Look at how bullish readings are ramping up
Broad market
volatility, as measured by the VIX, VXO and VXN, has lifted nicely on a relative
basis, but in actual numbers, not so much. A
VIX of 15 is certainly on the upper end of our recent ranges, but it strikes few
as a sign of real panic.
But how about below the surface, in individual stocks?
Fear has perked up to a much greater degree, particularly in anticipation of
earnings reports.
Take a gander at this Apple
(
AAPL |
Quote |
Chart |
News |
PowerRating) volatility chart going into last
night’s number, courtesy of Ivolatility.com.
Apple volatility nearly doubled from the August
lows, just a huge move in a relatively short time frame, albeit off pathetic
levels.
Option buyers were high on the Hog as well, as this Harley Davidson
(
HDI |
Quote |
Chart |
News |
PowerRating)
volatility chart demonstrates:
It’s not so odd they would bid up HDI options, given the debacle after the April
numbers, but it’s telling that they bid them up even higher than in July, when
the pounding was much fresher in everyone’s mind.
On a micro level, a volatility ramp does not necessarily lead to a positive
earnings reaction in any individual name. Puts can certainly trade fat and with
huge volume, and the stock may tank anyway.
On a macro level however, it’s a short term bullish indicator as it’s a nice
contrary signal that fear really is percolating below the surface.
Adam Warner
Adam Warner is a proprietary
trader for Addormar Co., Inc., specializing in option and derivative strategies.
Prior to Addormar, he was an Equity Options Market Maker on the floor of the
American Stock Exchange from 1988-2001.