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: Wednesday August 21, 2013 at 12:30pm
Big prints in AT&T put options as shares touch lowest since January
Today’s tickers: T, HCP & DMND
T - AT&T Inc. – Heavy trading traffic in AT&T put options today indicates at least one strategist is bracing for the price of the underlying stock to potentially slump to fresh 52-week lows during the next couple of months. Shares in AT&T, down more than 13% since late April, are off 0.80% on the session at $33.61 as of 12:15 p.m. in New York trading. The wireless carrier popped up on our ‘most active by options volume’ market scanner this morning after one strategist purchased roughly 20,000 of the Oct $31 puts for a premium of $0.25 apiece. The trade may be an outright bearish bet that shares in AT&T continue to fall in the near term, or could be a hedge to protect a long position in the underlying stock. The puts make money at expiration if shares in the telecommunications company drop 8.5% from the current price of $33.61 to breach the effective breakeven point on the downside at $30.75. The stock last traded below $30.75 in April of 2012.
HCP - HCP, Inc. – Options changing hands on healthcare REIT, HCP, Inc., on Wednesday morning look for shares in the name to rally during the next couple of months. The stock, down more than 20% from an all-time high of $53.06 reached in May, trades 0.80% higher on the session at $40.30 as of 11:40 a.m. ET. Trading traffic in HCP call options indicates some traders are positioning for the price of the underlying to rebound. The most actively traded contracts by volume today are the Oct $45 strike calls, with more than 5,000 call options in play against open interest of 1,902 contracts. It looks like much of the volume was purchased for an average premium of $0.22 apiece, thus positioning buyers to profit at October expiration in the event that HCP shares rally 12% over the current price of $40.30 to exceed the average breakeven point at $45.22.
DMND - Diamond Foods, Inc. – Shares in premium snack food provider, Diamond Foods, Inc., rallied almost 20% this morning to a fresh 52-week high of $22.89 after the company issued a strong fiscal fourth-quarter outlook and said it reached a proposed agreement to settle a private securities class action pending against the company. Trading traffic in front month call options today indicates one or more traders are positioned to benefit from continued gains in the price of the underlying through September expiration. According to a press release issued by Diamond, the company plans to release fourth quarter and full year fiscal 2013 earnings in late September. The most traded contracts by volume on DMND thus far in the session are the Sep $24 strike calls, with roughly 600 contracts in play versus open interest of 352 contracts. Time and sales data suggests most of the $24 calls were purchased in the early going at an average premium of $0.63 each. The bullish stance on Diamond Foods may pay off at expiration next month should shares in the name increase 7.6% over today’s high of $22.89 to exceed the average breakeven point at $24.63. Shares in DMND last traded above $24.63 back in May of 2012.
Equity Options Analyst
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