n one of the classes, while looking at DVAX pharma to illustrate something, I notice a pair of 2000 contract trades in the January calls, and point to the possibility of this being a spread trade around the time some FDA news is likely for that security. Option Monster (here), today says the same thing. Ha.
Barron’s does the piece below on compensation and earnings, reproduced below. Recall our class discussion on option-based compensation and what was skulking about in financial statements.
| SATURDAY, JUNE 1, 2013
A bit belatedly, I receive an email from the Options Institute at the CBOE today, asking me to point students to their upcoming seminar on options. The link appears below.
http://www.cboe.com/LearnCenter/Seminars.aspx
The marketing PDF they sent with the email is (here).
These seminars are expensive, the first is about $2k and the second about $1k. I would love to know what they teach you that I do not. The one component that is not easy to replicate sitting in SoCal is interactions with professional traders. All I can do is tell you stories about what happened when I last spent time on a trading floor-something that is getting further and further back in time. If any of you choose to attend any of these events, I would appreciate knowing more about their content.
Into my inbox arrives this message a few hours ago. Note what they are saying about option straddle prices going into Apple earnings on Tuesday. a 7.5% change is about a $30 move. But the weekly straddle can be had for about $20, and a call for about 11. I don’t see all that much downside.
How To Play Apple’s Earnings This Tuesday
by Quoth the Raven
Apple will report their earnings Tuesday after-hours and investors are anxiously awaiting the corresponding action in the share price. Options trading (based on straddle prices) has suggested that investors are expecting at least a 7.5% change on Apple’s (AAPL) share price after earnings. read more »
To welcome the options leg of our Spring Semester, NYSE/Euronext just announced the trading of mini options. Starting the 18th of March, traders can take option positions in GLD, SPY, AMZN, AAPL and GOOG with 10 shares underlying each contract rather than the typical 100. The common logic for this is as follows. Say you own 50 shares of Apple ($ 22K) and you wanted to purchase protective puts or sell covered calls. With the minimum contract size at 100 shares, you would have no choice but to over-protect your equity position. With the mini options now you can.
But what it will also bring are the hordes of speculators who can now trade Apple calls at 10-share lots and lose all their money on a dead-cat stock!
Read this piece from a hedge fund manager who appears just as disbelieving of market machinations as I have been.
And this for a bottom-fishing gold miner trade. Way out of the money calls, one-year out, over $ 5 million spent. A speculative long shot for sure, a pessimistic currency macro view and or a hedge against global economic collapse. See how hard it is to classify any random trade as hedging or speculative. This is why derivatives accounting is a nightmare.
IF you haven’t been following the T-VIX story here are a couple of links (Greenberg, ZH).
First, the VIX is a weighted average measure of the implied volatility of a bunch of near-term, near-the-money S&P call and put options (HERE for its calculation). To learn about the many different volatility indexes go HERE. The main appeal of the VIX as a hedging instrument for short-term traders is its negative correlation with broad-based equity market indexes.
Second, VIX futures represent the futures market view of the 30-day expected volatility or VIX.
Third, an ETN or exchange-traded note is like an ETF except that it is a debt instrument.
Fourth, TVIX is a double-leveraged version of the VIX futures contract.
Fifth, Credit Suisse that offered this product, decides last month to stop issuing more shares. When it became difficult to borrow shares, the ETN traded at a huge premium to its NAV (more like a closed-end fund).
Sixth, Credit Suisse decides to open the fund again and the premium collapses.
Seventh, long or short volatility at your own risk. GOT IT!
That said, I think VIX below 15 with earnings coming looks more like a buy than a sell to me.
New “relative-value” options start trading this week. I am not sure if I mentioned them in class, but these essentially measure the “relative” performance of one stock against an index. For instance, if you think that Apple will outperform the SPY, then these AVSPY (read Apple versus SPY) options have some appeal. Note that these options can profit in up or down markets, i.e. Apple can go up or down, it just has to go up more than SPY or down less than SPY (for it to out-perform in relative terms). Performance is based on total returns (price change and dividends) over the period until expiration, the options are European and are cash-settled.
Apple vs SPY started trading yesterday. Google vs. SPY starts tomorrow. With Google near its 200-day and SPY near its 50-day, you might think that Google outperforms SPY even if both trend lines turn south! These options come to you courtesy of the Nasdaq, developed in conjunction with Vanderbilt finance professor Bob Whaley who dreamt up the VIX so many years ago. Full details are here. I LIKE. It seems better than playing angry birds!
in a single session says the CBOE breathlessly. Time to dump it from my tool-kit, the big boys are there and this is why it keeps getting harder and harder to play. Pity.
Seriously though, the premiums today on out-of-the-money VIX puts was, not surprisingly, huge. As it is an implied volatility it swings wildly anyway and even more so when markets are up and down 100s of points in hours. It is typical fat-tail behavior, although the word in favor these days is Black-Swan. By definition, Black Swan events are impossible to determine, but markets will try to price anything.
Even more interestingly, as of late February, the CBOE decide to measure SKEW (you may recall “skewness” if you paid attention to your statistics professor). Fat tails mean the distribution has more weight in both the tails than a normal distribution would- in other words it is symmetric around the mean. Market watchers care more about the left tail than the right and this tail behavior is what skewness measures. This document tells you what the CBOE intends, perhaps more than you wanted to know. It includes a better version of a graph I showed you in class recently. Options on SKEW have not started trading, but you can bet they are coming, otherwise why would the CBOE even attempt to quantify such a number. But we are on to futures now.
SGB WEB 