Options Update: Index Volatility Decreases as Markets Rally

Paul Foster — Fri, 28 May 2010 08:00:00 EST

Filed under: Options

IVX Volatility Monitor according to IVolatility:

CBOE DJ Industrial Average Index (DJX) -5.2% to 22.1
NASDAQ (NDX) -5.5% to 25.4
Russell 2000 Index (RUT) -6.4% to 24.7
SPDR Trust Unit (SPY) -5% to 24.8
CBOE Russell 1000 Index (RUI) -6.5% to 25.3
S&P 100 Index (OEX) -6.2% to 24.9

SPDR Homebuilder (XHB) closed at $17.42. XHB June put option implied volatility is at 39, September and December is at 42; above its 26-week average of 35 according to Track Data, suggesting larger price movement.

Update is by Stock Specialist Paul Foster of theflyonthewall.com

Options Update: Index Volatility Decreases as Markets Rally originally appeared on BloggingStocks on Fri, 28 May 2010 08:00:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments

Short-term concerns about the current "Santa Rally"

Nick Perry — Tue, 19 Dec 2006 12:19:00 EST

Filed under: Forecasts, Indices, Market Matters

As the year draws to an end I thought it might be interesting to check in with Bernie Schaeffer, my boss, to get his thoughts on the short-term outlook. I asked him about his near-term outlook and he had three concerns about the action during the next few weeks.

The first concern is based on the level of optimistic comments being made by analysts. Tracking this form of "anecdotal sentiment" is time consuming as it requires constantly staying abreast of what is being discussed, but it offers a look into the mindset of the Street. When the expectations get one-sided, it can be warning sign to watch out for potential disappointments.

The second point of concern comes from the options market. Among other uses, options give investors a way to speculate and hedge. Monitoring the activity can give another perspective on what market players are feeling and expecting. The current data reveal a slant toward optimism as speculators have a preference for calls in some indices. Comparing the relative pricing of call options to put options also suggests optimism, as we have seen a contraction in the typical negative volatility skew we track.

His last point of concern is based on underlying deterioration in the small-cap area. The Russell 2000 Index (RUT) has turned lower after pushing to the 800 level, but most of the attention has been on the narrowly focused strength in blue-chip stocks.

Taken as a whole, it seems that expectations may have gotten a bit ahead of themselves, which opens up the possibility of some short-term volatility. However, Bernie is quick to point out that he is quite bullish about the overall outlook for next year. In BusinessWeek's poll of 80 strategists, Bernie maintains the highest year-end target for the Dow Jones Industrial Average. Calling for a new all-time high in the average, he does expect the economy will slow down next year, but believes that is already factored into expectations.

Nick Perry is an analyst with Schaeffer's Investment Research.

Short-term concerns about the current "Santa Rally" originally appeared on BloggingStocks on Tue, 19 Dec 2006 12:19:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments