Market Data with Dan Sheridan. Presented by The Options Industry Council

Transcription

1 Market Data with Dan Sheridan Presented by The Options Industry Council

2 Market Data with Dan Sheridan Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained by contacting your broker or The Options Industry Council (OIC) at One North Wacker Drive, Chicago, IL In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in these materials. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Investors should consult their tax advisor about any potential tax consequences. Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities. Past performance is not a guarantee of future results. This presentation should not be construed as an endorsement or an indication by OIC of the value of any non-oic product or service described in this presentation. Russell 2000 is a registered trademark of the Frank Russell Company.

3 Presentation Outline Summer Volatilities - implied volatilities lower - general observations and comments - example: long call time spread Earnings season - impact on implied volatility - general observations and comments - example: long call time spread

4 Summer Volatility Don t get trapped by decreasing implied volatility Example: RUT Russell 2000 Index Options

5 RUT Price Chart 1 Year Source: IVolatility.com Access at

6 Example RUT Jun/Jul 820 Call Time Spread - Purchased May 14, RUT Closing Price =

7 RUT Jun/Jul 820 Call Time Spread May 14, 2007 RUT = Sell June 820 Call - price = $ implied volatility 18.4% - time value = $18.21 Buy July 820 Call - price = $ implied volatility 19.1% - time value = $28.85 Net debit = $10.64 = $1,064 total Position net theta = 8.14 Position net vega = 42.40

8 Mini Review Theta: exposure to time Measure of rate of change in an option s theoretical value for a one day passage of time Vega: exposure to volatility Measure of rate of change in an option s theoretical value for a 1% change in implied volatility

9 P&L Graph June Expiration Volatility Assumption 19% Maximum Profit RUT = Graph not drawn to exact scale Source: IVolatility.com Access at

10 RUT Historical Volatility vs. RUT Implied Volatility Source: IVolatility.com Access at

11 RUT Historical vs. Implied Volatility Detail Source: IVolatility.com Access at

12 RUT Jun/Jul 820 Call Time Spread May 18, 2007 RUT = Short June 820 Call - price = $ implied volatility 16.6% ( from 18.4%) Long July 820 Call - price = $ implied volatility 16.9% ( from 19.1%) Net value of Spread = $9.74 = $974 total Loss = $ $9.74 = $0.90 or $90 total Down 8.46% in 5-day period

13 Earnings Announcement Don t get trapped by decreasing implied volatility Example: Google Stock and Options Q Earnings April 19, 2007

14 Google (Symbol = GOOG) Tends to announce earnings on Thursday before expiration after market close Opens Friday before expiration post earnings announcement Q1 07 earnings Thursday April 19, expiration Friday April 20, 2007

15 GOOG Earnings History Effect on next-day opening Earnings Date Close Pre-Earnings Open Post-earnings Change on Opening Q Apr 20, Up % Q Jul 20, Down.98.25% Q Oct 19, Up % Q Jan 31, Up %

16 GOOG Earnings History Effect on price activity Stock Price around Earnings Past 3 Quarters Source: IVolatility.com Access at

17 GOOG Earnings History Effect on implied volatility Implied Volatility after Earnings Past 3 Quarters Source: IVolatility.com Access at

18 GOOG - Q Earnings Announced April 19, 2007 Earnings Date Close Pre-Earnings Open Post-earnings Change on Opening Q Apr 19, Up % Past Opening Prices Post-Earnings Q % Q % Q % Q %

19 GOOG - Q Earnings Effect on price activity Q Source: IVolatility.com Access at

20 GOOG - Q Earnings Effect on implied volatility Q Source: IVolatility.com Access at

21 GOOG - Q Earnings Effect on implied volatility detail Source: IVolatility.com Access at

22 Market Data with Dan Sheridan Implied Volatility Pay Attention! Keep Vega in Mind!

23 To Access Charts from IVolatility.com - Quotes - Delayed stock quotes and options chains enter stock symbol scroll to bottom of page

24 1-888-OPTIONS