Article / 24 January 2017 at 1:01 GMT

Volatility Update: What factors could lift volatility? – #SaxoStrats

Product Manager, Options Trader, Educator
Denmark
  • Japanese stocks soared 2.2% last week, although they've retreated since then
  • Palladium is a metal to watch, given strong car sales in the US and China
  • Plenty of corporations are making Q4 earnings announcements this week
  • The market is barely blinking in the face of these announcements

By Georgio Stoev

Equity markets finished largely unchanged in a shortened trading week last week. US markets were closed on Monday for Martin Luther King day. 


nnn
Something to smile about... analysts are upbeat about palladium, a metal  used in catalytic converters, given robust car sales in China and the US. Photo: iStock


Japanese equities however showed a strong performance and finished up 2.2% for the week.  Underlying JYH7 futures also finished on a strong note, but they are yet to break above its seven-week resistance at 0.008892. 

We are seeing some short-term strength in the price, at least indicated by the by +DI approaching 30 and rising. 

J7H7 chart

JYH7
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more.  

Metals, particularly palladium (PAH7), made a new 52-week high last week. The metal is up 15% for the year and analysts are calling for continuous strength on the back of healthy auto sales in the US and China. 

Palladium shows strength

weekly performance
Source: QuikStrike

Crude oil prices seem to continue to consolidate, we have a call spread $56 to $57/barrel, with resistance now clearly near $55/b. The options market seems to support further consolidation in the underlying futures for March delivery (CLH7) with high interest in $55 calls and $51 puts strike prices. 

The weekly oil inventory comes on Wednesday (please see calendar). Traders seem to be increasingly extending to using futures options on crude oil to hedge position or to look for volatility moves. 


CL Options
source: CME Group 

Speaking about volatility, the Chicago Board Options Exchange index (VIX) seems to be also locked in a range with intraday highs of $12.64. 

At the time of writing this article, we attempted to break above this level but without much push. In fact the underlying futures, VXH7, are making a new low at $14.90. 

VXH7 chart

low vol














source: Saxo Bank

What would elevate volatility these days? Certainly not corporate earnings. We are in the midst of Q4 earnings announcements, and the market is barely blinking. On January 24, we should hear from online retail giant Alibaba Group Holding (BABA), steelmaker AK Steel (AKS), lighting manufacturer Cree (CREE),Vertex Pharmaceuticals (VRTX) and others. 

After the bell at the close of trading on Tuesday, surgical instrument maker Intuitive Surgical (ISRG) will report its earnings. Too bad we don't support options for the last one, as the implied volatility is busting by its seams on the medical equipment maker. The market is pricing in a 10% move. 

Later this week, we have reports from aircraft maker Boeing (BA), pharmaceuticals firm Bristol Myers (BMY) and on Thursday we should hear from construction and mining equipment maker Caterpillar (CAT), internet search giant Alphabet Inc (GOOGL) and coffee outlet chain Starbucks (SBUX), among others.

Starting this Wednesday, OptionsLab is kicking off monthly webinars with the Chicago Board Options Exchange's one and only Russell Rhoads, also known as Dr. VIX. Make sure and reserve your spot right here

Have a great week!

– Edited by Robert Ryan

Georgio Stoev is futures and options product manager at Saxo Bank 


Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail