Latest news with #options
Reuters
6 hours ago
- Business
- Reuters
India stock exchange derivative activity slips by a third since Jane Street trading ban
July 17 (Reuters) - Trading in India's weekly equity index options has slumped by a third since the country's market regulator banned U.S. high-frequency trading giant Jane Street in the local market earlier this month, exchange data showed on Thursday. National Stock Exchange of India - the world's largest derivatives exchange by number of contracts traded - saw a nearly 36% drop over two weeks in index options premium turnover, a key measure of real capital deployed and risk appetite. The options premium turnover stood at 396.26 billion rupees ($4.6 billion) on Thursday, which is the day of weekly options expiry on NSE. The Securities and Exchange Board of India barred Jane Street on July 4, saying an investigation found it manipulated stock indexes through positions taken in derivatives. NSE's rival exchange BSE ( opens new tab also saw its options premium turnover drop 36.4% below the July 3 levels. BSE index options expire on Tuesdays. Emails to NSE and BSE were not immediately answered. Out of the 10 sessions since the ban, turnover has declined in six on a week-on-week basis across both the exchanges. "The notable decline in options premium turnover can be attributed to the abrupt withdrawal or reduction of activity by Jane Street, which serves as a primary liquidity provider within the options market," said Osho Krishan, senior analyst of technical and derivatives research at brokerage Angel One. Unless new market-makers step in or volatility rises materially, turnover is unlikely to bounce back soon, Krishan said. Traders also point to a broader lull in volatility dragging volumes. "This isn't just a Jane Street story," said Mayank Bansal, a portfolio manager in India's options market. "It's mostly about volatility — once that comes back, so will the volumes." The Nifty volatility index (.NIFVIX), opens new tab has fallen in nine of the 13 sessions in July so far, and was hovering near a more than one-year low. ($1 = 86.0410 Indian rupees)
Yahoo
a day ago
- Business
- Yahoo
Signal: Scoop Up Options Now, Regardless of SPX Direction
With the S&P 500 Index (SPX) hitting new all-time highs recently, the Cboe Volatility Index (VIX ) has dropped to its lowest level since mid-February. This isn't unexpected, as the VIX tends to move in the opposite direction of the S&P 500. The VIX is the implied volatility of the S&P 500 over the next 30 days, based on options pricing. The 30-day VIX futures, however, have not fallen as fast as the VIX. Currently, they are trading about 15% above the VIX. In other words, VIX futures traders are expecting a significant increase in the VIX over the next 30 days. Note that the 30-day VIX futures are being calculated using a weighted average of the first and second month VIX futures. The chart below tracks the S&P 500 back to 2017, with orange markers highlighting times that the 30-day VIX futures were at a 15% premium to the VIX. Eyeballing this chart, it seems this signal occurs during uptrends and at short-term peaks. In this week's article, I'll quantify what typically happens after these signals to get a better idea of what may lie ahead. The three tables below summarize S&P 500 returns over the next two weeks, one month and three months. I break the returns down by the 30-day VIX futures relative to the VIX. Recently, as previously mentioned, the futures sit about 15% above the VIX. Stocks have underperformed in these situations at each of those time frames. For example, over the next month, when the VIX futures were at this level above the VIX, the S&P 500 averaged a return of 0.50%, with 65% of the returns positive. When the premium was below 15%, the index averaged a return of 0.91% and when it was negative (the VIX is above the futures), the index averaged a one-month return of 2.37%. In our current situation, the magnitude of the average positive return and average negative return is low compared to the other brackets. Based on this, it wouldn't be surprising to see low volatility and underperformance in the short-term. I ran the same analysis as above, but I wanted to see anything changed if I only considered times the S&P 500 was within 2.5% of an all-time high, our current situation. The table below summarizes the one-month returns. Comparing