The Prepared Mind: April 21, 2014

Chicken Little was wrong again.  An impressive rebound was staged by the major indexes and in the positive narrative by the financial news talking heads.   This weekend the financial news has been dominated by positive stories.  There is once again joy in Mudville.  Casey has not struck out.  All the indexes were up over 2%.  The bull market is back….or so the analysts say.  Here are last week’s results

 

Investors should be confused.  Last weekend the some of the more astute financial experts were enumerating all the reasons that the bear market was upon us.  More than one analyst used the previous two weeks market behavior, combined with a host of economic indicators, to prove the bear market had begun.  If we look back at the past two weeks, you will see there has been minimal net change in the indexes.

 

I am very hesitant about drawing any conclusions about the future from this thicket of information.  It is readily apparent the experts can “prove” any conclusion they want to using “statistics.”  Be wary. Be nimble.  Above all else be your own person.  Trade with a plan and discipline.

The past three weeks of market gyrations has created an environment where the Volatility Futures are lagging the spot cash prices they are associated with.  Volatility traders closely monitor the difference between the Cash VIX and the most actively traded VIX future.  On Friday April 11, the cash VIX was trading at a premium to the MAY VIX future.  This week the May future is trading at a premium to the spot cash.  Volatility traders in the VIX option and futures pits are taking a “show me’ approach to moving their expectations for volatility.  The lagging behavior of the VIX futures and options is an indicator of  traders’ uncertainty about market direction.

The focus will be on economic reports and housing.    Single-family housing is considered a strong indicator of the economic environment.  Existing home sale, new home sales, and FHFA home prices will provide important insight into the state of the US economy.  Permabears (analysts and traders who are always bearish) are warning that weakness in these reports may provide fuel for another market sell-off.

This is a very important week for earnings.  This is the first week we will see earnings from many of the momentum stocks which led the previous weeks’ sell-offs.   The week will start with an earnings announcement from Netflix.  Other notable earnings this week include  Halliburton, Kimberley-Clark, Netflix, Lockheed Martin, McDonald’s, Comcast, Boeing, Apple, EMC, Biogen Idec, Qualcomm, Lilly, Starbucks, Amazon, Caterpillar, Microsoft, Visa, UPS, Colgate-Palmolive and Ford.   The volume of announcements will remain at high levels over  the next 3 weeks. 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

 

Monday April 21:

Economic:  Chicago Fed National Activity Index – 8:30.

International Economic:  No major announcements.

Optionable Earnings: 

Symbol

Company Name

4/17/2014 Close

IV30

B/A

XEPS

HAL Halliburton Company

$60.50

25.1

B

$0.75

HAS Hasbro, Inc.

$53.85

23.3

B

$0.11

CE Celanese Corporation

$57.02

26.6

A

$1.21

NFLX Netflix, Inc.

$331.41

58.8

A

$0.83

RCII Rent-A-Center Inc

$26.19

41.1

A

$0.55

ZION Zions Bancorporation

$29.88

25.7

A

$0.42

STI SunTrust Banks, Inc.

$38.16

22.2

.B

$0.67

 

Tuesday April 22 :

Economic:  ICSC-Goldman Store Sales – 7:45, Redbook – 8:55, FHFA House Price Index – 9:00, Existing Home Sales – 10:00, Richmond Fed Manufacturing Index – 10:00.

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

Optionable Earnings: 

Symbol

Company Name

4/17/2014 Close

IV30

B/A

XEPS

ATI Allegheny Technologies Incorporated

$41.01

30.5

B

($0.06)

BK The Bank of New York Mellon Corp

$33.42

22.4

B

$0.54

CP Canadian Pacific Railway Limited (USA)

$147.26

26.2

B

$1.39

HOG Harley-Davidson Inc

$66.55

25.5

B

$1.08

LXK Lexmark International Inc

$46.41

37.3

B

$0.87

MDSO Medidata Solutions Inc

$50.51

72.8

B

$0.08

OMC Omnicom Group Inc.

$71.02

24.1

B

$0.79

TCK Teck Resources Ltd (USA)

$22.16

34.1

B

$0.27

AMGN Amgen, Inc.

$115.54

28.0

A

$1.81

BCR C.R. Bard, Inc.

$139.26

24.8

A

$1.86

CBST Cubist Pharmaceuticals Inc

$63.93

48.4

A

$0.34

CREE Cree, Inc.

$56.38

56.2

A

$0.29

DFS Discover Financial Services

$56.52

23.8

A

$1.25

FBC Flagstar Bancorp Inc

$20.15

41.3

A

$0.17

FTI FMC Technologies, Inc.

$54.63

28.0

A

$0.50

GILD Gilead Sciences, Inc.

$69.28

38.1

A

$0.75

ILMN Illumina, Inc.

$136.22

62.0

A

$0.44

IRBT iRobot Corporation

$38.29

64.3

A

$0.16

ISRG Intuitive Surgical, Inc.

$415.13

43.5

A

$3.34

JNPR Juniper Networks, Inc.

$25.05

35.9

A

$0.19

NBR Nabors Industries Ltd.

$24.13

34.8

A

$0.16

PKG Packaging Corp Of America

$67.36

26.3

A

$0.99

SKX Skechers USA Inc

$34.98

44.3

A

$0.33

SWKS Skyworks Solutions Inc

$35.81

45.3

A

$0.51

UIS Unisys Corporation

$28.89

54.5

A

$0.37

VMW VMware, Inc.

$102.34

43.1

A

$0.56

YUM Yum! Brands, Inc.

$76.86

26.5

A

$0.84

 

 

 

Wednesday April 23:

Economic:  MBA Purchase Applications – 7:00, PMI Manufacturing Index Flash – 9:45, New Home Sales – 10:00, EIA petroleum Status Report – 10:30.Book – 2:00.

International Economic: EMU PMI Composite Flash – 4:00 AM.

Optionable Earnings:

Symbol

Company Name

4/17/2014 Close

IV30

B/A

XEPS

AMTD TD Ameritrade Holding Corp.

$31.29

27.4

B

$0.34

APD Air Products & Chemicals, Inc.

$118.68

24.1

B

$1.62

APH Amphenol Corporation

$93.38

23.7

B

$0.95

ARMH ARM Holdings plc (ADR)

$48.01

47.6

B

$0.23

BA The Boeing Company

$126.04

21.9

B

$1.54

BABY Natus Medical Inc

$23.75

56.6

B

$0.23

BEAV B/E Aerospace Inc

$83.68

27.6

B

$1.01

BIIB Biogen Idec Inc

$291.48

42.8

B

$2.58

BPOP Popular Inc

$29.13

30.1

B

$0.65

DAL Delta Air Lines, Inc.

$33.62

41.4

B

$0.29

DOW The Dow Chemical Company

$48.50

25.2

B

$0.70

EAT Brinker International, Inc.

$51.20

31.5

B

$0.84

EMC EMC Corporation

$26.70

23.0

B

$0.27

GCI Gannett Co., Inc.

$26.64

31.7

B

$0.46

GRA W.R. Grace & Co.

$99.08

26.7

B

$0.71

IR Ingersoll-Rand PLC

$57.98

26.1

B

$0.25

JCI Johnson Controls Inc

$46.73

26.7

B

$0.65

MAN ManpowerGroup Inc.

$75.87

36.2

B

$0.67

MDCO The Medicines Company

$24.90

50.0

B

($0.13)

MTH Meritage Homes Corp

$42.30

39.7

B

$0.64

NOC Northrop Grumman Corporation

$120.60

21.3

B

$2.15

NS NuStar Energy L.P.

$54.71

25.9

B

$0.37

NSC Norfolk Southern Corp.

$95.25

20.8

B

$1.14

NSH NuStar GP Holdings, LLC

$33.48

33.3

B

$0.34

OC Owens Corning

$41.96

32.2

B

$0.35

OCR Omnicare, Inc.

$57.76

30.9

B

$0.90

PII Polaris Industries Inc.

$136.83

32.4

B

$1.16

R Ryder System, Inc.

$80.60

26.5

B

$0.87

RAI Reynolds American, Inc.

$54.99

27.3

B

$0.74

RES RPC, Inc.

$20.98

36.0

B

$0.22

TEL TE Connectivity Ltd

$60.81

23.0

B

$0.97

TMO Thermo Fisher Scientific Inc.

$119.71

25.0

B

$1.40

TUP Tupperware Brands Corporation

$85.77

27.1

B

$1.16

AAPL Apple Inc.

$519.01

24.2

A

$10.21

ALGN Align Technology, Inc.

$51.68

53.8

A

$0.36

CAKE The Cheesecake Factory Incorporated

$47.48

28.4

A

$0.49

CBI Chicago Bridge & Iron Company

$85.51

27.2

A

$1.12

CCI Crown Castle International Corp.

$74.00

24.4

A

$0.28

CLB Core Laboratories N.V.

$211.48

30.3

A

$1.46

CTXS Citrix Systems, Inc.

$55.91

39.9

A

$0.38

ETFC E TRADE Financial Corporation

$20.84

41.3

A

$0.23

FB Facebook Inc

$59.72

61.7

A

$0.18

FFIV F5 Networks, Inc.

$108.31

46.0

A

$0.95

FLS Flowserve Corp

$78.37

26.9

A

$0.75

FTNT Fortinet Inc

$21.54

53.9

A

$0.04

LRCX Lam Research Corporation

$52.11

35.0

A

$1.16

NXPI NXP Semiconductors NV

$57.91

43.6

A

$0.81

OII Oceaneering International

$72.56

27.0

A

$0.80

ORLY O’Reilly Automotive Inc

$144.54

30.2

A

$1.58

QCOM QUALCOMM, Inc.

$80.18

20.5

A

$1.09

RHI Robert Half International Inc.

$41.50

30.5

A

$0.44

RJF Raymond James Financial, Inc.

$50.34

24.3

A

$0.79

RMD ResMed Inc.

$46.49

36.7

A

$0.63

TAL TAL International Group, Inc.

$42.74

33.7

A

$0.95

TSCO Tractor Supply Company

$66.89

33.3

A

$0.37

TXN Texas Instruments Incorporated

$45.21

22.0

A

$0.41

VAR Varian Medical Systems, Inc.

$80.89

26.8

A

$1.02

XLNX Xilinx, Inc.

$51.43

26.6

A

$0.65

 

Thursday April 24:

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.

International Economic: Japan CPI – 7:30 pm.

Optionable Earnings: 

Symbol

Company Name

4/17/2014 Close

IV30

B/A

XEPS

AAL American Airlines Group Inc

$35.51

42.2

B

$0.53

ABC AmerisourceBergen Corp.

$64.95

22.7

B

$1.00

AET Aetna Inc

$69.87

26.1

B

$1.56

ALXN Alexion Pharmaceuticals, Inc.

$149.05

55.1

B

$1.03

ASPS Altisource Portfolio Solutions S.A.

$118.63

55.0

B

$1.65

AVT Avnet, Inc.

$45.86

27.7

B

$1.07

B Carter’s, Inc.

$74.08

30.4

B

$0.71

BC Brunswick Corporation

$43.03

32.9

B

$0.60

CAB Cabelas Inc

$64.36

38.9

B

$0.38

CAM Cameron International Corporation

$63.11

30.9

B

$0.72

CAT Caterpillar Inc.

$102.93

21.7

B

$1.24

CCE Coca-Cola Enterprises Inc

$44.85

20.6

B

$0.44

CELG Celgene Corporation

$141.86

37.1

B

$1.43

CFX Colfax Corp

$70.59

28.2

B

$0.43

COG Cabot Oil & Gas Corporation

$34.05

34.4

B

$0.26

CRR CARBO Ceramics Inc.

