Login
IB Market Brief
| As of: Fri, 3 Sep 2010 03:32 PM EDT |
Click for a Summary Explanation
The IB Options and Futures Intelligence Report presents vital market information that is extremely useful to serious traders based on Interactive Brokers Group's experience of professionally trading the markets for nearly three decades. Option and futures pricing data has built-in information that provides the option and futures markets’ consensus outlook for subsequent activity in the markets. These leading indicators can provide a guide to traders and investors before news is widely disseminated to the public at large or reflected in underlying prices.
One of the most important of these indicators, implied volatility, represents the markets’ view of uncertainty associated with future price movements. When the current implied volatility is compared to the prior day’s implied volatility, a large increase can foretell unexpected news developments and provide an opportunity to adjust positions accordingly. This gain indicates that option market participants anticipate greater price movement than in the past, possibly because of information that is not yet readily available. Conversely a large decrease in implied volatility indicates the expectation of subsiding price movements, possibly because all recent news has been reflected in current underlying prices. Large premium or discount of implied volatility to historical volatility over the past 30 days is frequently not justified and may represent significant trading opportunities. Other options market data presented in our report such as volumes, and call/put ratios also plays a role in undersaanding sentiment in the markets.
For futures markets we present two measures: Synthetic EFP Rates and Futures Arbitrage Premium/Discount Index. The Synthetic EFP Rates highlight financing opportunities where entering into an Exchange for Physical (stock for single stock future swap) will provide a lucrative investment return or a very low borrowing rate. The Futures Arbitrage Premium/Discount Index highlights discrepancies between major index future contracts and their underlying fair value.
For the purpose of the tables, those options symbols with less than a $5 stock price, and less than 200 options contracts traded, and whose company has less than $1 billion in capital are screened out to eliminate symbols whose information may be more indicative of lack of liquidity in the markets. All tables, except the Fut Arb table, are posted hourly on each trading day from 11:45 to 15:45 ET (with a 15-minute market data delay) under normal circumstances. Tables are also posted at 16:15 ET to capture the market close. The Fut Arb table is updated every 15 minutes (with a 15-minute market delay), 12:00 AM Monday through 11:59 PM Friday. To view volatility and volume as well as other market summary statistics in real-time within our premier direct access trading platform, Trader Workstation, you must have an account with Interactive Brokers. Click "Open an Account" at the top right of the page.
| Register for a free IB Options and Futures Intelligence Report Webinar. |
|
Table Definition
Top Twenty 30-day (V30) Implied Volatilities
Implied volatility is the options market's prediction of how volatile a given underlying will be in the future. It is calculated by inputting all known information into an options pricing model (i.e. option price, interest rates, dividends, strike price, and expiry date) and backing out the unknown parameter, the implied volatility.
Twenty symbols with the highest implied volatilities are ranked in descending order and displayed on an annualized basis. Implied volatility is calculated using a 100-step binary tree for American style options, and a Black-Scholes model for European style options. Interest rates are calculated using the settlement prices from the day’s Eurodollar futures contracts, and dividends are based on historical payouts.
The IB 30-day volatility (V30) is the at market volatility estimated for a maturity thirty calendar days forward of the current trading day. It is based on option prices from two consecutive expiration months. The first expiration month is that which has at least eight calendar days to run. The implied volatility is estimated for the eight options on the four closest to market strikes in each expiry. The implied volatilities are fit to a parabola as a function of the strike price for each expiry. The at-the-market implied volatility for an expiry is then taken to be the value of the fit parabola at the expected future price for the expiry. A linear interpolation (or extrapolation, as required) of the 30-day variance based on the squares of the at market volatilities is performed. V30 is then the square root of the estimated variance. If there is no first expiration month with less than sixty calendar days to run we do not calculate a V30.
Closing price, and change in price from the prior day are also displayed.