the average returns in this table to the 1-month returns in the table above, it shows the S&P 500 has lower returns in the first two rows of the data. When the VIX futures premium is in the most normal range (0% - 15%), the average return of the S&P 500 goes from 0.91% anytime down to 0.58% when the index is near an all-time high. Our current situation -- in which the VIX futures premium is high -- the S&P 500 has performed better when it's near an all-time high compared to other times. The average return over the next month goes from 0.50% anytime to 0.59% when near an all-time high. Since the VIX is a measure of option prices, I thought it was appropriate to see how options have performed on the index in these situations. For this, I'm using hypothetical options on the SPY (an S&P 500 based exchange-traded fund (ETF) with extremely liquid options) which are at-the-money and expire in exactly one-month. So, these are option returns corresponding to the 1-month S&P 500 returns above. The table below shows how one-month call options have performed on the SPY since 2017 based on the 30-day VIX futures premium. With the strong market overall, call options have been outstanding. Interestingly, the average call option returns are very similar across all three buckets even though the S&P 500 itself tends to underperform with an elevated VIX futures premium. This is because the high VIX premiums primarily occur in low VIX environments. This means options are cheap and a smaller move is necessary to generate a similar return for an option. When the VIX futures premium has been above 15%, call options have had the highest average positive return of 135% and it also shows the highest percentage of option returns that doubled, although all three brackets are similar in this regard. Next, I show how 1-month put options have performed since 2017. As expected, given the strong market and the call option returns in the table above, puts have been bad. The median return of -100% for each bracket means that the index went higher over half the time and since these are exactly at-the-money options, that results in a complete loss for put options. Put options have been bad bets in general since 2017, but especially when the VIX was above the VIX futures (a negative VIX futures premium). This last table shows the performance of purchasing SPY straddles based on the VIX futures premium. A straddle means purchasing an at-the-money call option and put option so that you can profit no matter which way the index moves. However, to earn a profit, the move must be significant so that it can cover the premium of both options. Straddles have been profitable on average since 2017 when the VIX futures premium were at current levels. It was only when the VIX futures premium was negative that straddles were not profitable on average. In conclusion, while the current data suggests low volatility going forward, that doesn't means options will be a poor trading vehicle. In fact, option prices already reflect low volatility expectations. As the analysis above shows, options have historically performed well in similar environments, especially when VIX futures traders are pricing in a significant rise in the VIX over the next 30 days.
Yahoo
3 days ago
- Business
- Yahoo
Despite Slump, Options Traders May be Seeing Something with Quest Diagnostics (DGX)
While clinical laboratory Quest Diagnostics (DGX) had a rough outing last week, speculators seeking a discount may want to keep DGX stock on their radar. In the trailing five sessions, the equity dropped nearly 4%. Over the past month, it's down just over 6%. While the volatility may be alarming ahead of its upcoming earnings report (scheduled for July 22), there's intriguing evidence of a possible bounce back. First, one could potentially read between the lines regarding its derivative market activities. Last Friday, DGX stock represented one of the highlights of Barchart's screener for unusual stock options volume. Specifically, total volume hit 4,717 contracts, representing a 353.12% lift over the trailing one-month average. However, put volume dramatically outpaced call volume, 4,201 contracts to 516. Shopify Stock is a Bargain - How to Make a 3.2% One-Month Yield with SHOP Option Volatility And Earnings Report For July 14 - 18 Generate Income on MSTR Without Owning The Stock (Yet) Our exclusive Barchart Brief newsletter