$139.53

56.9

B

$0.87

CSH Cash America International Inc

$44.84

39.3

B

$1.52

DGX Quest Diagnostics Inc

$59.98

24.5

B

$0.89

DHI D.R. Horton, Inc.

$21.86

38.2

B

$0.34

DLPH Delphi Automotive PLC

$65.90

24.7

B

$1.07

DNKN Dunkin Brands Group Inc

$48.40

25.0

B

$0.36

DO Diamond Offshore Drilling Inc

$47.19

27.2

B

$0.69

EQT EQT Corporation

$103.57

26.7

B

$0.77

FCX Freeport-McMoRan Copper & Gold Inc.

$33.01

25.1

B

$0.46

GM General Motors Company

$33.97

27.4

B

$0.47

HOT Starwood Hotels & Resorts Worldwide

$76.52

25.0

B

$0.56

HP Helmerich & Payne, Inc.

$109.55

25.0

B

$1.47

IMAX IMAX Corporation (USA)

$27.99

34.3

B

$0.02

KKR KKR & Co. L.P.

$23.17

30.0

B

$0.54

LLY Eli Lilly and Co

$59.96

21.8

B

$0.70

LTM Life Time Fitness, Inc.

$50.55

32.2

B

$0.68

LUV Southwest Airlines Co

$23.54

29.2

B

$0.16

MJN Mead Johnson Nutrition CO

$83.74

27.6

B

$0.91

NBL Noble Energy, Inc.

$72.90

23.1

B

$0.74

NDAQ NASDAQ OMX Group, Inc.

$34.73

29.3

B

$0.71

NUE Nucor Corporation

$52.21

22.8

B

$0.36

POT Potash Corp./Saskatchewan (USA)

$35.01

23.7

B

$0.35

PTEN Patterson-UTI Energy, Inc.

$32.69

34.3

B

$0.25

RCL Royal Caribbean Cruises Ltd.

$51.11

31.2

B

$0.26

RS Reliance Steel & Aluminum

$70.00

23.6

B

$1.24

RTN Raytheon Company

$99.03

20.3

B

$1.75

RYL The Ryland Group, Inc.

$38.66

40.0

B

$0.46

SWK Stanley Black & Decker, Inc.

$81.48

24.7

B

$0.97

SXC SunCoke Energy Inc

$21.94

28.5

B

($0.01)

TKR Timken Co

$59.48

30.4

B

$0.82

TROW T. Rowe Price Group Inc

$80.34

22.9

B

$1.02

TWC Time Warner Cable Inc

$135.62

22.6

B

$1.67

UA Under Armour Inc

$53.75

55.2

B

$0.04

UFS Domtar Corp (USA)

$95.83

32.3

B

$1.80

USG USG Corporation

$31.56

42.8

B

$0.20

UTEK Ultratech, Inc.

$24.60

56.5

B

($0.20)

WYN Wyndham Worldwide Corporation

$71.35

24.6

B

$0.75

YNDX Yandex NV

$28.09

55.5

B

$0.24

ZMH Zimmer Holdings, Inc.

$91.57

23.1

B

$0.47

A DeVry Education Group Inc

$39.01

50.0

A

$0.75

ALTR Altera Corporation

$33.98

33.9

A

$0.32

AMZN Amazon.com, Inc.

$323.68

40.4

A

$0.21

AWAY HomeAway, Inc.

$35.24

59.8

A

$0.05

BAS Basic Energy Services, Inc

$28.21

47.5

A

($0.09)

BIDU Baidu Inc (ADR)

$157.23

46.7

A

$0.95

BRCM Broadcom Corporation

$29.87

28.5

A

$0.25

CAMP CalAmp Corp.

$24.47

62.9

A

$0.20

CERN Cerner Corporation

$53.98

31.9

A

$0.34

DECK Deckers Outdoor Corp

$78.31

55.4

A

($0.16)

EMN Eastman Chemical Company

$88.43

23.7

A

$1.60

EW Edwards Lifesciences Corp

$80.43

39.6

A

$0.68

FSL Freescale Semiconductor Ltd

$24.13

52.1

A

$0.21

INFA Informatica Corporation

$37.16

41.4

A

$0.25

ITRI Itron, Inc.

$35.52

41.7

A

$0.26

KLAC KLA-Tencor Corporation

$65.78

27.5

A

$1.10

LVS Las Vegas Sands Corp.

$76.39

33.6

A

$0.92

MAS Masco Corporation

$21.99

33.0

A

$0.18

MLNX Mellanox Technologies, Ltd.

$36.67

61.3

A

($21.00)

MSFT Microsoft Corporation

$40.40

24.1

A

$0.62

MXIM Maxim Integrated Products Inc.

$31.78

25.6

A

$0.39

NEM Newmont Mining Corp

$23.75

30.5

A

$0.18

NTGR NetGear, Inc.

$33.55

40.3

A

$0.45

OIS Oil States International, Inc.

$96.18

24.9

A

$1.37

OLN Olin Corporation

$28.49

23.0

A

$0.34

OTEX Open Text Corporation (USA)

$46.66

40.8

A

$0.84

P Pandora Media Inc

$27.34

80.5

A

($0.19)

PFG Principal Financial Group Inc

$44.89

24.6

A

$0.92

QLIK Qlik Technologies Inc

$25.40

63.4

A

($0.19)

SBUX Starbucks Corporation

$70.79

26.2

A

$0.56

SPN Superior Energy Services, Inc.

$31.63

31.9

A

$0.21

SPWR SunPower Corporation

$26.75

58.3

A

$0.32

SWFT Swift Transportation Co

$24.09

42.0

A

$0.13

SYNA Synaptics, Incorporated

$59.01

57.6

A

$0.39

V Visa Inc

$209.36

24.1

A

$2.18

VRSN Verisign, Inc.

$50.58

30.1

A

$0.58

 

Friday April 25:

Economic:  PMI Services Flash – 9:45, University of Michigan/Reuters Consumer Sentiment – 9:55.

International Economic:  No major announcements.

Earnings:

Symbol

Company Name

4/17/2014 Close

IV30

B/A

XEPS

AAN Aaron’s, Inc.

$29.84

34.1

B

$0.53

ABBV AbbVie Inc

$48.12

27.0

B

$0.68

ALK Alaska Air Group, Inc.

$92.32

30.9

B

$1.12

AON Aon PLC

$82.36

24.4

B

$1.17

BKW Burger King Worldwide Inc

$25.96

25.8

B

$0.19

CVLT CommVault Systems, Inc.

$64.04

50.5

B

$0.29

DAN Dana Holding Corporation

$22.55

35.8

B

$0.38

FLIR FLIR Systems, Inc.

$35.33

29.5

B

$0.26

HMC Honda Motor Co Ltd (ADR)

$34.56

21.9

B

$0.88

LEA Lear Corporation

$82.42

30.2

B

$1.68

LH Laboratory Corp. of America

$101.95

22.0

B

$1.60

LPNT LifePoint Hospitals, Inc.

$51.27

35.1

B

$0.64

MCO Moody’s Corporation

$77.65

29.3

B

$0.90

STT State Street Corporation

$64.91

25.4

B

$1.00

TYC Tyco International Ltd.

$41.56

22.0

B

$0.40

VFC VF Corp

$60.13

25.4

B

$0.64

WHR Whirlpool Corporation

$154.76

32.2

B

$2.36

WY Weyerhaeuser Company

$27.90

20.2

B

$0.24

 

Monday April 28:

Economic:  Pending Home Sale Index 10:00, Dallas Fed Manufacturing Survey = 10:30.

International Economic:  No major announcements.

Optionable Earnings:  

Symbol

Company Name

4/17/2014 Close

IV30

B/A

XEPS

AMP Ameriprise Financial, Inc.

$104.83

25.4

A

$1.87

BWLD Buffalo Wild Wings

$143.16

41.0

A

$1.35

CHTR Charter Communications, Inc.

$118.11

32.4

B

$0.21

CMP Compass Minerals International, Inc.

$85.55

29.4

A

$1.40

CYOU Changyou.Com Ltd (ADR)

$27.76

67.2

B

($0.36)

EDU New Oriental Education & Tech Grp

$26.81

49.2

B

$0.25

FTK Flotek Industries Inc

$29.50

40.3

A

$0.23

GGP General Growth Properties Inc

$22.72

20.5

A

$0.30

GLW Corning Incorporated

$20.73

27.4

B

$0.30

HIG Hartford Financial Services Group Inc

$34.50

24.2

A

$0.93

HLF Herbalife Ltd.

$55.27

72.9

A

$1.29

JEC Jacobs Engineering Group Inc

$63.00

21.8

A

$0.89

N NetSuite Inc

$83.31

48.7

A

($0.24)

PCL Plum Creek Timber Co. Inc.

$41.60

20.7

A

$0.15

RKT Rock-Tenn Company

$98.67

32.3

A

$1.63

RRC Range Resources Corp.

$90.73

27.8

A

$0.38

SOHU Sohu.com Inc

$61.14

55.5

B

($1.48)

TCS Container Store Group Inc

$31.02

56.0

A

$0.27

TEN Tenneco Inc

$59.28

33.5

B

$0.86

TV Grupo Televisa SAB (ADR)

$33.03

29.5

A

$0.17

 

Papale on the Greeks

Ah the short holiday week.  Of course the kids love the idea of no school on Friday.  And me I must admit I don’t mind having an extra day over the weekend to get started on all the spring projects.  This one is a bit unusual as it comes over an expiration week.  We lose our last day of trading in the April options.  So before you get started on the yard this afternoon, be sure to manage your open April positions.

Time.  The subject of countless songs and products promising to stop it on our bodies.  But time is also relevant when it comes to the greeks.  We know that theta measures the affect of time on option values.  The passage of time will also impact the other greeks, namely delta, gamma and vega.  These are often referred to as the second order derivatives.

For example, we know that delta is the probability that an option will finish in the money at expiration.  One of the factors that determines that probability is time.  So an  option with a 30 delta with 50 days to go with the underlying at x, might have a delta of 10 with the underlying at the same price x with 20 day left.  Since delta and the change of delta is affected by time, we know by definition that gamma is also affected by time.  A far out of the money option with a delta of 1 will move little if any with a fairly large move in the underlying with one day until expiration.  The same strike with 30 days until expiration might have a delta of 10 and have a significantly greater gamma.  And since vega is based entirely on extrinsic value, we know that as time erodes and extrinsic value decreases, the vega of an option will also decrease.  So as you look at your risk metrics keep in mind that even if price or IV stay constant, time will have an effect on the value of your greeks.

The Prepared Mind: April 14, 2014

Echoing last week’s blog, is it an acorn or is the sky falling?  If you listened to financial media the suggestion was that it was time to batten down the hatches because the sky might be falling,  It definitely feels like the sky is falling if you recently bought into momentum stocks such as Tesla, Amazon, Priceline, Herbalife. Or Netflix.  The current sell-off continues to appear to be rotational change focused on momentum stocks in the high tech laden NASDAQ 100 (NDX) and the small-cap Russell 2000 (RUT) indexes.

The breakdown of the markets over the past two weeks is bearish.  Numerous technical signals have been locked on sell signals for the past thre to four weeks.  Mark breadth is extremely bearish and is sending out sell signals.  In the absence of one of the major confirming signals,  I am not ready to call this past week the end of the bull market or the beginning of a major correction.

