services and programming will be halted until further notice including chores around the house, shuttling kids to activities and anything requiring prolonged movement away from the TV.  Only essential activities such as going to the refrigerator, re-arranging cushions on the couch and monitoring of brackets will be conducted.  Stay tuned for further updates.

Seems these days expiration week comes every week.  Well, in reality I guess it does with the weeklies.  But for those that focus on the standard monthly options tomorrow is the day.  If you carry positions into expiration week you should keep in mind a few things.  First, while the theta can be big, so can the accompanying gamma.  All extrinsic value goes to 0 at expiration so erosion must work off all remaining extrinsic value.  Deltas will settle at either 0 or 1 depending on whether they finish in or out of the money.  So for options close to at the money, the movement of delta can be dramatic as markets determine whether that option will finish in or out of the money.   Strikes outside where the market thinks it will settle trade at their intrinsic value.   Extrinsic value only exists if the market sees a possibility of the underlying reaching that strike by expiration.  With all the interest in weeklies this sort of high octane trading is becoming more commonplace.  Just watch your risk and have a plan to take both profit and loss.

The Prepared Mind: March 18, 2014

What a difference one week can make.  Seven days ago the markets were wrapped in in a near all-encompassing blanket of euphoria.  The entire focus of the financial media was on new highs.  Last weekend’s business articles focused on the when and where of forthcoming new highs for indexes.  Articles on the possibility of a stock market bubble were relegated to “off Wall Street” internet pages.  Optimism has been replaced by concern.

The indexes were down five straight days with the S&P 500 dipping into the red for the year.  Fingers were pointed at Vladmir Putin and the crisis in Crimea, but there are other factors contributing to last week’s malaise.  Economic reports from China contributed to the aura of concern.  Chinese exports, factory production, and retail sales were all weaker than forecasted last week.  The overall consensus is bearish when reports from Russia and China are combined with disappointing European industrial production and declining U.S. consumer confidence.

 

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,065.67

-387.05

-2.35%

-3.90%

16.76% (VXD)

S&P 500 (SPX)

1,841.13

-36.91

-1.97%

-0.51%

17.82% (VIX)

NASDAQ 100 (NDX)

3,628.13

-76.00

-2.05%

1.36%

18.89% (VXN)

Russell 2000 (RUT)

1,181.02

-22.41

-1.86%

2.04%

21.83% (RVX)

S&P 100 (OEX)

809.95

-16.75

-2.03%

-2.14%

17.22% (VXO)

CBOE Volatility Index(VIX)

17.82

3.82

27.29%

NA

 

The VIX and VIX futures proved to be prescient by exhibiting a cautionary stance the week before last.  Friday was the second busiest day ever for VIX options with over 1.8 million option contracts being traded.  The heaviest trading was in March calls.  It is not readily apparent if these were opening trades or covering of front month short call positions.  March VIX settlement will be on the open this Tuesday.  All March positions will be in play for a volatility event on Monday.

All eyes will, again, be on the Ukraine and Crimea. The  upcoming week is loaded with news with the potential to move markets.  This news includes the FOMC meeting, Janet Yellen’s first quarterly press conference, Fed forecasts and domestic economic reports focusing on industrial production, manufacturing and housing.  Be wary of the perfect storm of less than stellar news from here and abroad..

 

This will be one of the quietest weeks for earnings.. Major announcements include: Men’s Wearhouse, Urban Outfitters, Carnival Corporation, Hertz, Adobe, Oracle, FedEx, Guess?, ConAgra, PetroChina, Nike, Darden Restaurants and Tiffany.  .    Keep an eye on bellwether and “hot’ stocks.  Keep an eye on “hot stocks.”  These stocks will respond with the most volatility to any negative market news.  I scan stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  It is your responsibility to confirm these earnings dates. Earnings dates can and do change.

 

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“One of the funny things about the stock market is that every time one person buys,

another sells, and both think they are astute.” – William Feather

 

Monday March 17:

Economic:  Empire State Manufacturing Survey – 8:30, Treasury International Capital – 9:00, Industrial Production – 9:15, Housing Market Index – 10:00. 

International Economic:  EU HICP – 6:00.

Optionable Earnings:  No earnings meeting criteria.

Tuesday March 18 :

Economic:  ICSC-Goldman Store Sales – 7:45, CPI (Consumer Price Index) – 8:30, Housing Starts – 8:30, Redbook – 8:55.

International Economic:  EU Merchandise Trade – 8:00, Japan All Industry Index – 11:30PM.

Other:  FOMC meeting begins.

Optionable Earnings: 

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

CCL Carnival Corporation

$38.51

27.8

B

($0.08)

DSW DSW Inc.

$39.58

34.2

B

$0.29

FDS FactSet Research Systems Inc.

$103.63

29.3

B

$1.22

HTZ Hertz Global Holdings, Inc.

$25.81

44.5

B

$0.32

ADBE Adobe Systems Incorporated

$67.08

33.3

A

$0.12

ORCL Oracle Corporation

$37.65

26.9

A

$0.67

 

Wednesday March 19:

Economic:  MBA Purchase Applications – 7:00, Current Account – 8:30,  EIA Petroleum Status Report –10:30.

International Economic: Bank of England Minutes – 5:30 AM.

Other:  FOMC meeting announcement – 2:00, Fed Chair Press Conference – 2:30.

Optionable Earnings:

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

FDX FedEx Corporation

$136.68

24.3

B

$1.52

VRA Vera Bradley, Inc.

$27.27

55.3

B

$0.46

XONE ExOne Co

$41.18

67.9

A

$0.01

FNV Franco-Nevada Corporation

$52.50

35.5

A

$0.22

GES Guess?, Inc.

$28.67

40.8

A

$0.80

 

Thursday March 20:

Economic:  Jobless Claims – 8:30,  Bloomberg Consumer Comfort Index – 9:45,  Philadelphia Fed Survey – 10:00, Existing Home Sales – 10:00, Leading Indicators – 10:00,  EIA Natural Gas Report – 10:30.

International Economic: Germany PPI – 3:00 AM.

Optionable Earnings: 

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

PTR PetroChina Company Limited (ADR)

$98.07

24.5

D

$4.61

CAG ConAgra Foods, Inc.

$29.47

21.7

B

$0.60

LEN Lennar Corporation

$40.35

37.5

B

$0.28

CTAS Cintas Corporation

$59.62

25.3

A

$0.71

NKE Nike Inc

$78.53

25.8

A

$0.73

SLW Silver Wheaton Corp. (USA)

$26.53

38.6

A

$0.25

TIBX Tibco Software Inc.

$21.03

41.1

A

$0.11

 

Friday March 21:

Economic:  Atlanta Fed Business Inflation – 10:00

International Economic: No major announcements.

Other:  Quadruple Witching – Expiration

Optionable Earnings: 

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

DRI Darden Restaurants, Inc.

$49.01

26.4

B

$0.82

TIF Tiffany & Co.

$92.24

27.4

B

$1.52

 

Monday March 24:

Economic:  Chicago Fed National Activity Index – 8:30, PMI Manufacturing Index Flash – 9:45.. 