is your FREE midday guide to what's moving stocks, sectors, and investor sentiment - delivered right when you need the info most. Subscribe today! At first glance, the above setup may sound like bad news. After all, put options give unit holders the right (but not the obligation) to sell the underlying security at the listed strike price. Still, we must remember that for every option contract bought, there is a seller involved. Thus, it's not just about the volume of options but who is doing the transacting. Drilling deeper into the details, DGX's options flow screener — which focuses exclusively on big block transactions likely placed by institutional investors — showed that on Friday, net trade sentiment stood at $451,000 above parity, favoring the bulls. As it turned out, the high volume of put options were credit-based puts, meaning that institutional players were either neutral to somewhat bullish. To be sure, you want to avoid reading too much into unusual options activity. At the end of the day, sentiment in the derivatives sphere is largely an inference — and inferences can be wrong. But there's another reason to consider DGX stock and that's the statistical setup. In my opinion, one of the most intuitive mechanisms to trade stocks and options is to use applied game theory. In the context of the financial market, game theory essentially revolves around making moves when the odds favor you and avoiding certain ideas when they don't. However, to use game theory requires an appropriate framework. To best illustrate this process, it's helpful to consider this thought experiment. Imagine flipping a coin a hundred times every business day. What you flip on Monday will have no bearing on what you flip on Tuesday, for the obvious reason that coin tosses represent random events. It stands to reason that if the market were also random, sentiment that materialized on one day would have no impact on the next. Indeed, if the equities market were truly random, the financial publication industry would evaporate. There would be no point reading anyone's opinion about a compelling opportunity considering the lack of a probabilistic edge. However, that's not what we observe. In the case of DGX stock, its price action compressed into market breadth sequences over rolling 10-week intervals reveals the following demand structure: L10 Category Up Probability Baseline Probability Median Return if Up 1-9-D 100.00% 55.00% 1.74% 2-8-D 66.67% 55.00% 4.92% 3-7-D 52.63% 55.00% 2.62% 4-6-D 70.00% 55.00% 1.92% 4-6-U 41.18% 55.00% 1.11% 5-5-D 57.14% 55.00% 2.55% 5-5-U 59.52% 55.00% 1.78% 6-4-D 55.56% 55.00% 3.20% 6-4-U 54.24% 55.00% 1.43% 7-3-D 50.00% 55.00% 12.18% 7-3-U 44.64% 55.00% 1.41% 8-2-D 50.00% 55.00% 4.71% 8-2-U 64.00% 55.00% 1.00% 9-1-U 0.00% 55.00% N/A In the past two months, DGX stock has printed a 4-6-D sequence: four up weeks, six down weeks, with a negative trajectory across the 10-week period. Since January 2019, this sequence has materialized 40 times. What's more, in 70% of cases, the following week's price action results in upside, with a median return of 1.92%. Should the bulls maintain control for a second week, the added median performance stands at 1.96%. On Friday, DGX stock closed at $168.09. Based on past analogs (that is, the number of times that the 4-6-D flashed), it's possible that DGX may be on course to reach $174.68, perhaps up to $175 within the next two weeks. For those interested in betting on a sentiment reversal, the 175/180 bull call spread expiring Aug. 15 could be intriguing. This transaction involves buying the $175 call and simultaneously selling the $180 call, for a net debit paid of $265. Should DGX stock rise through the short strike price at expiration, the maximum reward is $235, a payout of nearly 89%. The main risk here is reaching the short strike price. Based on past analogs, DGX stock has a realistic chance of breaching $175 by expiration. Getting to the short strike price of $180 is a trickier proposition. What could work in favor of the bulls, though, is that the 4-6-D historically attracts bullish interest. Because of the relatively steep 6% trailing-month loss in the equity, it's possible that any counterresponse could be more robust than usual. On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
3 days ago
- Business
- Yahoo
Alibaba Stock is Well Off Its Highs - What is the Best Way to Play BABA?
