| As of: Fri, 3 Feb 2012 03:55 PM EST. Tables updated hourly. Data available real-time to IB customers in Trader Workstation. |
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 pricing data has built-in information that provides
the option markets’ consensus outlook for future 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.
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 understanding sentiment in the markets.
For the purpose of the tables, those symbols with less than
a $5 stock price, and less than 1,000 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 are posted
every trading day on the hour from 12:00 to 16:00 ET under
normal circumstances.
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.
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Mouse over tabs below to view tables. Detailed explanations for each tab
can be viewed in the text box below the tables.
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: Friday February 3, 2012 at 1:30pm
Jobs report drives heavy trading traffic in Ford, General Motors options
Today’s tickers: F, GM, MAS & GILD
Options commentary to resume on Tuesday February 7th.
F - Ford Motor Co. – The better-than-expected jobs number out this morning revved up investor appetite for automobile stocks, driving shares in Ford Motor Co. up 4.0% to $12.75. Call options on the U.S. automaker are flying off the shelves, with nearly 5 calls in play on the stock for each single put option traded. The single-largest transaction in Ford options appears to be a bull call spread that yields maximum possible profits if the price of the underlying rallies nearly 20.0% during the next few months to expiration. It looks like one trader purchased a 30,000-lot April $14/$15 call spread for a net premium of $0.15 per contract. The position may be profitable at expiration if shares in Ford Motor Co. climb 11.0% to surpass the effective breakeven price of $14.15. Maximum potential profits of $0.85 per contract are available on the spread should shares in the auto manufacturer surge 17.6% to exceed $15.00 by expiration. Overall options volume on Ford is up above 175,000 contracts just before 1:00 p.m. ET.
GM - General Motors Co. – GM’s shares are outperforming fellow U.S. automaker, Ford Motor Co., this afternoon, with the stock trading 8.4% higher on the session at $26.35 as of 12:55 p.m. in New York. Optimism spurred by this morning’s stronger-than-expected jobs report was followed by greater-than-usual options action in the name. A debit put spread in the March expiry, which may be an outright bearish bet that the rally is running on empty, or an attempt to hedge a long stock position, caught our eye this morning. It looks like the trader responsible for the spread purchased a 4,000-lot Mar. $22/$25 put spread at a net premium of $0.67 per contract. Profits, or downside protection, kick in if shares in General Motors decline 7.7% to breach the effective breakeven price of $24.33 by expiration next month. Maximum potential profits of $2.33 are available on the position in the event that the price of the underlying drops 16.5% to settle below $22.00 at March expiration. GM is scheduled to report fourth-quarter earnings ahead of the opening bell on February 16.
MAS - Masco Corp. – Better-than-expected economic data, including a strong jobs number and dip in the unemployment rate, sent U.S. equities into rally-mode on Friday. Shares in home improvement products manufacturer, Masco Corp., joined in on the broad market run, rising 3.6% to $12.89 by 11:00 a.m. in New York. Signs that employment is improving is positive for the housing recovery story. The single-largest transaction in Masco Corp. options this morning may be one trader’s way of positioning for strength in the sector to continue. It looks like the investor purchased a block of 5,000 calls at the Mar. $13 strike for a premium of $0.70 each. Profits are available on the position in the event that Masco’s shares rally another 6.3% to surpass the effective breakeven price of $13.70 by expiration. The calls appear to have been purchased outright to establish a bullish stance, rather than purchased in combination with the sale of stock to hedge a bearish bet that shares may pullback by March expiration. Of course, it’s always possible the investor already holds a long or short position in the underlying shares, which could perhaps change the interpretation of the options trade. Masco Corp. is scheduled to report fourth-quarter earnings after the final bell on February 13. The trading day that follows could turn out to be a very happy Valentine’s Day for the call buyer and Masco Corp. investors alike if the performance results prove pleasing to the market. Masco’s shares are up nearly 20.0% since the start of 2012.
GILD - Gilead Sciences, Inc. – Options traders jumped on Gilead Sciences straight out of the gate Friday on reports of positive clinical trial results for an experimental Hepatitis C treatment acquired through the Company’s purchase of biotechnology firm, Pharmasset, Inc. Bullish action in Gilead options this morning suggests some strategists are positioning for the stock to extend gains. The shares currently stand 8.6% higher on the day at a new two-year high of $53.55 as of 12:10 p.m. on the East Coast. Front-month call options are most active at the Feb. $55 strike, where more than 3,500 contracts have changed hands. It appears the majority of the volume was purchased for an average premium of $0.92 apiece. Traders long the calls may profit at expiration if shares in Gilead Sciences rally another 4.4% to top the average breakeven point at $55.92. Call buying spread to the higher Feb. $60 strike, as well, with roughly 835 contracts purchased at an average of $0.08 each. March expiry call options are changing hands at a clip, as well, with some 8,500 of the Mar. $55 strike calls in play against open interest of 1,033 contracts in early-afternoon trade. Overall, traders are exchanging more than two call options on the drug maker for each single put option in action, out of total daily options volume in excess of 57,000 contracts thus far today.
Caitlin Duffy
Equity Options Analyst |
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.
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