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The CBOE SPX Volatility Index (VIX) gains more than 20 percent as the market retreats lower
Beth Gaston Moon is the Senior Editor for the Options News Network. Beth was a member of the research department at Schaeffer's Investment Research for more than a decade. One prominent market theme on Friday was volatility explosion. The CBOE SPX Volatility Index (VIX) rose more than 20% on the day and closed above the 27 mark for the first time since early November. This week will be critical in determining whether fear has exploded irrationally (making it a good time to buy stocks) or whether it is time for moderately bearish, volatility-rich strategies, such as bear call spreads.
The Walt Disney Company (NYSE: DIS) saw call buyers emerge on Friday even as the stock tumbled 2% to $29.98. The February 32-strike call, which is out-of-the-money and set to expire in about four weeks, saw volume of 10,217 during the session, which ultimately expanded open interest from 3,177 at Friday’s close to 13,235 this morning.
Shortly before 2:00 PM Eastern Friday afternoon, a block of 10,000 contracts traded at the ask price of 31 cents per share, suggesting they were bought to open. By the end of the day, the call was down just six cents despite a 63-cent drop in the stock, as buying pressure was sending implied volatility readings higher.
The front-month, at-the-money (30-strike) straddle also indicated rising implied volatility levels. At Thursday’s close, this straddle was priced at $1.74. By Friday afternoon, this had expanded to $1.99, suggesting a move of approximately 6.6% between now and February options expiration. Contained within this time frame are DIS earnings, due February 9th after the market close. Analysts are expecting 39 cents per share from the Mouse; the company has surprised to the upside in six of the past eight reporting periods.
More on DIS:
Buyers Out of the Gate in Disney, Wal-Mart, Unit
DIS: Winning and Losing Strategies in Disney (DIS)
More on the VIX:
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