 

 

 

 

The volatility indices remain is only moderately bearish.   None of the of the indicators – cash market, index futures, or indexes – indicate the same levels of market concern among professional investors as exhibited in the financial media and press.  Being  an options focused trader facilitates entry and exit to the markets.  This feels like a good time to reduce exposure and watch the markets.  Billionaire investor John Templeton once remarked “I made my money by never selling a top nor buying a bottom.”  This is very astute advice for a volatile market.

 

 

 

 

 

 

 

 

 

Economic reports will focus on manufacturing and housing.    China will report Q1 GDP and Industrial Production on Tuesday night.  Concerns about China have roiled the market in the past couple of months.  Bad numbers on Tuesday would exacerbate current selling pressure.  Earnings announcements will start to ramp up this week, The major focus for the week will be on the quality and source of earnings.   Analysts are starting to discount increased earnings resulting from decreased costs.

 

Notable earnings this week include CitiGroup, Coca-Cola, Intel, Johnson &Johnson, Capital One, Google, Yahoo, American Express, IBM, GE, Abbot Labs, Baxter, Morgan Stanley, PPG, PepsiCo, Philip Morris, DuPont, and Goldman Sachs,   The volume of announcements will increase over the next 3 weeks. 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

 

Monday April 14:

Economic:  Retail Sales – 8:30, Business Inventories – 10:00.

International Economic:  EMU Industrial Production – 5:00 AM.

Optionable Earnings: 

Symbol

Company Name

April 11 Close

IV30

B/A

XEPS

C Citigroup Inc

$46.23

25.8

B

$1.25

JBHT J.B. Hunt Transport Services, Inc.

$71.96

26.5

B

$0.68

ADTN ADTRAN, Inc.

$24.35

45.7

B

$0.18

 

Tuesday April 15 :

Economic:  ICSC-Goldman Store Sales – 7:45, Consumer Price Index (CPI) – 8:30, Empire State Manufacturing – 8:30, Redbook – 8:55, Treasury International Capital – 9:00, Housing Market Index – 10:00.

International Economic:  EMU Merchandise Trade – 6:00 AM, China GDP – 10:00 PM, China Industrial Production – 10:00. .

Optionable Earnings: 

Symbol

Company Name

April 11 Close

IV30

B/A

XEPS

SCHW Charles Schwab Corp

$25.14

30.0

B

$0.22

CMA Comerica Incorporated

$48.91

25.3

B

$0.72

INFY Infosys Ltd ADR

$52.75

42.1

B

$0.80

NTRS Northern Trust Corporation

$61.56

22.6

B

$0.79

CSX CSX Corporation

$27.97

23.3

A

$0.42

INTC Intel Corporation

$26.43

23.8

A

$0.37

IBKR Interactive Brokers Group, Inc.

$21.27

30.6

A

$0.29

LLTC Linear Technology Corporation

$47.72

27.2

A

$0.46

YHOO Yahoo! Inc.

$33.40

44.0

A

$0.41

 

 

Wednesday April 16:

Economic:  MBA Purchase Applications – 7:00, Housing Starts – 8:30, Industrial Production – 9:15, Atlanta Fed Business Inflation Expectations – 10:00, EIA Petroleum Status Report – 10:30, Beige Book – 2:00.

International Economic: No major announcements.

Optionable Earnings:

Symbol

Company Name

April 11 Close

IV30

B/A

XEPS

ABT Abbott Laboratories

$37.26

20.6

B

$0.35

ASML ASML Holding NV (ADR)

$89.89

31.3

B

$0.81

PNC PNC Financial Services Group Inc

$82.21

21.2

B

$1.65

STJ St. Jude Medical, Inc.

$62.19

30.4

B

$0.95

GWW W.W. Grainger, Inc.

$252.23

23.6

B

$2.97

AXP American Express Company

$85.36

24.2

A

$1.63

COF Capital One Financial Corp.

$74.07

25.1

A

$1.67

CCK Crown Holdings, Inc.

$44.75

21.9

A

$0.51

GOOG Google Inc

$540.95

36.9

A

$13.27

IBM International Business Machines Corp.

$195.68

22.2

A

$2.54

KSU Kansas City Southern

$97.58

33.0

A

$1.00

KMI Kinder Morgan Inc

$32.68

23.1

A

$0.36

NSR Neustar Inc

$28.01

107.8

A

$0.78

NE Noble Corporation PLC

$29.96

31.6

A

$0.69

SNDK SanDisk Corporation

$75.69

39.8

A

$1.22

SLM SLM Corp

$24.77

26.5

A

$0.56

URI United Rentals, Inc.

$88.17

41.7

A

$0.70

 

Thursday April 17:

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

International Economic: Germany PPI – 3:00.

Optionable Earnings: 

Symbol

Company Name

April 11 Close

IV30

B/A

XEPS

BLK BlackRock, Inc.

$295.95

26.1

D

$4.15

HLSS Home Loan Servicing Solutions Ltd

$21.67

24.5

D

$0.53

ADS Alliance Data Systems Corporation

$253.76

34.7

B

$2.59

AN AutoNation, Inc.

$53.21

27.6

B

$0.75

BHI Baker Hughes Incorporated

$64.13

27.8

B

$0.82

BBT BB&T Corporation

$38.89

20.4

B

$0.71

CMG Chipotle Mexican Grill, Inc.

$534.01

43.2

B

$2.82

DHR Danaher Corporation

$74.13

21.4

B

$0.80

DOV Dover Corp

$82.18

24.3

B

$1.02

DD E I Du Pont De Nemours And Co

$66.47

21.1

B

$1.62

FITB Fifth Third Bancorp

$21.80

21.8

B

$0.42

GS Goldman Sachs Group Inc

$155.98

24.5

B

$3.94

HON Honeywell International Inc.

$91.34

21.9

B

$1.26

MAT Mattel, Inc.

$37.98

28.7

B

$0.08

MS Morgan Stanley

$29.25

31.6

B

$0.60

PPG PPG Industries, Inc.

$189.96

25.0

B

$2.00

COL Rockwell Collins, Inc.