International Economic:  China PMI Flash Index – Sunday @ 9:45 PM.

Optionable Earnings:  

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

SONC Sonic Corporation

$20.88

36.1

A

$0.06

 

 

The Prepared Mind: March 10, 2014

This week marks the 5th anniversary of the March 9, 2009 closing low for the S&P 500.  The recovery from the nadir closing of the financial crisis has been stunning.  I am repeating the numbers in the following chart for emphasis.  The 5 year growth in the indexes has ranged from 150% (DJIA and OEX) to over 250% (NDX and RUT.)  This has been a very impressive bull market.

Last week’s market shrugged off troubles in the Ukraine.  Monday started with a major sell-off.   On Tuesday it was all forgotten, with gains exceeding the market losses on Friday and Monday.   We finished the week with new highs and a plethora of market optimism.  Some of the headlines for the week:

“Stocks Rise 1%, S&P 500 Reaches New High”

“Better U.S. economic date trumped geopolitical jitters, spurring talk of a bubble. However, that may be overdone.”

“Next Stop, Nasdaq 5000”

“The Nasdaq could revisit its old high sooner than many investors think.”

”No technical resistance left in SPX”

“Strong confirmation of new highs”

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,452.72

131.01

0.80%

-0.95%

13.37% (VXD)

S&P 500 (SPX)

1,878.04

18.59

1.00%

2.08%

14.11% (VIX)

NASDAQ 100 (NDX)

3,704.13

8.03

0.22%

4.21%

15.23% (VXN)

Russell 2000 (RUT)

1,203.43

20.89

1.77%

4.68%

18.66% (RVX)

S&P 100 (OEX)

826.70

8.46

1.03%

0.45%

12.97% (VXO)

CBOE Volatility Index (VIX)

14.11

0.11

0.79%

NA

 

 

 

The euphoria was near universal echoing lines from an American classic “Home on the Range:”

Where seldom is heard a discouraging word

And the skies are not cloudy all day.

If there was any dissent, it came from the VIX and VIX futures.  New highs are normally accompanied by lower prices for VIX.  The prices actually held constant or gained minimal amounts last week.  This market behavior shows a bit less optimism than the financial talking head are exhibiting.

The markets will again be locked focused on the Ukraine.  Crimea will be holding a referendum on becoming part of Russia.  The EU, the U.S., and the Ukraine consider the vote to be “illegitimate.  Economic reports highlight the consumer sector – retail sales and consumer confidence.  Recent retail sales have been adversely affected by adverse weather conditions.  It is hoped an easing of the polar vortex will be reflected in February retail sales.  Many analysts are calling for better consumer confidence numbers resulting from the onset of spring.

 

It will be a quiet week for earnings. These announcements are concentrated in the retail sector.    Major announcements include: Men’s Wearhouse, Urban Outfitters, Diamond Foods, American Eagle Outfitters, Verifone, Dresser-Rand, Williams-Sonoma, Aereopostale, Dick’s Sporting Goods and Hibbett Sports.    Keep an eye on bellwether and “hot’ stocks.  These stocks are often indicators for behavior in indexes or industry sectors.  I scan stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  It is your responsibility to confirm these earnings dates. Earnings dates can and do change.

 

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“One of the funny things about the stock market is that every time one person buys,

another sells, and both think they are astute.” – William Feather

 

Monday March 10:

Economic:  TD Ameritrade IMx – 12:30 PM. 

Other: Philadelphia Federal Reserve Bank President Charles Plosser speech on monetary policy, banks and protectionism in Paris – 4:45 AM, Chicago Fed President Charles Evans speech on the economy and monetary policy in Columbus, Georgia – 12:40 PM.

International Economic:  Bank of Japan Announcement.

Optionable Earnings: 

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

IOC InterOil Corporation (USA)

$59.49

55.7

D

($0.04)

MED Medifast Inc

$25.52

66.0

A

$0.37

PWRD Perfect World Co., Ltd. (ADR)

$25.66

64.0

A

$0.44

URBN Urban Outfitters, Inc.

$36.99

35.2

A

$0.55

 

Tuesday March 11 :

Economic:  NFIB Small Business Optimism Index – 7:30, ICSC-Goldman Store Sales – 7:45, Redbook – 8:55, JOLTS – 10:00, Wholesale Trade – 10:00.

International Economic:  No major announcements.

Optionable Earnings: 

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

DKS Dicks Sporting Goods Inc

$53.61

32.9

B

$1.11

IMOS ChipMOS Technologies (Bermuda) Ltd

$23.02

47.0

B

$0.28

CZR Caesars Entertainment Corp

$25.70

61.0

A

($1.45)

DMND Diamond Foods, Inc.

$30.55

50.8

A

$0.08

DRC Dresser-Rand Group Inc.

$58.28

31.0

A

$1.29

FURX Furiex Pharmaceuticals Inc

$91.54

79.5

A

($1.05)

PAY VeriFone Systems Inc

$30.06

55.5

A

$0.15

 

Wednesday March 12:

Economic:  MBA Purchase Applications – 7:00, Quarterly Services Survey – 10:00, EIA Petroleum Status Report –10:30.

International Economic:  EMU Industrial Production – 6:00 AM, China Industrial Production – 9:00 PM, China Retail Sales – 9:00 PM.

Optionable Earnings:

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

QIWI Qiwi PLC

$39.75

81.4

B

$0.28

MTDR Matador Resources Co

$24.24

53.7

A

$0.28

MW The Men’s Wearhouse, Inc.

$54.98

48.3

A

($0.11)

WSM Williams-Sonoma, Inc.

$58.89

31.1

A

$1.35

 

Thursday March 13:

Economic:  Jobless Claims – 8:30,  Retail Sales – 8:30, Import and Export Prices – 8:30, Bloomberg Consumer Comfort Index – 9:45,  Business Inventories – 10:00, EIA Natural Gas Report – 10:30.

International Economic: Bank of Japan Minutes – 7:50 PM.

Optionable Earnings: 

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

CCL Carnival Corporation

$39.19

25.7

B

($0.07)

DG Dollar General Corp.

$59.41

35.6

B

$1.01

GOGO Gogo Inc

$24.29

85.0

B

($0.27)

MEI Methode Electronics Inc.

$34.74

71.3

B

$0.39

CTB Cooper Tire & Rubber Co

$23.80

34.0

A

$0.21

MFRM Mattress Firm Holding Corp

$44.40

61.8

A

$0.29

TAHO Tahoe Resources, Inc.

$23.97

45.5

A

($0.09)

ULTA Ulta Salon, Cosmetics & Fragrance, Inc.

$87.30

56.6

A

$1.07

 

Friday March 14:

Economic:  PPI-FD (Producer Price Index – Final Demand) – 8:30, Consumer Sentiment – 9:55,

International Economic: No major announcements.

Optionable Earnings: 

Symbol

Company Name

Mar 27 Close

IV30

B/A

XEPS

ANN Ann Inc

$35.61

36.3

B

$0.07

BKE The Buckle, Inc.

$45.89

30.3

B

$1.21

 

 

Monday March 17:

Economic:  Empire State Manufacturing Survey – 8:30, Treasury International Capital – 9:00, Industrial Production – 9:15, Housing Market Index – 10:00. 