Top Twenty Volatility Gainers and Losers
The current trading day’s 30-day Implied Volatility is divided by the prior trading day’s 30-day Implied Volatility to determine the change in volatility for the day and the top 20 gainers and losers are posted. Gainers are those symbols which the options markets believe will have the greatest up or down price movement in the future as compared to the past, and losers are those symbols which the options markets believe had a large up and down price movement and will stabilize in the future. Implied volatility, closing price, and change in price from the prior day are also displayed.
Top Twenty Options Volumes and Volumes Gainers
Options volumes for the day are displayed for the top twenty symbols with the highest volumes.
The trading day’s options volumes are divided by the previous ten trading day’s options volumes average and the top twenty gainers are posted by symbol.
Closing price, and change in price from the prior day are also displayed.
Implied vs. Historical Volatilities
The 30-day Implied Volatility is divided by the 30-day historical volatility. This ratio highlights those symbols in which the market prediction of future volatility is much different from the volatility in the market over the last 30 days. The formula for historical volatility as defined by Garman-Klass. The top twenty symbols with the highest ratios as well as the top twenty symbols with the lowest ratios are displayed.
Implied volatility, historical volatility, closing price, and change in price from the prior day are also displayed.
Top Twenty Put/Call Volume Ratios and Call/Put Volume Ratios
Put option volumes are divided by call option volumes for the trading day, and the symbols for the twenty highest ratios are displayed. For the put/call ratio, the HIGHER the value, the more negative the sentiment since it would indicate more puts traded than calls. A ratio of less than one indicates more call volume than put volume.
Call option volumes are divided by put option volumes for the trading day, and the symbols for the twenty highest ratios are displayed. For the call/put ratio, the HIGHER the value, the more positive the sentiment since it would indicate fewer puts trading than calls. A ratio of less than one indicates more put volume than call volume.
Closing price, and change in price from the prior day are also displayed.
Top Twenty Put/Call Open Interest and Call/Put Open Interest
Put option open interest is divided by call option open interest, and displayed for the top twenty symbols with the highest ratios. This ratio may indicate negative sentiment in the options market.
Call option open interest is divided by put option open interest, and are displayed for the top twenty symbols with the highest ratios. This ratio may indicate positive sentiment in the options market.
Open Interest ratios reflect a longer time period than Put/Call and Call/Put daily volume ratios and therefore tend to be less volatile.
Closing price, and change in price from the prior day are also displayed.
Synthetic EFP Rates
An Exchange for Physical (EFP) allows the swap of a long or short stock position for a Single Stock Future (SSF). SSFs have an interest rate built into their price that is determined competitively by numerous market participants. Like Repos and Reverse Repos in the debt markets, EFPs provide a cheap and efficient financing vehicle. The EFP transaction is one where you sell the stock and buy it back for future delivery by buying the SSF future, or you buy the stock and sell the SSF.
There are several reasons to use this type of transaction:
- If you carry a long stock position on margin, the EFP gives you the opportunity to reduce your financing cost because you will likely be able to sell the stock and buy the forward at a premium that is lower than your margin rate.
- If you are short the stock, you receive interest on the credit balance generated by your short sale, but this interest is less than the premium you would receive by selling the SSF and buying back the short stock.
- If you have excess cash in your account and would like to earn a higher return, you could buy stock and sell it forward at a premium higher than the interest your cash generates.
The tables above highlight the highest (investment opportunity) and lowest (borrowing opportunity) synthetic EFP rates available in the market. These synthetic rates are computed by taking the price differential between the SSF and the underlying stock, netting dividends, to calculate an annualized synthetic implied interest rate over the period of the SSF. All SSFs are settled through the Options Clearing Corporation, an AAA rated entity, making any interest earned through implied interest safer than with many other interest earning alternatives.
