Last Week – Typical Holiday Trading
SPY rose 1.6% last week, in line with the 1.5% move options were pricing. Retail stocks helped continue the recent rally and the FOMC meeting minutes confirmed some market assumptions on the Fed’s next moves. Day-to-day volatility was also subdued and volumes light. Implied volatility again fell. The VIX finished the week at 20.50, its lowest close since mid-August. VIX futures are now steeply in contango with Jan VIX futures above 25 and March above 26. SPY 30-day IV is just 19, 60-day is 20 and 90-day is just 21. So SPY options are near historical averages across the board while VIX futures continue to price high 20’s out a few months.
This Week – Economic Calendar Picks Back Up, Culminates on Dec 14th FOMC
SPY options are again pricing just a 1.5% move for the upcoming week, but option premium contracted a lot to account for no trading on Thursday and a half day on Friday to end last week. There’s nothing market makers hate more than getting plugged with premium into a quasi 4-day weekend and that explains a lot of the IV drop last week. IV typically reflexes the other way on a Monday open following a long weekend.
Last week we highlighted a possible phenomenon that falling IV after sustained high IV (like we just saw) can have a bit of a snowball effect on both option pricing and actual market movement as the selling loads the market with gamma:
File this under a “way too early to know” category, but one thing traders should be aware of is that falling implied volatility can be a self-fulfilling prophecy on realized (actual) market volatility The TLDR version is that it can load the market with gamma that may act as a governor on market moves as there are deltas to be bought lower and deltas to be sold higher.
That’s something worth keeping an eye on but with the NFP Jobs number this week and the FOMC December meeting on the 14th, there are a few potential market-moving events that could keep options bid. In fact, the expected move chart shows higher volatility for this Friday and the FOMC week (note the FOMC week in particular as IV jumps from 15 to 20 and expected moves expand, it looks like a stock does into earnings):
What that means is that even if market moves stay muted for now, options will have to keep the some key upcoming dates on the radar and price an assumption of volatility those days. That effect on IV may be less noticeable in individual stocks but traders should apply the same assumptions, particularly in stocks with close ties to interest rates and currencies.
The economic calendar this week has the aforementioned Jobs Number, but some other important events like the GDP number and a Powell speech/ Beige Book.
Expected Moves for This Week (via Options AI free tools)
- SPY 1.5%
- QQQ 2.2%
- IWM 2%
- DIA 1.4%
- Tuesday – Consumer Confidence, Case Shiller
- Wednesday – ADP Employment, GDP, Powell Speech, Beige Book
- Thursday – BOJ Kuroda speech, ISM Manufacturing
- Friday – Non-Farm Payrolls
Earnings This Week
Expected moves for companies reporting this week. Recent moves indicate what the stock did in its past few reports (starting with the most recent). Also included is the 30-day (forward) IV vs the 1-year actual (realized, historical), which gives a sense of how options are pricing the moves relative to how the stock has traded over the past year.
Data is via the Options AI Earnings Calendar and other companies can be found at the link (many free-to-use tools).
- Crowdstrike CRWD / Expected Move: 8.3% / Recent moves: -6%, -7%, +12%, +4% (30d IV vs 1yr: +1)
- Workday WDAY / Expected Move: 7.2% / Recent moves: +3%, -5%, +5% (30d IV vs 1yr: +14)
- Salesforce CRM / Expected Move: 6.6% / Recent moves: -3%, +10%, +1%, -12% (30d IV vs 1yr: +5)
- Snowflake SNOW / Expected Move: 11.8% / Recent moves: +23%, -5%, -15%, +16% (30d IV vs 1yr: +5)
- Splunk SPLK / Expected Move: 11.2% / Recent moves: -12%, +10%, +6%, +5% (30d IV vs 1yr: +27)
- Okta OKTA / Expected Move: 14% / Recent moves: -34%, +5%, -8%, +12% (30d IV vs 1yr: +16)
- Ulta Beauty ULTA / Expected Move: 5.9% / Recent moves: -2%, +12%, -3%, -1% (30d IV vs 1yr: +9)
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Based upon publicly available information derived from option prices at the time of publishing. Intended for informational and educational purposes only and is not any form of recommendation of a particular security, strategy or to open a brokerage account. Options price data and past performance data should not be construed as being indicative of future results and do not guarantee future results or returns. Options involve risk, including exposing investors to potentially significant losses and are therefore not suitable for all investors. Option spreads involve additional risks that should be fully understood prior to investing. Securities trading is offered through Options AI Financial, LLC, member FINRA and SIPC.