International Economic:  No major announcements.

Optionable Earnings:  No earnings meeting criteria.

 

Papale on Protective Put Strike Selection

Last week it seem 49ers coach Jim Harbaugh was almost traded to the Cleveland Browns.  Rumor has it he wanted more money and more power (what else in new).  I am not a student of the game in the same way our fearless leader Steve Lentz is, but I have never heard of a coach being traded.  Players, cards, coins, cigarettes in prison – yes.  But not a coach.  Anyway it seems that is off the table at least for now.  I wonder how he did at the combine?

When markets reach new highs there is a tendency to consider ways to protect against a selloff.  If you are long stock, a basic and effective way is to buy a put.  A put give the owner the right to sell a stock at a predetermined price within a predetermined time.  For example, if I own AAPL and I am a bit nervous I might buy a put to protect from a selloff.  The amount of protection and how long I am protected is based on the strike price and month of the put.  If I don’t want to lose more than 5% or so, with AAPL around $530, I would look to buy a put with a strike price of 500 or 505.

Remember, the more protection the higher the price.  And if I want to be protected going out to June I would want to buy the June 500 put, which will cost more than the April puts.  Like all insurance, more time of coverage and smaller deductable (more protection/less out of pocket) equals more cost.  There is no right or wrong here.  Each investor or trader must look at his or her own risk/reward scenario and make the choice most suited to their own individual situation.

 

The Prepared Mind: March 3, 2014

“Chance favors the prepared mind.” — Louis Pasteur

Color me confused.  Fourth quarter economic growth was revised from 2.4% from 3.2% and mystery troops (supposedly Russian) have entered Crimea yet the S&P 500 hit a new intraday high on Friday and anew new closing high at 1,859.45.  The SPX was up 4.3% in February – the best February performance since 1998.  The second close above 1,850 has given further impetus to those calling the February move a breakout.  Much credit was given to Janet Yellen’s Thursday comments concerning a possibility of a delay in tapering the Fed’s bond buying programs.  A glimmer of hope was all that was need to push the SPX to a new high,  The week’s gains were tempered by concerns about the Ukraine leading to an end of day sell-off.  The spot VIX and its monthly futures moved in opposite directions this week.  The VIX declined 0.68 or 4.63% while the VIX futures and VIX options showed gains. (I am adding the following table of the VIX and VIX futures to this and future blogs.)

  Close Change % Change
VIX

14.00

-0.68

-4.63%

Mar (VXH4)

15.25

0.10

0.66%

Apr (VXJ4)

15.70

0.25

1.62%

May (V4M4)

16.40

0.30

1.86%

June (VXM4)

17.00

0.40

2.41%

The gains in the VIX futures and the implied volatility of the VIX options  may be the direct result of using volatility to hedge long equity positions.  Next week’s employment release and/or the turmoil in the Ukraine may have been the impetus behind this movement.  One of the larger trades of the week was the purchase on Thursday of nearly 10,000 VIX APR 18 calls at 1.10.  Was this a hedge or a directional trade? Large VIX trades are generally hedged by selling another option – i.e. put on as a spread.

Here is a capsule view of last week’s market numbers:

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,321.71

218.41

1.36%

-1.95%

13.22% (VXD)

S&P 500 (SPX)

1,859.45

23.20

1.26%

0.78%

14.00% (VIX)

NASDAQ 100 (NDX)

3,696.10

33.50

0.91%

3.91%

15.01% (VXN)

Russell 2000 (RUT)

1,182.54

19.38

1.67%

2.22%

19.52% (RVX)

S&P 100 (OEX)

818.24

10.91

1.35%

-0.86%

12.93% (VXO)

CBOE Volatility Index (VIX)

14.00

-0.68

-4.63%

NA

 

The markets will be locked focused all week on the Ukraine and on the myriad of employment numbers on Wednesday through Friday.  Domestic unemployment is expected to remain unchanged at 6.6%.  Additional economic reports will cover construction, consumer sentiment, and manufacturing.

Earnings are slowing to a trickle.  Major announcements include: Big Lots, Bob Evans Farms, PetSmart, Brown-Forman, Costco, Staples, Children’s Place, Kroger, and Footlocker,   Keep an eye on bellwether and “hot’ stocks.  These stocks are often indicators for behavior in indexes or industry sectors.  I scan stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  It is your responsibility to confirm these earnings dates. Earnings dates can and do change.

 

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“One of the funny things about the stock market is that every time one person buys,

another sells, and both think they are astute.” – William Feather

 

Monday March 3:

Economic:  Motor Vehicle Sales, Gallup US Consumer Spending Measure – 8:30, PMI Manufacturing Index – 8:58, ISM Manufacturing Index – 10:00, Construction Spending – 10:00, Global Manufacturing PMI – 11:00. 

International Economic:  EMU PMI Manufacturing – 4:00 AM, All Global PMI Manufacturing..

Optionable Earnings: 

Symbol

Company Name

Feb 28 Close

IV30

B/A

XEPS

AKRX Akorn, Inc.

$26.80

51.9

B

$0.13

CLDX Celldex Therapeutics, Inc.

$31.59

76.5

B

($0.28)

EVEP EV Energy Partners, L.P.

$35.28

30.0

B

$0.20

JKS JinkoSolar Holding Co., Ltd.

$30.81

83.3

B

$0.86

MGA Magna International Inc. (USA)

$87.19

25.4

B

$1.53

NUS Nu Skin Enterprises, Inc.

$84.52

71.5

B

$1.99

ROC Rockwood Holdings, Inc.

$81.12

43.8

B

$0.31

SSW Seaspan Corporation

$21.92

28.5

B

$0.24

SSYS Stratasys Ltd

$127.15

50.8

B

$0.41

GEVA Synageva Biopharma Corp

$118.42

59.6

A

($1.02)

MR Mindray Medical International Ltd

$35.69

56.2

A

$0.50

SCTY SolarCity Corp

$86.14

68.6

A

($0.56)

URS URS Corp

$45.41

33.1

A

$0.19

VIPS Vipshop Holdings Ltd – ADR

$116.57

76.3

A

$0.37

 

Tuesday March 4 :

Economic:  ICSC-Goldman Store Sales – 7:45, Gallup Economic Confidence Index – 8:30, Redbook – 8:55.

Other: Richmond Federal Reserve Bank President Jeffrey Lacker speech in New York – 4:15PM.

International Economic:  Japan PMI Composite – 6:15 PM, China PMI Composite- 8:45 PM.  

Optionable Earnings: 

Symbol

Company Name

Feb 28 Close

IV30

B/A

XEPS

AZO AutoZone, Inc.

$538.46

24.6

B

$0.56

BRLI Bio-Reference Laboratories Inc

$25.55

40.0

B

$0.14

HTH Hilltop Holdings Inc.

$24.48

32.6

B

$0.38

AVAV AeroVironment, Inc.