Alibaba Group Holdings (BABA) ADRs are off their May $134 peak as Trump's tariff pressure is on again. Analysts have lowered EPS forecasts and price targets as well. Does that make BABA a buy? Maybe, but one attractive income play here is to short deep out-of-the-money (OTM) puts. BABA is at $108.45 per share, well below its recent May 14 peak of $134.05. Could it fall below $100? Maybe, but the put options at that strike price look particularly attractive. Shopify Stock is a Bargain - How to Make a 3.2% One-Month Yield with SHOP Option Volatility And Earnings Report For July 14 - 18 Generate Income on MSTR Without Owning The Stock (Yet) Markets move fast. Keep up by reading our FREE midday Barchart Brief newsletter for exclusive charts, analysis, and headlines. Before looking at that, let's review the stock's valuation. Sell-side analysts now project $9.20 in earnings per share (EPS) for the year ending March 31, 2025. That is down from $10.24 EPS, as I pointed out in my May 12 Barchart article. That could account for a big portion of the stock's weakness in the past 2 months. Nevertheless, it means BABA is on a very low price/earnings multiple (P/E) of just 11.8x. That is well below its historical average. Let's compute that and set a price target. The next 12-month (NTM) EPS forecast is $9.96, including the analysts' 2026 EPS forecast of $10.71. This can be multiplied by the stock's historical P/E multiple to set a price target. For example, Morningstar reports that its historical forward P/E multiple over the last 5 years has been 11.82x. Seeking Alpha says it's been 14.6x. So, let's use an average 13.2x multiple: $9.96 x 13.2 = $131.47 target price Upside = +21.2% But that assumes that BABA stock will rise to over 13x earnings. That would have to be after any tariff issues between the U.S. and China have been resolved. To be conservative, let's use a lower 11.82x multiple: $9.96 x 11.82 = $117.73 target price Upside = +8.6% The bottom line is that even using a lower historical multiple, BABA stock looks cheap here. Yahoo! Finance shows that the average price target is $162.17, and Stock Analysis says that the 14 analysts' average is $152.16. These are substantially higher than today's price. The mean survey price at Barchart is $161.53 per share, and AnaChart's average of 22 analysts is $149.21. That means the lowest analyst survey price target is still +37.6% over today's price. As a result, using both our $117.73 P/E-based price target and the lowest analyst survey of $149.21 gives an average of $133.47: Upside: $133.47 / $108.45 = 1.23 -1= +23% upside So, BABA stock is well over 20% undervalued here. One way to play this, to set an even lower buy-in price and to get paid extra income while waiting, is to sell short out-of-the-money (OTM) put options. For example, look at the Aug. 22 expiry period, 39 days from now, just over one month and a week from now. It shows that the $100 strike price put option, which is 7.7% below today's trading price, has an attractive midpoint put option premium of $1.91. That means an investor who enters an order to 'Sell to Open' this strike price can make an immediate yield of 1.91% (i.e., $1.91/$100.00). So, as long as BABA stays over $100.00 for the next month or so, an investor makes a clean 1.9% yield without having to buy 100 shares at $100.00 (i.e., collateral of $10,000 is required). But even if the account is assigned to buy BABA at $100 (if it falls to $100 or lower), the investor's breakeven is lower: $100-$1.91 received = $98.09 breakeven That is 9.5% lower than today's trading price. So, this provides good downside protection, sets an attractive buy-in point, and provides a good monthly yield. For example, if the investor can repeat this 1.92% short-put yield every 39 days, the annualized expected return is 17.28% (i.e., 9 x 1.92%). Keep in mind that the delta ratio, which implies the probability that BABA will fall to $100 in the next 39 days, is low at just 23%. This is based on its historical trading variance. In addition, the upside, if the account is assigned, is high: $133.47 / $98.09 = 1.36 -1 = +36% upside The bottom line is that BABA stock looks cheap here, and one way to play it is to short 39 DTE puts at the $100 strike price for a 1.9% yield. On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
3 days ago
- Business
- Bloomberg
Options Traders Sour on Pound as Bets on BOE Rate Cuts Grow
Options traders are turning against the pound as the UK currency heads for its longest losing streak against the dollar in two years. One-month risk reversals — which show the difference in demand for bullish and bearish options — reflect the most negative outlook for the pound since February. The measure spans the next Bank of England and Federal Reserve decisions, as well as President Donald Trump's Aug. 1 tariff deadline.
