Volume 14 Issue 46
More Ranker Results

As the major large capitalization indexes continue making new highs, finding individual stock trades is becoming more challenging. While the Top 5, a regular feature found in the Rankers & Scanners section on our home page is one source for ideas, expanding the list by using our Advanced Ranker provides more selections. Accordingly, we present two ranker results below, one features implied volatility change, the other low range implied volatility along with corresponding trade suggestions for Baker Hughes Incorporated (BHI) and The Blackstone Group L.P. (BX). First, a short market review and indicator update.

S&P 500 Index (SPX) 2039.82 for the week it advanced another 7.90 points or .39%, making multiple new highs on diminishing volume. The new trendline crosses way down at 1842.88 or 9.7% lower. While there is currently no overhead resistance, look for a retest of the breakout above the September 19 high at 2019.26 to establish new long positions in large capitalization stocks.

Powershares QQQ (QQQ) 103.22 the relative outperformance continues as it advanced 1.62 points or 1.62% for the week although it should attempt to retest the breakout back toward 100.56 closing the gap before long to afford another opportunity to establish new long positions.

CBOE Volatility Index® (VIX) 13.31, up slightly for the week.

The table below shows the VIX cash compared to the next two futures contracts as well as our calculation of Larry McMillan’s day-weighted average between the first and second months.

The day weighting applies 10% to November and 90% to December for a 14.15% premium shown above. Our alternative volume-weighted average between November and December, regularly found in the Options Data Analysis section on our homepage, is slightly lower at 11.84%. Premiums for a normal term structure are 10% to 20%, while premiums above 15% appear to suggest a lack of enthusiasm for VIX hedging. Premiums less than 10% suggest caution and negative premiums are unsustainable suggesting an oversold condition. Last week, the premiums were in the normal zone above 10% every day except for Thursday at 9.83%.

Ranker – Beyond Top 5

The Advanced Ranker allows users to scan a defined universe of stocks, indexes and ETFs providing the capability to search several criteria and quickly find results highlighting opportunities with high-implied volatility or the ones with the greatest implied volatility change. Further, it can even find low volatility and skew ideas.

For this scan, we set the group at Top 200 by options volume to show stocks with prices above 10 and top ranked 15 by IV Index % Change. From an options perspective this represents the action.

Baker Hughes (BHI) is number one as the implied volatility increased 58.49% on the announcement that Halliburton is making a takeover move.

Baker Hughes Incorporated (BHI) 59.89 was up 1.14 Friday. Here are more option details.

The current Historical Volatility is 58.38 and 57.60 using the Parkinson’s range method, with an Implied Volatility Index Mean of 56.71 shown above, up from 32.17 the week before. The 52-week high was Friday while the low was 18.42 on August 22, 2014. The implied volatility/historical volatility ratio using the range method is .99 meaning the options prices are inexpensive relative to the recent movement of the stock. The put-call ratio at .50 is moderately bullish. Friday’s option volume at a whopping 158,826 contracts traded compares to the 5-day average volume of 40,490.

Suggesting the oil service industry may be in for troubled times, Friday Halliburton announced an attempt to replace the Board of Directors at the annual meeting in April after merger talks broke down.

While Baker Hughes seeks alternatives, the implied volatility could remain high and may even go higher.

Consider this iron condor.

Using the ask price for the buy and middle for the sell, the credit is .89 with a slight volatility edge.

Using the ask price for the buy and middle for the sell, the credit is 1.09. The disparity between the implied volatility of calls and put imply greater concern about the downside than further upside. It will likely take more time beyond the December expiration for a resolution, so both sides could expire out-of-the money alternatively regardless of what may happen, only one side will be in the money at expiration.

Now from the opposite viewpoint look at the 15 low implied volatility alternatives ranked by IV Index Hi/Low scaled range in column 6.

Index Hi/Low scaled range in column 6.

This is the type of scan to use when looking for long suggestions. For example number 12 very near the bottom of its 52 week range.

The Blackstone Group L.P. (BX) 31.86 in a defined uptrend from the October 16 low, with a current indicatd dividend rate of 5.5% it could continue higher until year end assuming the market cooperates and also contines higher.

The current Historical Volatility is 24.22 and 33.67 using the Parkinson’s range method, with an Implied Volatility Index Mean of 21.73 down 22.60 the week before. The 52-week high was 42.83 on January 27, 2014 while the low was 21.32 on August 19, 2014. The implied volatility/historical volatility ratio using the range method is .65 meaning the options prices are inexpensive relative to the recent movement of the stock. The put-call ratio at .55 is moderately bullish. Friday’s option volume was low at 7,240 contracts traded compares to the 5-day average volume of 13,200 so trading is thin requiring patience placing orders.

Here is a long call spread that should reach the short call strike by expiration assuming the current uptrend continues.

Using the ask price for the buy and middle for the sell, the debit is .64, which is 32% of the distance between the strike prices. Use a close back below 31 as the SU (stop/unwind).

The suggestions above use closing ask prices for the buys and middle prices for the sells presuming some price improvement from indicted prices is possible for liquid stocks. Monday’s option prices will be somewhat different due to the time decay over the weekend and any price change.

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Summary

While the focus remains on the US Dollar and crude oil, the major large capitalization stocks continue advancing making new highs. Since there is no overhead resistance, the S&P 500 Index is likely to continue higher unless derailed buy an unexpected macro event but expect a normal retest of the recent breakout before long.

Actionable Options™

We now offer daily trading ideas from our RT Options Scanner before the close in the News section of our home page based upon active calls and puts with increasing implied volatility and volume.