$31.88

47.2

A

$0.19

HCI HCI Group Inc

$48.05

56.0

A

$1.51

SQM Sociedad Quimica y Minera de Chile

$30.45

41.8

A

$0.33

VEEV Veeva Systems Inc

$35.85

74.1

A

$0.06

YY YY Inc (ADR)

$75.00

78.1

A

$0.53

 

Wednesday March 5:

Economic:  MBA Purchase Applications – 7:00, ADP Employment Report – 8:15, Gallup US Job Creation Index 8:30, PMI Services Index – 8:58, ISM Non-manufacturing Index – 10:00, EIA Petroleum Status Report –10:30, Beige Book 2:00. .

International Economic:  EMU PMI Composite – 4:00 AM, EMU GDP – 5:00 AM, .

Other:  Dallas Federal Reserve Bank President Richard Fisher speech in Mexico City – 7:00 PM, San Francisco Federal Reserve Bank President John Williams speech on the economic outlook in Seattle – 8:30 PM..

Optionable Earnings:

Symbol

Company Name

Feb 28 Close

IV30

B/A

XEPS

CSIQ Canadian Solar Inc.

$43.07

75.5

B

$0.55

MEMP Memorial Production Partners LP

$22.16

21.2

B

$0.55

PETM PetSmart, Inc.

$66.62

27.0

B

$1.22

SN Sanchez Energy Corp

$29.46

51.1

A

$0.36

 

 

Thursday March 6:

Economic:  Chain Store Sales, Challenger Job Cut Report – 7:30, Gallup US Payroll to Population – 8:30, Productivity and Costs – 8:30, Jobless Claims – 8:30,  Bloomberg Consumer Comfort Index – 9:45,  Factory Orders – 10:00, EIA Natural Gas Report – 10:30.

Other:  Bank of England Announcement – 5:00 AM, EMU European Central Bank – 7:00AM

Optionable Earnings: 

Symbol

Company Name

Feb 28 Close

IV30

B/A

XEPS

NAV Navistar International Corp

$37.20

53.8

D

($1.55)

AFAM Almost Family Inc

$27.75

53.1

B

$0.26

BIG Big Lots, Inc.

$29.44

61.2

B

$1.45

BITA Bitauto Hldg Ltd (ADR)

$40.11

82.4

B

$0.34

CIEN Ciena Corporation

$25.12

55.3

B

($0.01)

CNQ Canadian Natural Resource Ltd

$36.29

24.8

B

$0.56

JOY Joy Global Inc.

$56.04

36.8

B

$0.64

KR The Kroger Co.

$40.14

24.8

B

$0.73

PLCE Children’s Place Retail Stores, Inc.

$55.06

42.0

B

$0.94

A NQ Mobile Inc (ADR)

$21.21

153.7

A

$0.11

AMBA Ambarella Inc

$33.91

64.7

A

$0.11

FNSR Finisar Corporation

$23.93

54.8

A

$0.36

HRB H & R Block Inc

$31.69

36.7

A

($0.08)

QIHU Qihoo 360 Technology Co Ltd

$110.76

69.1

A

$0.29

TFM The Fresh Market Inc

$32.85

60.2

A

$0.42

VNET 21Vianet Group Inc

$25.85

57.3

A

$0.04

 

Friday March 7:

Economic:  Employment Situation – 8:30, International Trade – 8:30.

International Economic: China CPI – 8:30 PM, China PPI – 8:30 PM (On Saturday March 8.)

Optionable Earnings: 

Symbol

Company Name

Feb 28 Close

IV30

B/A

XEPS

FL Foot Locker, Inc.

$41.83

31.1

B

$0.75

 

 

Monday March 10:

Economic:  TD Ameritrade IMx – 12:30 PM.. 

Other: Philadelphia Federal Reserve Bank President Charles Plosser speech on monetary policy, banks and protectionism in Paris – 4:45 AM.

International Economic:  Bank of Japan Announcement.

Optionable Earnings:  

Symbol

Company Name

Feb 28 Close

IV30

B/A

XEPS

IOC InterOil Corporation (USA)

$57.85

53.0

D

($0.04)

MED Medifast Inc

$26.82

50.2

A

$0.37

PWRD Perfect World Co., Ltd. (ADR)

$20.23

61.0

A

$0.44

URBN Urban Outfitters, Inc.

$37.62

35.4

A

$0.55

 

Papale on Standard Deviation

My favorite show on TV is “Gold Rush”.  If you haven’t seen it, it follows 3 gold mining crews as they mine for gold, mostly in Alaska.  I really like this 18 year old kid named Parker, who loves his grandfather and is determined to do whatever it takes to find the gold.  He faces ups and downs, hope and despair and one issue to deal with after another.  Kinda reminds me of how it was with my butterfly last month.

Many options strategies are set based on an expected magnitude move in the underlying.  If you are a butterfly or condor trader you know that it is not really the direction of the move but how much it moves.  Probably the most common measure to estimate the magnitude of an expected move is standard deviation.  Standard deviation is a statistical measure of movement either up or down based on a volatility input, number of days and an underlying price.  We then can get a probability estimate of a price range of an underlying over a time horizon.

When we speak of one standard deviation we mean that there is a 68% expectation that the price of the underlying will stay within the range estimate over the time we specify.  Two standard deviation shows with a 95% expectation  the price range of the underlying for a given time period.  We can then use these probabilities to determine where and how to place our trades.  Strikes in the second standard deviation are less likely to be hit than strikes in the first standard deviation.  So by using statistical expectations, specifically standard deviation, a trader can use historical price behavior to help predict future price expectation.

The Prepared Mind: February 23, 2014

“Chance favors the prepared mind.” — Louis Pasteur

Most major indexes showed slight losses for the holiday shortened trading.  The small cap laden Russell 2000(RUT) ignored this trend by gaining 1.32%.  This is a continuation of a minor disconnect between the S&P 500 (SPX) and the RUT.   I first noticed this about a month ago.  The two indexes generally trade in lockstep.  Daily movement and percentage gains or losses in one index are usually mirrored in the other.  The difference between the two is generally miniscule.   This has not held true as of late.  The why is not readily apparent.   The implications, if any, upon trading and individual trading strategies are unclear.  It could be something as trivial as a minor change in the daily trading rotation of different investing sectors.  The bottom line is that all the major indexes showed week-to-week minimal change.  Technical analysts are pointing to the 1850 level for the SPX as major resistance.  Any move above 1850 is regarded by many analysts as an indicator the correction in the S&P 500 is over.  Others believe we are locked in a trading range which will be characterized by intraday and interday volatility.