$76.79

23.5

B

$1.06

SAP SAP AG (ADR)

$80.14

22.3

B

$0.62

SLB Schlumberger Limited.

$97.32

20.2

B

$1.08

SHW Sherwin-Williams Company

$190.03

25.4

B

$1.08

BX The Blackstone Group L.P.

$30.04

38.1

B

$0.56

UNH UnitedHealth Group Inc.

$79.99

22.7

B

$1.09

ATHN athenahealth, Inc

$142.50

59.8

A

$0.17

CPHD Cepheid

$47.30

49.3

A

($0.19)

CBST Cubist Pharmaceuticals Inc

$67.37

50.4

A

$0.36

 

Friday April 18:

Good Friday – U.S. Markets Closed, Banks Open

Economic:  Leading Indicators – 10:00.

International Economic:  No major announcements.

Earnings:  No earnings announcements.

 

Monday April 21:

Economic:  Chicago Fed National Activity Index – 8:30.

International Economic:  No major announcements.

Optionable Earnings:  

Symbol

Company Name

April 11 Close

IV30

B/A

XEPS

HAL Halliburton Company

$57.91

26.6

B

$0.75

HAS Hasbro, Inc.

$54.30

26.9

B

$0.72

STI SunTrust Banks, Inc.

$38.12

24.0

B

$0.67

NFLX Netflix, Inc.

$334.73

63.8

A

$0.90

RCII Rent-A-Center Inc

$26.81

32.5

A

$0.56

ZION Zions Bancorporation

$29.58

28.9

A

$0.39

 

 

 

Papale on Synthetics

I am not a huge golf fan.  I get out several times a year with friends or family and play.  However I do like to watch the Master’s.  It’s probably the most coveted golf tournament out there and every year it is like watching the same thing.  Same course, same announcer (Jim Nance), same green jacket even same prices I hear from years ago.  Rumor has it you can get an egg salad sandwich for $1.   No Tiger this year.  I’m pulling for Phil like I do every year.  Same as ever.

One of the pretty cool things about options is that you can combine various instruments to create another.  For example, I can buy stock and a put and create the a long call.  Both the synthetic long call (stock plus put) and an outright call will perform exactly the same.  The only difference between the outright and the synthetic will be the cost involved.  Often the option alone is significantly less costly as one might expect.

Consider this.  Suppose I could buy the stock and put for as synthetic price of $2 and the outright call was trading for $2.50.  If this was the case I could buy the synthetic and sell the outright and create an arbitrage and lock in $0.50 profit with virtually no risk.  As soon as the relationship between the stock, call and put creates such a possibility, the market pretty quickly recognizes it and will push it back in line – effectively arbitraging away the excess profit.  If you do see the opportunity to capture these profits jump on them fast.  They won’t last long.

The Prepared Mind: April 7, 2014

Henny Penny , sometimes known as Chicken Little,  is famously known for warning in response to an acorn falling from a tree, “The sky is falling.  The sky is falling.”  This refrain was echoed by the financial media on Friday as while the markets were taking a beating.   On Friday morning, I read a market summary which started with:   “ The broad stock market, as measured by the Standard & Poor 500 Index ($SPX) made new all-time intraday and closing highs on consecutive days this week.  That, coupled with some new buy signals from breadth makes our intermediate-term outlook bullish. (Larry McMillan, CBOE Options Hub)”  This seemed like a very reasonable assessment of the market when it was published at 10:20 AM on Friday morning.  Soon afterwards the markets started selling off and it was not just one Chicken Little.  The central character of the folk tale had been replaced by a movement.  The afternoon financial reporting gave us  a veritable parade of Chicken Littles and panels of Chicken Littles, each trying to warn us of impending doom.  Is the sky falling or is it merely an acorn?

Initial evidence suggests Larry McMillan’s early Friday market analysis may be correct.    All the major indexes I follow ended the week in positive territory.  These indexes, with the exception of the NDX, are all only a solid up day away from achieving more new highs.  The current sell-off appears to be rotational change focused on momentum stocks in the high tech laden NASDAQ 100(NDX) and the small-cap Russell 2000(RUT.)   Some analysts see a move from momentum and speculative issues to value based issues.  This does not mean the long awaited correction in bull market has not started.  However, the VIX and other VIX based trading vehicles exhibit investor’s lack of concern about the market.

The volatility indices remain remain neutral to bullish.  All the trading vehicles associated with volatility on the S&P 500 exhibited bullish behavior last week – every indicator exhibited  decrease in anticipated future implied volatility – current, short term, mid-term, and long-term.   The response of the volatility products on Friday was muted in comparison to the media noise and movement in the RUT and NDX.  This disconnect was highlighted by the spot VIX which remained below the Newman Line or 14%.    A VIX under 14% is indicative of a consensus “What, me worry?” attitude about any near term concern about volatility events.  Bullish (or bearish on the market) VIX treads were of a size and structure indicating  they were to protect existing bullish portfolios.

 

It will be a quiet week for economic reports.  The focus will be on retail sales, consumer credit and small business and consumer confidence.  These reports generally have minimal impact on the markets.  A number of Fed  governors and board members will be speaking this week.  Their comments and views will be dissected in hopes a getting a more accurate gauge of the timing and substance of future Fed behavior.

 

Alcoa (AA) announces earnings on Tuesday.  This announcement is traditionally viewed as the beginning of  the earnings season.  Despite this announcement, there will be few earnings announcements this week.  The number of earnings announcements will increase dramatically next week. 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

 

Monday April 7:

Economic:  Gallup US Consumer Spending Measure – 8:30, TDAmeritrade IMX – 12:30..

International Economic:  Bank of Japan Announcement.

Other:  St Louis Federal Reserve Bank President James Bullard speech on monetary policy and the economic outlook in Los Angeles – 11;5 AM.

Optionable Earnings:  None meeting criteria.

