Top Twenty 30-day (V30) Implied Volatilities
Implied volatility is the options market's prediction is the
options market's prediction of how volatile a given underlying
will be in the future. Implied volatility 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 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 percent 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.
As of: Thursday July 2, 2009 1:00 pm EST
Bullish Motorola play in options action
Today’s tickers: MOT, AXP, JOSB & ILMN
MOT – Motorola, Inc. – A large-volume bullish reversal initiated in the October contract on MOT today suggests some investors are positioning for a rally. Currently shares are off by more than 3% to stand to $6.25. Perhaps traders are anticipating that Motorola’s new lineup of phones, based on Google’s Android operating system, will boost sales for the firm. It appears that approximately 15,000 puts were sold at the October 5.0 strike price for 14 cents apiece in order to partially fund the purchase of 15,000 calls at the October 7.0 strike for 34 cents per contract. The net cost of the bullish stance amounts to 20 cents. Thus, shares of MOT would need to rev upward by 15% from the current price to $7.20 in order for investors to profit by expiration. Interestingly, it appears that today’s reversal has been added to similar bullish positioning as seen in the open interest at each of the strike prices described. Today’s activity could be the work of an investor who is merely adding to a position. Or, perhaps we are seeing traders hopping on the bull-bandwagon.
AXP – American Express Company – The global payments and travel company edged onto our ‘most active by options volume’ market scanner after one bearish trader dug his claws into the August contract. AXP shares are down 1% to $22.75. It appears that the investor has sold 5,000 puts at the deep in-the-money July 25 strike price for 2.54 apiece in order to get long of 7,500 puts at the closer-to-the-money August 23 strike price for 2.03 each. The trader likely took profits on the sale of the near-term put options and proceeded to reestablish a position in protective put options at a lower strike with more time to expiration.
JOSB – Jos. A. Bank Clothiers, Inc. – The designer of men’s clothing and accessories has surrendered more than 6.5% to stand at $32.44 today. Traders expecting further declines initiated interesting trades involving put options. It appears that about 3,000 puts were sold short at the deep in-the-money July 35 strike price for a premium of 2.19 apiece and spread against the purchase of some 3,000 puts at the more bearish August 30 strike price for 1.39 per contract. The net credit received from the transaction amounts to 80 cents. Writing puts in the near-term July contract leaves traders exposed to having shares of the underlying put to them at expiration at an effective price of $34.20. Perhaps the investors are willing to have shares put to them at such a high price because they expect the value of the long put position in the August contract to more than offset the difference in the price paid for the shares and the current market price of the stock. The value of the long-puts will grow if shares fall beneath the strike price of $30.00 by expiration in August.
ILMN – Illumina Inc. – The biotechnology firm engaged in the development of tools used for large-scale analysis of genetic variation and function has plummeted about 11.5% to $33.76. Shares were nearly 18% lower in pre-market trading after the company reported that its second-quarter revenue of $161 million failed to meet initial estimates of $168-$173 million. Option traders took advantage of the bearish decline by selling about 3,000 calls at the near-term July 35 strike for an average premium of 46 cents apiece. The full premium enjoyed by call-writers will be fully retained as long as the July 35 calls remain out-of-the-money by expiration in a few weeks.
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.
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