Futures Arbitrage Premium/Discount Index
The fair value of an index futures contract is computed by combining all the underlying values, adding an interest cost of carry for the duration of the futures contract, and subtracting any dividends that are paid during the duration of the futures contract. The table above compares near futures contracts with the fair value of the underlying representing a contract. When a futures price is greater than the fair value, there is a premium, indicating that the market believes there is a potential for increase in the underlying price or a decrease in the futures price. When a futures price is less than the fair value, there is a discount indicating the market believes there is a potential for a decrease in the underlying price or an increase in the futures price.
Written Commentary
As of: Friday September 3, 2010 at 3:45 pm
Straddle-seller sees range-bound shares for Avanir Pharmaceuticals
Today’s tickers: AVNR, S, ORCL, TSN, PSS, XRT & BX
AVNR - Avanir Pharmaceuticals, Inc. – Shares of the pharmaceuticals firm fell as much as 9.6% this afternoon to an intraday low of $2.64 on news the company filed for a mixed shelf offering for up to $75 million. Options volume on the stock surged late in the session after one strategist sold a straddle in the December contract. The short straddle suggests the trader expects AVNR’s shares to trade within a specified range through expiration day in the final month of the year. The investor sold approximately 8,440 puts at the December $2.5 strike and sold 8,440 calls at the same strike to take in gross premium of $2.025 per contract. The straddle-seller retains the full amount of premium received if Avanir’s shares settle at $2.50 at expiration. However, the short stance taken in both call and put options expose him to losses should shares shift significantly in either direction away with from the strike price selected. Losses are certainly limited to the downside because shares cannot fall below $0.00. Thus, the investor faces maximum potential losses of $0.475 per contract in the event that Avanir’s shares are worthless at expiration. Losses could be more painful if AVNR shares suddenly fly upward. Shares would need to jump 71.4% to shatter the current 52-week high on the stock of $3.72 in order for losses to start to accumulate for the trader above the effective breakeven price to the upside at $4.525 by expiration. The strategy seems to indicate that the investor does not see AVNR shares collapsing to $0.00, but also suggests shares are not likely rally substantially any time soon.
S - Sprint Nextel Corp. – The wireless and wireline telecommunications company was one of the 10 most actively traded stocks on the New York Stock Exchange as of 1:00 pm ET this afternoon, and was also one of the most actively traded in terms of options volume today. Sprint’s shares earlier rallied 2.30% to record an intraday high of $4.44, but are currently up a lesser 1.15% at $4.39 as of 2:30 pm ET. Shares were perhaps higher on reports out this morning that suggested Sprint is currently looking at a possible November release date for Samsung’s Galaxy Tablet, which is a device aimed at rivaling Apple’s iPad. The vast majority of contracts exchanged on Sprint Nextel Corp. today were put options, but it does not look like investors are initiating bearish positions. One cautiously optimistic investor likely initiated the delta neutral transaction initiated in the January 2011 contract this afternoon. It appears the trader bought 8,000 puts at the January 2011 $4.0 strike at an average premium of $0.375 each and purchased a large chunk of shares of the underlying stock at approximately $4.35 apiece. The transaction suggests the trader expects shares to appreciate over the next 5 months. But, he has shelled out additional premium to get long downside protection in case Sprint’s shares falter. Protection kicks in if shares slip beneath the average breakeven price of $3.625 ahead of expiration day in January 2011. Finally, activity in the September contract involves put options as well, but is a much different trading strategy. It looks like a large chunk of 20,000 put options were purchased at the September $4.0 strike for premium of $0.04 apiece. But, we suspected the trade may not be as bearish as it first appears because open interest at that strike is sufficient to cover all 20,000 lots and then some. After taking a look at past trades that contributed to the 29,375 lots of put open interest at the September $4.0 strike, it seems like the purchase of puts today is the work of a bullish player booking profits by closing out previously established short put stances. Back on August 3, an investor sold 10,000 September $4.0 strike puts at a premium of $0.10 each. Twenty days later, on August 23, another chunk of 10,000 puts were sold at the same strike for approximately $0.11 in premium apiece. The transactions may or may not be related, but if they are it is certainly one way for a Sprint-bull to reel in profits. In this scenario, the investor banks net profits of $0.065 per contract or total gains of $130,000.00, by buying back the 20,000 lots at the significantly cheaper price of $0.04 each. The put transaction was untied.