Tuesday April 8 :

Economic:  NFIB Small Business Optimism Index – 7:30, ICSC-Goldman Store Sales – 7:45, Redbook – 8:55, JOLTS – 10:00, Construction spending – 10:00, Global Manufacturing PMI – 11:00.

International Economic:  Great Britain Industrial Production – 4:30 AM.

Other:  Minneapolis Federal Reserve Bank President Narayana Kocherlakota speech in Rochester, Minnesota – 1:30, Philadelphia Federal Reserve Bank President Charles Plosser speech on prudential regulation in Philadelphia – 2:45.

Optionable Earnings: 

Symbol

Company Name

April 4 Close

IV30

B/A

XEPS

AA Alcoa Inc

$12.63

38.8

A

$0.02

TCS Container Store Group Inc

$35.41

52.9

A

$0.27

 

 

Wednesday April 9:

Economic:  MBA Purchase Applications – 7:00, Wholesale Trade – 10:00, EIA Petroleum Status Report –10:30.

International Economic: German Merchandise Trade – 2:00 AM, Great Britain Merchandise Trade – 4:30 AM.

Other:  FOMC Minutes – 2:00, Chicago Fed President Charles Evans speech on Fed communications in Washington – 3:30, Federal Reserve Governor Daniel Tarullo dinner speech in Washington – 7:00.

Optionable Earnings:

Symbol

Company Name

April 4 Close

IV30

B/A

XEPS

STZ Constellation Brands, Inc.

$84.89

34.7

B

$0.76

BBBY Bed Bath & Beyond Inc.

$69.80

30.8

A

$1.60

 

 

Thursday April 10:

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

International Economic: China Merchandise Trade Balance, Bank of Japan Minutes – 7:50 PM, China PPI and CPI – 8:30 PM.

Other:  Chicago Fed President Charles Evans on panel discussing central banking after the recession, in Washington – 11:50 AM.

Optionable Earnings: 

Symbol

Company Name

April 4 Close

IV30

B/A

XEPS

FDO Family Dollar Stores, Inc.

$58.02

36.4

B

$0.92

 

Friday April 11:

Economic:  Employment Situation – 8:30., Consumer Sentiment – 9:55, Farm Prices 3:00.

International Economic: Germany CPI – 2:00 AM.

Optionable Earnings: 

Symbol

Company Name

April 4 Close

IV30

B/A

XEPS

JPM JPMorgan Chase & Co.

$60.66

21.0

B

$1.45

FAST Fastenal Company

$51.20

30.3

B

$0.37

 

Monday April 14:

Economic:  Retail Sales, Business Inventories – 10:00.

International Economic:  EMU Industrial Production – 5:00 AM.

Optionable Earnings:  

Symbol

Company Name

April 4 Close

IV30

B/A

XEPS

C Citigroup Inc

$47.68

23.6

B

$1.26

JBHT J.B. Hunt Transport Services, Inc.

$73.80

24.4

B

$0.68

 

 

 

 

 

Papale on Reverse Time Decay

Sea Turtle.  Manta Ray.  Sting Ray.  Angel Fish.  These are just a few of what my son and I saw on a dive the other day here in Mexico.  I have been a diver for 15 years but my 12 year old just got certified a few months ago and we did our first official dive together.  A fairly shallow reef just north of Playa Del Carmen.  Good visibility and lots and lots of fish.  Best part.  Got to see it all with Alec.  Great day.

Time decay can work in reverse.  What I mean by that is if you buy an in the money vertical spread and it stays in the money heading into expiration, the price of the spread moves up – toward parity.  First say you are short a 40 – 50 call spread with stock at 30.  Traders love these out of the money spreads because they can collect the theta.  If the stock stays below $40, the whole spread goes out worthless and we keep the premium we collected when we sold it.

Now compare that with being long the 40-50 put spread.  Same risk profile.  This spread however is a debit spread.  We might pay say $8 for it.  If the stock behaves the same way as in the call spread example and stays below $40, the spread will settle at $10.  Here we make $2  as both options in our spread move to parity.  So remember there is no performance difference between being long a put spread and short a call spread with same strikes.  Both behave the same only in reverse.

The Prepared Mind: March 31, 2014

“Chance favors the prepared mind.” — Louis Pasteur

There was a divergence in movement of the individual indices this past week.  The Dow Jones Industrials were up small with the S&P 100 and S&P 500 showing small losses.  The small cap dominated Russell 2000 and tech laden NASDAQ 100 showed losses of 2% and 3% respectively.  This level of divergence is a rare occurrence and is viewed by some technical analysts as a bearish indicator. Other bearish indicators have been noted by these analysts.  Put-call ratios continue to rise and are at bearish levels.  Analysts are receiving sell signals from a number market breadth indicators.  Examples of market breadth indicators are the Chaikin oscillator, up/down volume ratio, up/down volume spread, on-balance volume, Arms index and cumulative volume index. These indicators often become inaccurate when different indexes behave in a divergent manner.

Index

Close

Weekly Change

% Weekly

% YTD

Volatility of  Index

Dow Jones Industrials (DJIA)

16,323.06

20.36

0.12%

-1.94%

13.55% (VXD)

S&P 500 (SPX)

1,857.62

-8.78

-0.47%

0.65%

14.41% (VIX)

NASDAQ 100 (NDX)

3,570.38

-76.83

-2.11%

-0.81%

18.09% (VXN)

Russell 2000 (RUT)

1,150.72

-39.59

-3.33%

-1.51%

21.00% (RVX)

S&P 100 (OEX)

822.40

-1.24

-0.15%

-0.22%

13.45% (VXO)

CBOE Volatility Index (VIX)

14.41

-0.59

-3.93%

NA

 

All the indicators are not bearish.  The volatility indices remain bullish.  Individual volatility indices are hovering are neutral to bullish levels.  Two of the larger trades last week in April VIX Options (Sale of the April 16 Straddle and a sale of April 17 calls) profit from a neutral to bullish market environment.  The wild card is the S&P 500.  The SPX is range bound with support at the 1840 level and resistance at 1880.  Many market observers believe market momentum is being built and stored during the continued trading in this range.  Any movement outside the range will then propel the market in that direction.  Stay tuned.