Trading interest and activity remains high in the VIX.  The spot VIX and the spot for the other volatility indexes showed modest gains for the week. These gains were reflected in the March futures on the VIX and RVX.  The futures for April and beyond held constant or showed losses of less than 1%.  The backwardization between the spot VIX and the monthly VIX futures has disappeared.  Per Russell Rhoads at the CBOE, one of the larger trades of the week was a buyer of VIX  March 17 Calls  who sold twice as many Mar 22 Calls to create a ration spread.  This spread is designed to take advantage of a moderate spike in volatility.  This is not a trading recommendation

Here is a capsule view of last week’s market numbers:

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,103.30

-51.09

-0.32%

-3.61%

14.20% (VXD)

S&P 500 (SPX)

1,836.25

-2.38

-0.13%

-0.85%

14.68% (VIX)

NASDAQ 100 (NDX)

3,662.60

-1.28

-0.03%

2.65%

15.81% (VXN)

Russell 2000 (RUT)

1,163.16

15.19

1.32%

-0.05%

19.20% (RVX)

S&P 100 (OEX)

807.33

-5.24

-0.64%

-2.55%

12.85% (VXO)

CBOE Volatility Index (VIX)

14.68

1.11

8.18%

NA

 

 

Manufacturing and housing are the major focus of economic reports this week.  The revised 4th Quarter estimate for the US GDP will be released on Friday.  This number, in conjunction with consumer sentiment, will have the ability to move the market.  The wild card for the week will be speeches by representative of the Fed.  The governors have a heavy speaking load this week.  I have posted their schedule and respective topics in the calendar which follows.  The highlight of the week will be Fed Chair Janet Yellen’s Thursday testimony before the Senate Banking Committee.

Fourth Quarter earnings announcements are slowing to a trickle with the major announcements coming from the retail sector.  Major announcements include: Home Depot, Macys, Dollar Tree, Lowe’s, L. Brands, Chesapeake Energy, Target, Ross Stores, Monster Beverage, Kohl’s, The Gap, Best Buy and salesforce.com.   Keep an eye on bellwether and “hot’ stocks.  I scan stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  It is your responsibility to confirm these earnings dates. Earnings dates can and do change.

 

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“All humans are alike and all humans are equal.

 It is just the perception of the eye that sees any different.” – Anonymous

Monday February 24:  

Economic:  Chicago Fed National Activity Index – 8:30, PMI Services Flash – 8:58, Dallas Fed Manufacturing Survey – 10:30

International Economic:  No major announcements.

Other:  FDIC Vice Chair Thomas Hoenig speech financial architecture and growth to NABE in Arlington, Virginia – 3:50 PM.

Optionable Earnings: 

Symbol

Company Name

Feb 21 Close

IV30

B/A

XEPS

PANW Palo Alto Networks Inc

$73.14

72.4

B

($0.03)

CHMT Chemtura Corp

$24.62

38.4

A

$0.11

LYV Live Nation Entertainment, Inc.

$21.99

35.1

A

($0.37)

OKE ONEOK, Inc.

$60.98

22.0

A

$0.60

OKS Oneok Partners LP

$55.52

22.5

A

$0.67

PPO Polypore International, Inc.

$30.01

57.8

A

$0.23

SCTY SolarCity Corp

$75.52

82.2

A

($0.56)

SGY Stone Energy Corporation

$35.55

50.0

A

$0.65

SINA SINA Corp

$73.88

57.1

A

$0.34

THC Tenet Healthcare Corp

$46.12

38.5

A

$0.34

TXRH Texas Roadhouse Inc

$26.35

37.1

A

$0.23

WMGI Wright Medical Group Inc

$32.01

36.3

A

($0.18)

XPO XPO Logistics Inc

$27.18

47.3

A

($0.31)

 

Tuesday February 25:

Economic:  ICSC-Goldman Store Sales – 7:45, Redbook – 8:55, FHFA House Price Index – 9:00, S&P Case-Shiller HPI – 9:00, Consumer Confidence -  10:00, Richmond Fed Manufacturing Index – 10:00 – 10:00, State Street Investor Confidence – 10:00.

Other: Federal Reserve Gov. Daniel Tarullo speech to NABE in Arlington, Virginia – 10:10.

International Economic:  Germany GDP – 2:00 AM.

Optionable Earnings: 

Symbol

Company Name

Feb 21 Close

IV30

B/A

XEPS

CBRL Cracker Barrel Old Country Store

$97.93

32.1

B

$1.55

CRZO Carrizo Oil & Gas, Inc.

$44.90

41.3

B

$0.41

DPZ Domino’s Pizza, Inc.

$72.26

33.6

B

$0.76

EOG EOG Resources Inc

$180.03

31.2

B

$1.96

EXH Exterran Holdings, Inc.

$36.05

36.8

B

$0.26

EXPD Expeditors International

$41.70

27.0

B

$0.47

FNP Fifth & Pacific Companies Inc

$30.79

46.6

B

$0.29

GTLS Chart Industries, Inc.

$89.83

45.0

B

$0.82

HFC HollyFrontier Corp

$45.66

31.9

B

$0.20

M Macy’s, Inc.

$53.46

27.2

B

$2.17

OGE OGE Energy Corp.

$36.17

26.5

B

$0.24

PCRX Pacira Pharmaceuticals Inc

$71.88

57.2

B

($0.31)

RLGY Realogy Holdings Corp

$45.40

38.2

B

$0.26

SDRL Seadrill Ltd

$36.44

29.2

B

$0.78

TMUS T-Mobile Us Inc

$31.57

50.0

B

($0.15)

TOL Toll Brothers Inc

$37.38

34.0

B

$0.18

UTHR United Therapeutics Corporation

$105.63

42.9

B

$1.69

VC Visteon Corp

$83.81

27.8

B

$1.46

VSI Vitamin Shoppe Inc

$41.83

64.4

B

$0.37

AVGO Avago Technologies Ltd

$59.00

37.2

A

$0.70

CBI Chicago Bridge & Iron Company

$79.86

29.7

A

$1.17

DWA Dreamworks Animation Skg Inc

$32.83

45.3

A

$0.34

FSLR First Solar, Inc.

$56.88

70.4

A

$1.00

JAZZ Jazz Pharmaceuticals PLC

$170.29

49.6

A

$1.64

NFX Newfield Exploration Co.

$25.22

47.2

A

$0.46

OAS Oasis Petroleum Inc.

$42.85

42.7

A

$0.64

QCOR Questcor Pharmaceuticals Inc

$77.84

81.3

A

$1.65

QEP QEP Resources Inc

$31.88

33.7

A

$0.42

RGR Sturm, Ruger & Company

$70.00

43.5

A

$1.33

RRC Range Resources Corp.

$87.52

33.1

A

$0.26

SBAC SBA Communications Corporation

$99.21

23.6

A

($0.09)

SPN Superior Energy Services, Inc.

$27.80

32.6

A

$0.31

 

 

Wednesday February 26:

Economic:  MBA Purchase Applications – 7:00, New Home Sales – 10:00, EIA Petroleum Status Report –10:30.

International Economic:  Great Britain GDP – 4:30.

Other:  Boston Federal Reserve Bank President Eric Rosengren speech on the economic outlook in Boston – 12:00, Cleveland Federal Reserve Bank President Sandra Pianalto speech on the history of the Fed, in Wooster, Ohio – 7:30 PM.

Optionable Earnings:

Symbol

Company Name

Feb 21 Close

IV30

B/A

XEPS

AEGR Aegerion Pharmaceuticals, Inc.

$65.39

64.8

B

($0.28)

ANF Abercrombie & Fitch Co.

$34.59

55.6

B

$1.04

BUD Anheuser Busch Inbev SA (ADR)

$101.33

20.7

B

$1.29

CHK Chesapeake Energy Corporation

$26.65

33.6

B

$0.40

CLH Clean Harbors Inc

$53.94

37.3

B

$0.56

CNP CenterPoint Energy, Inc.