ORCL - Oracle Corp. – Investors are employing a number of diverse options trading strategies, some bullish and others bearish, on the software company this afternoon. Oracle’s shares are currently up 0.70% at $22.64 as of 12:30 pm ET, but earlier increased 2.05% to an intraday high of $22.94. Near-term sentiment on the software developer looks fairly bullish with investors picking up approximately 7,200 calls at the September $23 strike for an average premium of $0.37 each. Investors buying the calls outright are prepared to make money if Oracle’s shares rally 3.2% over the current price of $22.64 to exceed the average breakeven price of $23.37 by September expiration. Optimism spread to the higher September $24 strike where it looks like traders purchased 1,500 calls at an average premium of $0.10 apiece. Traders long the higher-strike calls are poised to profit should ORCL shares increase 6.5% in the next couple of weeks to surpass the breakeven point to the upside at $24.10. We note that open interest at the September $23 and $24 strikes is sufficient to cover call volume traded during the session so far, which suggests buyers could potentially be closing short positions rather than initiating outright bullish bets on the stock. Finally, Oracle Corp. puts were also in use today by investors populating the January 2011 contract. It looks like some traders employed debit put spreads, buying about 3,000 puts at the January 2011 $22.5 strike for premium of $1.61 each, and selling roughly the same number of contracts at the lower January 2011 $20 strike at a premium of $0.76 apiece. Net premium paid to establish the bearish spread amounts to an average of $0.85 per contract. Thus, put players are positioned to profit if Oracle’s shares reverse course and decline 4.4% to slip beneath the average breakeven point at $21.65 by expiration day next year.
TSN - Tyson Foods, Inc. – Call options on the food products company are a hot commodity this morning for bullish players positioning for a near-term rally in the price of the underlying shares. Tyson Foods’ shares rallied as much as 1.7% at the start of the session to an intraday high of $16.31. Shares of the producer and distributor of chicken, beef, pork, prepared foods and other products are perhaps higher following an upgrade to Ba2 from Ba3 by ratings agency, Moody’s Investors Service, on Thursday. Moody’s also lifted Tyson’s outlook to ‘positive’ from ‘stable’, citing continuing debt reduction for the food firm. Optimistic options investors breakfasted on call options, buying up roughly 5,600 calls at the September $17 strike for an average premium of $0.16 each. Call buyers at this strike are prepared to make money should Tyson’s shares surge 5.2% over today’s high of $16.31 to surpass the average breakeven price of $17.16 by September expiration. Bullish sentiment spread to the October $17.5 strike where traders purchased some 2,100 calls at an average premium of $0.33 apiece. These traders are poised to profit if TSN shares jump 9.3% to trade above the breakeven point to the upside at $17.83 ahead of expiration day in October. Increased investor demand for calls helped fuel a 20.4% hike in the stock’s overall reading of options implied volatility to 37.73% as of 11:00 am ET.
PSS - Collective Brands, Inc. – Long-term bullish action in Collective Brands’ LEAPs inspired a sense of déjà vu this morning as the same strategy observed today was also implemented on the holding company for Payless and Stride Rite during afternoon trading on Thursday. Collective Brands’ shares are currently up 1.75% to stand at $12.73 as of 11:20 am ET. The stock hit a new 52-week low of $12.41 yesterday after posting disappointing second-quarter results after the closing bell on Wednesday. A bullish risk reversal enacted by a contrarian strategist in the October contract in the previous trading session appears to be the same tactic utilized in the longer-dated January 2012 contract by optimistic players in the first 30 minutes of today’s session. Traders hoping Collective Brands’ shares continue to rally sold 5,000 puts at the January 2012 $10 strike for premium of $1.75 apiece and purchased the same number of calls at the higher January 2012 $12.5 strike at a premium of $3.30 each. The net cost of the bullish risk reversal amounts to $1.55 per contract. Thus, investors stand ready to profit should PSS shares jump 10.4% over the current price of $12.73 to surpass the effective breakeven price of $14.05 by expiration day in January 2012. Collective Brands was downgraded to ‘neutral’ from ‘positive’ with a target share price of $23.00 by analysts at Susquehanna this morning.
XRT - SPDR S&P Retail ETF – The purchase of a plain-vanilla debit call spread on the retail ETF indicates on options investor is itching for a significant rally in the price of the underlying shares by December expiration. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, are up 1.20% to stand at $38.65 minutes before 12:00 pm ET. On Thursday, shares of the fund were helped higher by better-than-expected August same-store sales data. The bullish options strategist positioned for continued appreciation in XRT shares by picking up 5,000 calls at the December $41 strike for a premium of $1.36 each, spread against the same of the same number of calls at the higher December $45 strike at a premium of $0.33 a-pop. The net cost of the spread amounts to $1.03 per contract. Profits start to accumulate for the investor if the fund’s shares rally 8.745% over the current price of $38.65 to surpass the effective breakeven price on the spread at $42.03 by expiration. Maximum potential profits of $2.97 per contract pad the investor’s wallet if shares of the ETF surge 16.4% in the months leading up to expiration in December. Shares of the fund earlier increased as much as 2.95% to secure an intraday high of $39.31 within the first 15 minutes of the trading session. The XRT’s shares last traded above $45.00 – or the price at which the call spreader realizes maximum profits – on April 27, 2010.
BX - The Blackstone Group, L.P. – Asset manager and financial advisory services provider, Blackstone Group, was the target of long-term bullish options traders right out of the gate this morning. BX shares rallied as much as 2.45% thus far in the session to touch an intraday high of $10.48. The overwhelming majority of trading took place at the January 2012 $15 strike where bullish investors appear to have purchased approximately 18,000 calls at an average premium of $0.86 apiece. Open interest at that strike is sufficient to cover today’s volume, however, upon further examination; it looks like interest was generated by like-minded call buyers at the end of July. Investors purchasing the calls likely expect Blackstone’s shares to appreciate significantly by expiration. Today’s call buyers are prepared to make money should the asset manager’s shares surge 51.3% to surpass the average breakeven price of $15.86 by January 2012 expiration.
Andrew Wilkinson |
Caitlin Duffy |
|
|
The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Is the Euro poised for a boost from U.S. employment report?
Friday September 3, 2010
The euro is pushing its luck with the dollar even ahead of the critical employment report due out later this morning. Having touched $1.2854 already this morning, the euro is teetering on a surge to perhaps $1.2925 if today’s jobs report softens the perceived need to hold dollars on safety grounds. That aside, the euro seems to have several other tailwinds boosting its appeal at the moment.
| 09-03-2010 04:22 PM EDT | Current Price | Put Open Int | Weekly Change in Put Open Int | Call Open Int | Weekly Change in Call Open Int | Put/Call Open Int Ratio | 30-day Historical Vol (%) | Implied Volatility (%) |
 Euro |
1.2841 | 27,088 | 454 | 17,092 | 1,103 | 1.6 | 10.7 | 10.6 |
 Yen |
84.3950 | 10,641 | 1,297 | 2,709 | 38 | 3.9 | 10.8 | 11.7 |
 Pound |
1.5467 | 9,377 | 212 | 3,663 | 26 | 2.6 | 9.2 | 9.9 |
 Canada |
0.9631 | 10,375 | 88 | 10,691 | 31 | 1.0 | 10.5 | 11.0 |
 Aussie |
0.9170 | 9,685 | -2 | 21,629 | -82 | 0.4 | 12.8 | 12.4 |
 Swiss |
1.0167 | 3,703 | 117 | 5,881 | 117 | 0.6 | 12.2 | 11.0 |