 

 

 

 

 

 

This is “Employment Week.”  The focus will be beyond  the employment numbers released at this  week culminating in Friday’s Employment Situation Report.   Motor vehicle sales will be released on Tuesday.  Traders are looking to see if an improvement in weather will lead to an improvement in March sales.  Analysts will be looking for emerging trends in the  ISM and PMI numbers to be release this week.

 

Google goes ex on a special stock dividend this week.  You can not trade Google options or stock and not understand the details or impact of this occurrence. If you trade Google options you must read the following document:

http://www.cboe.com/publish/ttstocksm/14-154.pdf

 

It is your responsibility to understand the impact upon your positions and your account.  My explanation is not the final word.  Read the CBOE circular and ask your broker any questions you may have.  My current understanding of the situation is in the following paragraph.

 

GOOGLE has declared a special stock dividend to holders of Class A and Class B shares.  The payable date is Wednesday April 2nd. The Ex-date for the distribution will be Thursday April 3rd.  Shareholders of 100 shares of Class A or B stock will get 100 shares of Class C (this is a new class) stock.  The new Class C shares will use the symbol GOOG, the old GOOG (Class A shares) will use the symbol GOOGL.  In a nutshell, on Thursday, April 3, 2014, trading in GOOG option series will be on an adjusted basis.  An investor who was long one GOOG June 1000 strike call will now own (explained in the Research Circular) one GOOG1 (that’s a number one after the GOOG symbol).  Why?  The GOOG1 option holder is entitled to 100 shares of the old Class A, AND 100 shares of the new Class C shares. A seller of an old GOOG option has an obligation for Class A & B shares. Once again, it is your responsibility to understand the impact of this upon your positions and any trades you make now or in the future.

 

This will be one of the quietest weeks of the quarter for earnings. Be aware of future earnings dates.  The earnings season for the first quarter wil be here soon. 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 31:

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

International Economic:  EMU HICP Flash – 5:00 AM, China PMI Manufacturing Index – 9:45 PM.

Optionable Earnings:  None meeting criteria.

Tuesday April 1 :

Economic:  Motor Vehicle Sales, ICSC-Goldman Store Sales – 7:45, Gallup US ECI – 8:30, Redbook – 8:55, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction spending – 10:00, Global Manufacturing PMI – 11:00.

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

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

APOL Apollo Education Group Inc

$32.40

60.0

A

0.18

 

Wednesday April 2:

Economic:  MBA Purchase Applications – 7:00, ADP Employment Report – 8:15, Gallup U.S. Job Creation Index – 8:30, Factory Orders – 10:00, EIA Petroleum Status Report –10:30.

International Economic: EMU GDP – 5:00 AM, EMU PPI – 5:00

Other:  Atlanta Federal Reserve Bank President Dennis Lockhart speech on the economic outlook in Miami – 12:30, St Louis Federal Reserve Bank President James Bullard welcoming remarks in St. Louis – 5:00 PM.

Optionable Earnings:

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

MON Monsanto Company

$110.80

22.2

B

3.1

TXI Texas Industries, Inc.

$87.80

31.1

A

-0.53

 

Thursday April 3:

Economic:  Challenger Job-Cut Report – 7:30, Gallup US Payroll to Population 0 8:30, International Trade – 8:30, Jobless Claims – 8:30,  PMI Services Index – 9:45, , Bloomberg Consumer Comfort Index – 9:45,  ISM non-Manufacturing Index – 10:00, EIA Natural Gas Report – 10:30,  Global Composite PMI – 11:00, Global Services PMI – 11:00.

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

Other:  European Central Bank Announcement – 7:45 AM.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

GBX Greenbrier Companies Inc

$43.70

39.8

B

0.63

SCHN Schnitzer Steel Industries, Inc.

$28.56

31.9

B

0.14

MU Micron Technology, Inc.

$22.24

59.3

A

0.59

 

Friday April 4:

Economic:  Employment Situation – 8:30., Consumer Sentiment – 9:55, Farm Prices 3:00.

International Economic: No major announcements.

Optionable Earnings: 

Symbol

Company Name

Mar 21 Close

IV30

B/A

XEPS

KMX CarMax, Inc

$45.45

33.1

B

0.53

 

Monday April 7:

Economic:  Gallup US Consumer Spending 0 8:30, TDAmeritrade IMX – 12:30.

International Economic:  Bank of Japan Announcement – No scheduled time.

Optionable Earnings:  None meeting criteria

 

Papale on Earnings

One of my kids loves limes.  I am not sure where he got this taste but whenever he can he will slice the thing up and eat it.  We hold him back a bit as we were told the acid is not good for the teeth.  Well, the lime market it seems has gone parabolic over the last year or so with prices doubling.  Heavy rain and disease has limited the crop and hence the supply.  So son I hate to break it to you but your days of munching on limes are over for now.  Looks like you have to go back to plain old candy.

It seems like we are in a perpetual earnings season.  After the end of one quarter of reporting the next quarter starts.  Playing the earnings is a popular option trade.  There are basically two different ways to play earnings.  One is to play the expected move in implied volatility heading to the earnings day.  In most stocks, IV goes up as we head to the earnings announcement date.  Many traders get long vega and ride it up to the earnings date.  Often before the date of the earnings is released they sell out of the positions.  If IV goes up enough they can profit without having to be exposed to the earnings itself.

The other approach is to have positions in the market to take advantage of the earnings release itself.  In nearly all cases, IV falls once earnings are released.  The real question becomes how much will the stock move.  There are a number of strategies a trader can use to take a position on both vega and stock direction.  The trader just needs to determine his expectation and structure the trade accordingly.  And of course don’t forget to manage risk.

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.