$24.28

30.1

B

$0.27

CRI Carter’s, Inc.

$66.83

35.0

B

$1.02

DGI DigitalGlobe Inc

$40.88

35.3

B

$0.07

DLTR Dollar Tree, Inc.

$51.52

25.0

B

$1.05

GLNG Golar LNG Limited (USA)

$34.26

42.3

B

$0.58

LOW Lowe’s Companies, Inc.

$46.66

26.5

B

$0.31

NXST Nexstar Broadcasting Group, Inc.

$44.86

48.8

B

$0.38

SODA Sodastream International Ltd

$41.67

80.2

B

$0.01

TGT Target Corporation

$56.62

24.3

B

$0.85

ADSK Autodesk, Inc.

$54.90

39.3

A

$0.21

AGO Assured Guaranty Ltd.

$23.00

42.4

A

$0.66

AR Antero Resources Corp

$57.64

34.4

A

$0.26

BIDU Baidu Inc (ADR)

$173.90

48.1

A

$1.42

BLOX Infoblox Inc

$21.31

85.4

A

($0.06)

CLR Continental Resources, Inc.

$118.70

36.9

A

$1.31

GPOR Gulfport Energy Corporation

$64.65

55.3

A

$0.18

LB L Brands Inc

$53.31

27.5

A

$1.61

MWE Markwest Energy Partners LP

$70.69

22.7

A

$0.22

NDLS Noodles & Co

$35.63

53.7

A

$0.12

RIG Transocean LTD

$42.98

25.5

A

$0.82

TROX Tronox Ltd

$22.69

39.6

A

($0.31)

WDAY Workday Inc

$98.20

51.1

A

($0.26)

WLL Whiting Petroleum Corp

$62.60

33.6

A

$0.89

 

Thursday February 27:

Economic:  Durable Goods Orders – 8:30, Jobless Claims – 8:30,  Bloomberg Consumer Comfort Index – 9:45,  EIA Natural Gas Report – 10:30, Kansas City Fed Manufacturing Index – 11:00.

Other:  Federal Reserve Chair Janet Yellen to testify before the Senate Banking Committee in Washington DC -10:00, Atlanta Fed President Dennis Lockhart and Kansas City Fed President Esther George speak at Atlanta Fed’s annual banking conference – 3:15.

International Economic:   EMU Economic Sentiment – 5:00 AM, Japan Industrial Production – 6:50 PM..

Optionable Earnings: 

Symbol

Company Name

Feb 21 Close

IV30

B/A

XEPS

ACIW ACI Worldwide Inc

$59.57

45.8

B

$4.52

ALKS Alkermes Plc

$52.96

48.9

B

($0.08)

BBY Best Buy Co., Inc.

$24.84

56.5

B

$1.01

CTRX Catamaran Corp (USA)

$51.70

34.1

B

$0.55

HLT Hilton Worldwide Holdings Inc

$21.49

31.4

B

$0.18

KSS Kohl’s Corporation

$51.87

31.0

B

$1.53

LAMR Lamar Advertising Co

$50.15

51.4

B

$0.15

LKQ LKQ Corporation

$29.09

41.1

B

$0.28

LNCO LinnCo LLC

$31.34

28.6

B

$0.41

LPI Laredo Petroleum Inc

$27.74

49.6

B

$0.09

MYL Mylan Inc

$52.26

38.7

B

$0.75

NSM Nationstar Mortgage Holdings Inc

$28.23

68.2

B

($0.02)

NTI Northern Tier Energy LP

$24.20

31.1

B

$0.45

OCN Ocwen Financial Corp

$35.64

69.3

B

$0.87

RDC Rowan Companies PLC

$32.30

25.6

B

$0.42

SRPT Sarepta Therapeutics Inc

$27.56

133.5

B

($0.70)

VRX Valeant Pharmaceuticals Intl Inc

$148.00

45.8

B

$2.06

WNR Western Refining, Inc.

$38.47

37.8

B

$0.58

YRCW YRC Worldwide Inc

$20.92

81.6

B

($2.27)

ACAD ACADIA Pharmaceuticals Inc.

$24.58

90.2

A

($0.13)

ARP Atlas Resource Partners, L.P.

$20.86

28.1

A

($0.03)

ATLS Atlas Energy LP

$41.83

39.0

A

$0.40

BCEI Bonanza Creek Energy Inc

$45.71

45.4

A

$0.61

BID Sothebys

$47.30

36.3

A

$1.46

CLVS Clovis Oncology Inc

$73.13

66.9

A

($0.76)

CRM salesforce.com, inc.

$63.01

44.3

A

($0.08)

DECK Deckers Outdoor Corp

$85.56

65.7

A

$3.80

GPS The Gap Inc.

$42.34

30.4

A

$0.66

MDVN Medivation Inc

$84.64

46.0

A

($0.11)

MNST Monster Beverage Corp

$74.70

40.1

A

$0.45

OLED Universal Display Corporation

$33.72

74.0

A

$0.37

PODD Insulet Corporation

$45.50

42.6

A

($0.09)

QUNR Qunar Cayman Islands Ltd

$32.02

79.4

A

($0.04)

ROST Ross Stores, Inc.

$67.65

26.6

A

$1.02

SFM Sprouts Farmers Market Inc

$35.98

61.3

A

$0.06

SLXP Salix Pharmaceuticals, Ltd.

$103.69

46.4

A

$0.64

SPLK Splunk Inc

$88.51

66.9

A

($0.07)

 

Friday February 28:

Economic:  GDP – 8:30, Chicago PMI – 9:45, Uinversity of Michigan Consumer Sentiment – 9:55, Pending Homes Sales Index – 10:00.

Other:  Federal Reserve Gov. Jeremy Stein and Minneapolis Fed President Narayana Kocherlakota on panel discussing monetary policy and financial stability, in New York – 10:15, Chicago Fed President Charles Evans and Philadelphia Fed President Charles Plosser on panel discussing communications and unconventional monetary policy in New York – 1:30.

International Economic: No major announcements.

.

Optionable Earnings: 

Symbol

Company Name

Feb 21 Close

IV30

B/A

XEPS

BSFT BroadSoft Inc

$30.09

72.4

B

$0.05

DDD 3D Systems Corporation

$80.56

60.6

B

$0.22

HMSY HMS Holdings Corp.

$20.62

58.9

B

$0.23

IRM Iron Mountain Incorporated

$28.30

62.6

B

$0.22

NRG NRG Energy Inc

$28.72

28.4

B

$0.23

 

Monday March 3:

Economic:  Motor Vehicle Sales, Gallup US Consumer Spending Measure – 8:30, PMI Manufacturing Index – 8:58, ISM Manufacturing Index – 10:00, Construction Spending – 10:00, Global Manufacturing PMI – 11:00. 

International Economic:  EMU PMI Manufacturing – 4:00 AM.

Optionable Earnings:  

Symbol

Company Name

Feb 21 Close

IV30

B/A

XEPS

AKRX Akorn, Inc.

$25.73

45.8

B

$0.13

BMRN BioMarin Pharmaceutical Inc.

$80.13

43.3

B

($0.34)

CLDX Celldex Therapeutics, Inc.

$28.76

81.0

B

($0.28)

JKS JinkoSolar Holding Co., Ltd.

$30.96

90.3

B

$0.86

MGA Magna International Inc. (USA)

$86.56

24.6

B

$1.52

ROC Rockwood Holdings, Inc.

$73.82

32.6

B

$0.31

SSYS Stratasys Ltd

$127.11

51.6

B

$0.41

GEVA Synageva Biopharma Corp

$108.86

60.0

A

($1.03)

MR Mindray Medical International Ltd

$35.91

62.4

A

$0.50

URS URS Corp

$45.65

36.1

A

$0.19

Papale on Market Makers

I must admit it – curling has me intrigued.  The athletes look like men and women from the neighborhood who could just as easily been fishing or bowling.  I guess it’s the great north version of shuffleboard.  Not exactly sure what the brooms do but when they sweepers start going at it they sweep some mean ice.  Finals coming up.  I’ll be watching.  Unless there’s a good episode of bass pro fishing.

Option prices, like stocks, are driven by supply and demand.  The market maker, the person in charge of providing tradable prices and liquidity, essentially is responding to economic forces when posting markets for options.

For example, if a call has a market of 2 – 2.5 that means he is willing to buy it at 2 and sell at 2.5.  The difference, we know as slippage, is his spread or profit.  If I come in a pay 2.5 he is now short the calls at 2.5.  His new market might be 2.25 – 2.75.  The market adjusts based on the higher demand for calls.  You can see here while the market maker is setting the price, the force behind where he sets it is based on supply and demand forces in the option market.  As more buyers  come in, prices will continue to go up in most cases.  More sellers have the opposite effect, driving prices down.  This ebb and flow of supply and demand of options is measure in the VIX as well.  While the market maker is responsible to post markets, for the most part, he is only responding to orders that come in to trade.  It is the collective marketplace that really is driving option prices.

The Prepared Mind: February 18, 2014

I am not sure which are schizophrenic – the markets or the analysts following the markets.  The songs market participants have been singing over  the past three weeks of market action keep changing.  Three weeks ago everyone was singing the refrain to Freddy King’s  “Going Down” –“I’m goin’ down, down, down, down, down, down.” The next week a new song was added to the playlist.  The markets were harmonizing and  “going down” with Freddy and everyone started sing with the Man in Black –  Johnny Cash:

I fell into a burning ring of fire
I went down, down, down and the flames went higher

Euphoria has returned.  The bull market has returned and the market pundits are instructing  us to “Put on a Happy Face.”

Pick out a pleasant outlook
Stick out that noble chin
Wipe off that full of doubt look
Snap on a happy grin

We are vacillating between the environment where bad news is good news and good news is bad news.  Throw in a little bad news is bad news and you have described the current approach of financial newsmakers to the markets.  The major indexes were up 2% – 3% despite less than stellar economic news. Retail sales and industrial production were down.  Thursday’s job numbers were disappointing.  Bad weather was the universal excuse applied to any less than positive numbers.  The excuse rings hollow. Bad weather is the only constant we have had during the past three weeks for market gyrations.

VIX futures and options continued to trade at elevated volumes.  The backwardization of the futures to the spot disappeared in March and April expirations.  This absence of backwardization (the spot trading higher than the futures) and the decrease in of over 11% the spot volatility for all the indexes indicates an easing of the fear of a further sell-off.  The CBOE Short-Term Volatility Index (VXST) futures trading started this past Thursday.  The VXST sold-off entering the three day weekend.  The CBOE announced that in the 3rd Quarter of 2014, they intend to introduce Extended Trading Hours (ETH) for options on the S&P 500 Index complex (SPX, SPXW, SPXQ, SPXPM) and on the CBOE S&P 500 Volatility Index (VIX), contingent upon completion of systems enhancements and Securities and Exchange Commission (SEC) approval of requisite rules.

Here is a capsule view of last week’s market numbers:

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,154.39

360.31

2.28%

-3.22%

13.15% (VXD)

S&P 500 (SPX)

1,838.63

41.61

2.32%

-0.68%

13.57% (VIX)

NASDAQ 100 (NDX)

3,663.88

101.97

2.86%

2.70%

14.80% (VXN)

Russell 2000 (RUT)

1,147.97

33.24

2.98%

-1.84%

18.34% (RVX)

S&P 100 (OEX)

812.57

17.28

2.17%

-1.74%

12.13% (VXO)

CBOE Volatility Index (VIX)

13.57

-1.72

-11.25%

NA

 

 

This week’s economic reports will emphasize housing and inflation.  Analysts are expecting negative housing numbers due to the nationwide cold snap. This is the last week of announcements for Q4 earnings.    Major announcements include: Coca-Cola, Herbalife, Waste Management, Marriott, Peugeot, Tesla, Groupon, Hewlett-Packard, Nordstrom, Priceline.com, Wal-Mart and Charter Communications.   The earnings trades will be particularly actin in Priceline.com (PCLN) and Tesla (TSLA.)      Keep an eye on bellwether and “hot’ stocks.  I scan stocks announcing earnings the coming week using the following criteria:  Price > 20, 30 Day Implied Volatility > 20, and Average Daily Option Volume > 200 contracts.  It is your responsibility to confirm these earnings dates. Earnings dates can and do change.

 

Trading advice to remember:

  “Chance favors the Prepared Mind.” – Louis Pasteur

“All humans are alike and all humans are equal.

 It is just the perception of the eye that sees any different.” – Anonymous

Monday February 17:  

US Holiday – President’s Day – All US Markets Closed

International Economic:  Bank of Japan Announcement.

Optionable Earnings:  None meeting criteria.

Tuesday February 18:

Economic:  Empire State Manufacturing Survey – 8:30, Treasury International Capital – 9:00, Housing Market Index – 10:00, E-Commerce Retail Sales – 10:00.

International Economic: Great Britain CPI and PPI – 4:30 AM, Japan All Industry Index – 11:30 PM.

Optionable Earnings: 

Symbol

Company Name

Feb 14 Close

IV30

B/A

XEPS

ADI Analog Devices, Inc.

$50.69

22.0

A

$0.48

AXLL Axiall Corp

$41.04

39.6

A

$0.68

CF CF Industries Holdings, Inc.

$231.23

28.2

A

$4.46

CYH Community Health Systems

$41.49

36.5

A

$0.69

FLR Fluor Corporation (NEW)

$78.87

26.6

A

$0.98

HLF Herbalife Ltd.

$66.90

70.3

A

$1.28

NPSP NPS Pharmaceuticals, Inc.

$38.30

58.1

A

$0.02

OII Oceaneering International

$71.31

29.9

A

$0.84

PNRA Panera Bread Co

$177.88

34.0

A

$1.95

PBPB Potbelly Corp

$22.70

63.6

A

$0.05

SM SM Energy Co.

$86.75

37.6

A

$1.43

TEX Terex Corporation

$43.80

39.1

A

$0.49

 

Wednesday February 19:

Economic:  MBA Purchase Applications – 7:00, ICSC-Goldman Store Sales – 7:45, Housing Starts – *:30, Producer Price Index – 8:30, Redbook – 8:55, FOMC Minutes 2:00.

International Economic:  Bank of England Minutes – 4:30 AM, China PMI Flash Manufacturing Index – 8:45 PM.

Other:  St. Louis Federal Reserve Bank President James Bullard speech on the economic outlook and monetary policy in Washington – 1:00.

Optionable Earnings:

Symbol

Company Name

Feb 14 Close

IV30

B/A

XEPS

CLMT Calumet Specialty Products Partners

$27.74

31.3

B

$0.09

XEC Cimarex Energy Co

$110.00

38.3

B

$1.41

CLH Clean Harbors Inc

$54.96

32.2

B

$0.56

DVN Devon Energy Corp

$62.27

24.8

B

$1.09

GRMN Garmin Ltd.

$46.26

31.3

B

$0.61

LL Lumber Liquidators Holdings Inc

$96.07

48.6

B

$0.72

MGM MGM Resorts International

$25.58

36.4

B

$0.00

OCR Omnicare, Inc.

$64.27

25.2

B

$0.90

SAVE Spirit Airlines Incorporated

$46.70

40.9

B

$0.50

CG The Carlyle Group LP

$35.17

30.7

B

$0.91

MDCO The Medicines Company

$29.28

47.0

B

$0.14

ARII American Railcar Industries, Inc.

$49.72

39.8

A

$0.99

ARRS Arris Group Inc

$27.88

50.9

A

$0.42

CAR Avis Budget Group Inc.

$38.67

40.4

A

$0.12

CXO Concho Resources Inc.

$110.69

33.4

A

$0.96

ETE Energy Transfer Equity, L.P.

$44.04

26.9

A

$0.27

EQIX Equinix Inc

$191.85

32.5

A

$0.78

AWAY HomeAway, Inc.

$41.91

52.0

A

$0.07

LOCK Lifelock Inc

$22.62

56.7

A

$0.16

MIC Macquarie Infrastructure Company

$58.06

27.0

A

$0.33

MAR Marriott International Inc

$50.11

21.7

A

$0.50

OIS Oil States International, Inc.

$98.57

26.5

A

$1.49

RGP Regency Energy Partners LP

$26.85

23.3

A

$0.10

SWY Safeway Inc.

$33.06

40.6

A

$0.47

SXL Sunoco Logistics Partners L.P.

$82.04

21.6

A

$0.71

TSRO TESARO Inc

$31.55

72.6

A

-$0.85

TSLA Tesla Motors Inc

$199.63

67.9

A

$0.04

TRN Trinity Industries Inc

$60.15

35.7

A

$1.41

VECO Veeco Instruments Inc.

$40.73

41.5

A

-$0.37

WMB Williams Companies, Inc.

$40.85

27.4

A

$0.21

 

Thursday February 20:

Economic:  Consumer Price Index – 8:30, Jobless Claims – 8:30,   PMI Manufacturing Flash – 8:58, Bloomberg Consumer Comfort Index – 9:45, Philadelphia Fed Survey – 10:00, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30, EIA Petroleum Status Report –11:30.

International Economic:  German PPI – 2:00 AM, EU PMI Composite – 5:00 Am.

Optionable Earnings: 

Symbol

Company Name

Feb 14 Close

IV30

B/A

XEPS

ACT Actavis PLC

$191.63

31.5

B

$3.06

AER AerCap Holdings N.V.

$38.90

35.8

B

$0.65

CVI CVR Energy, Inc.

$37.36

38.8

B

$0.28

CVRR CVR Refining LP

$20.75

36.7

B

$0.36

CYBX Cyberonics, Inc.

$72.44

33.6

B

$0.49

DTV DIRECTV

$71.97

23.2

B

$1.28

FCN FTI Consulting, Inc.

$36.83

42.3

B

$0.41

IMAX IMAX Corporation (USA)

$26.11

41.3

B

$0.30

IDCC InterDigital, Inc.

$28.58

42.0

B

$0.30

PWR Quanta Services Inc

$31.77

29.8

B

$0.41

TK Teekay Corporation

$54.35

25.1

B

-$0.02

UPL Ultra Petroleum Corp.

$23.79

42.7

B

$0.37

WWE World Wrestling Entertainment, Inc.

$22.90

70.1

B

-$0.03

AGU Agrium Inc. (USA)

$88.22

23.2

A

$0.88

BBG Bill Barrett Corporation

$24.27

48.4

A

-$0.04

BCOR Blucora Inc

$23.54

59.0

A

$0.32

COG Cabot Oil & Gas Corporation

$38.83

37.6

A

$0.17

DXCM DexCom, Inc.

$42.56

57.4

A

-$0.07

ESRX Express Scripts Holding Co

$76.60

24.9

A

$1.12

HPQ Hewlett-Packard Company

$29.83

37.8

A

$0.85

INTU Intuit Inc.

$70.72

22.5

A

$0.04

MHK Mohawk Industries, Inc.

$145.68

32.4

A

$1.74

NEM Newmont Mining Corp

$23.53

36.9

A

$0.42

JWN Nordstrom, Inc.

$58.56

24.0

A

$1.33

PCLN Priceline.com Inc

$1,276.07

34.0

A

$7.66

QLIK Qlik Technologies Inc

$28.11

65.0

A

$0.23

FUEL Rocket Fuel Inc

$49.52

83.8

A

-$0.09

TS Tenaris S.A. (ADR)

$46.50

32.9

A

$0.69

WBMD WebMD Health Corp.

$46.51

49.3

A

$0.23

Friday February 21:

Economic:  Existing Home Sales – 10:00.

International Economic: EMU GDP Flash – 5:00 AM, EMU Merchandise Trade – 5:00 AM.

Optionable Earnings: 

Symbol

Company Name

Feb 14 Close

IV30

B/A

XEPS

CHTR Charter Communications, Inc.

$128.91

29.0

B

$0.21

DISH DISH Network Corp

$58.32

35.2

B

$0.40

 

Monday February 24:

Economic:  Chicago Fed National Activity Index – 8:30, PMI Services Flash – 8:58, Dallas Fed Manufacturing Survey – 10:30

International Economic:  No major announcements.

Optionable Earnings:  

Symbol

Company Name

Feb 14 Close

IV30

B/A

XEPS

PANW Palo Alto Networks Inc

$72.47

63.6

B

-$0.03

CHMT Chemtura Corp

$25.16

37.3

A

$0.11

FANG Diamondback Energy Inc

$58.89

45.8

A

$0.43

LYV Live Nation Entertainment, Inc.

$21.74

33.6

A

-$0.37

OKS Oneok Partners LP

$55.94

21.2

A

$0.67

OKE ONEOK, Inc.

$60.05

22.7

A

$0.60

PPO Polypore International, Inc.

$32.72

51.1

A

$0.23

SCTY SolarCity Corp

$75.87

83.8

A

-$0.56

SGY Stone Energy Corporation

$34.61

52.1

A

$0.67

THC Tenet Healthcare Corp

$47.00

37.5

A

$0.34

TXRH Texas Roadhouse Inc

$25.35

32.8

A

$0.23