VIX Decline May Bring Opportunities
The VIX gapped lower Thursday on confidence about a deal in the euro zone, but some traders don't believe the message and fear that any decrease in volatility may be temporary.
The Chicago Board Options Exchange (CBOE) market volatility index or, VIX closed at 29.85 on Wednesday 11/26 and opened Thursday’s session at 24.72, down over 17 percent. At the same time, stocks surged, with the S&P 500 up nearly 3 percent at midday.
While the drop in the VIX, the market's fear gauge, indicates that some investors are becoming more complacent, others see this sharp drop as an opportunity to make money.
“Equity market is ahead of itself”, says Alex Panagiotidis, Options Analyst at Sterne, Agee & Leach. “The world is not saved with this meeting—a fifty-percent haircut (on Greek debt) is not enough, there are not enough details”. Panagiotidis sees this as an opportunity to buy options including, short-term protection on the downside, especially in ETFs.
Relative to realized volatility, Panagiotidis says iShares Russell 2000 options expiring in November are “cheap”.
Five to 90 day realized volatility he says is roughly 38 to 50 percent while at-the-money options are trading with an implied volatility near 32 percent.
Panagiotidis anticipates that the gap between realized and implied volatility will narrow, offering a short-term trading opportunity for investors.
In other activity, Cree was added to the list of weekly options offered by the CBOE.
Hendi Susanto, Gabelli & Company analyst rates the stock a “buy” and does not anticipate any “particular event” that might spark volatility in the stock price. The company reports its quarterly earnings November, 18th.
And trading in options on shares of Electronic Arts is unusually active. According to data provided by Interactive Brokers, volume traded is above its 10-day moving average, trading nearly 74-thousand contracts at mid-day.
The company reports its quarterly earnings Thursday, after the bell and is expected to report a loss of four cents on revenue of 967-million for its second quarter, according to Thomson Financial.