XJO’s trend (4211) from options market observations

XJO closed at 4211 on 9 Mar 2012, rising 41 points for the day.

1) Volume

Weekly overall options volume (index + equities) was down slightly (5%)  last week including that of Friday’s despite the XJO rising 41 points for the day and equities weekly volume higher by 1%. 

Trading in XJO options though, increased by 14% for the week. It showed that the dropped off in options volume was due to lower positions being taken in individual stock options with increased trading in XJO options.

On analysing each of the call and put components separately on the XJO options, it was found that the put/call ratio for the week was at an average reading of 1.31, though it was a better one of 0.8 on Friday.

2) Volatility

An interesting indicator to keep track of is the CBOE Volatility Indiex (VX) Futures* to get a sense of expectations, it looks like there is a gradual increase expectated of the VIX. With current reading at 17.11, the VX futures are calling for it to be closing at 19.8 this week for its Mar expiry with an incline all the way to above 25 in June. The Implied Volatility in our market is not displaying dissimilar trend.

(*VX JAN12  “F” expiry was at 21.95; Feb12 “G” was 19.0512;  with reading on  9 Mar 2012 as follows for: Mar12 “H” futures is 19.8;  APR12 “J” is 23.2;  MAY12 “K” is 24.85;  Jun12 “M” 25.85 )

What about the XJO?

The XJO options’ current Implied Volatility is at a very level again of early 16. It has been here a few times in the last few months. If we were to look at the XJO calls and puts separately, we will find that the Implied Volatility for the calls for the next few months out lower than the puts. The puts’  Implied Volatility are at levels even higher than that of the historical levels.

What are these indicators implying?

Overall, with index call options on  low volatility and put/call ratio at average levels whilst puts’ volatility elevated, there is a risk of the current market remaining flattish or capped to the upside with risk on the donwside.