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
Closing price, and change in price from the prior day are also
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
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
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
Open Interest ratios reflect a longer time period than Put/Call
and Call/Put daily volume ratios and therefore tend to be less
Closing price, and change in price from the prior day are
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 May 23, 2013 at 12:45pm
Weekly options constructive on Home Depot
Today’s tickers: HD, IMAX & DOV
HD - Home Depot – Shares in the home improvement retailer are trading lower on Thursday, off the lowest levels of the session but still down 1.25% at $78.69 as of 11:50 a.m. ET, amid a down day for U.S. stocks. Trading traffic in newly issued weekly options on Home Depot suggests some traders are taking advantage of the dip today and positioning for shares in the name to resume hitting record highs next week. The stock yesterday rallied as much as 3.6% to touch an all-time high of $81.56 after the company reported better-than-expected first-quarter earnings and raised its full-year earnings forecast. Traders preparing for shares in HD to potentially rebound in the near term looked to the May 31 ’13 expiry options contracts, and appear to have purchased calls and sold puts on the stock. Call buyers snapped up roughly 1,000 calls at the May 31 ’13 $77.5 strike for an average premium of $1.27 each, and around 500 lots at the $80 strike at an average premium of $0.28 apiece. These contracts make money at expiration next week as long as shares in Home Depot recover from today’s slight declines. Meanwhile, fresh interest in weekly puts appears to be largely driven by sellers of the contracts. It looks like traders sold around 900 in-the-money puts at the May 31 ’13 $80 strike in the early going for an average premium of $2.09 each. Sellers of the contracts walk away with the full amount of premium at expiration should shares in HD settle above $80.00. Several hundred contracts appear to have been sold at the May 31 ’13 $77.5 and $82.5 strikes as well.
IMAX - IMAX Corp – Put options changing hands on the entertainment technology company this morning look for shares in IMAX to potentially head lower during the next four weeks. Shares in the name are down 1.5% in early-afternoon trading to stand at $27.60 as of 12:20 p.m. in New York. The most traded contracts on IMAX this morning were the Jun $27 strike puts, with around 1,700 lots in play versus open interest of 1,464 contracts. Time and sales data suggests most of the volume traded was purchased for an average premium of $0.90 each. Traders long the puts stand ready to profit at expiration next month in the event of a more than 5.0% decline in the stock to 26.10. The company presented at the Barclays Global Technology, Media and Telecommunications Conference in New York this morning.
DOV - Dover Corp – Shares in Dover rallied 5.0% to a record high of $80.36 today after the company announced that its Board of Directors approved a plan to spin off portions of its communication technologies businesses to form an independent, publicly traded company called Knowles Corporation. Options traders looking for the stock to extend gains stepped in to buy upside calls on DOV within the first 30 minutes of the opening bell. The Jun $80 strike calls are the most active contracts by volume so far today, with upwards of 1,000 lots traded against open interest of 408 contracts. It looks like most of the $80 calls were purchased this morning for an average premium of $1.52 each. Call buyers make money if shares in Dover rally 2.4% over the current price of $79.60 to surpass the average breakeven price of $81.52. The Jul $85 calls were active in the early going as well, with around 225 contracts purchased for an average premium of $0.78 apiece. Traders long the $85 calls profit at July expiration if the price of the underlying soars 7.8% to top $85.78.
Equity Options Analyst
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