Volatility Kings And The Market

Since the third quarter ended and earnings reporting will start soon it is time once again to update our Volatility Kings ™ list of companies having a regular tendency to experience increasing option implied volatility as their quarterly reporting dates approach. First a brief market comment.

S&P 500 Index (SPX) 2519.36 advanced another 17.14 points or +.68% for the week making new closing highs Thursday and Friday disappointing those anticipating a typical September seasonal decline. For the month the gain was 47.71 points or +1.93%. At the start of the week it looked like both cyclical and seasonal forces would push it a pullback toward the 50-day Moving Average due to rotation out of large capitalization tech favorites, but talk about the proposed tax plan boosted small capitalization stocks quickly ending the pullback as market breadth improved all week much to the delight of the stampeding bulls.

As for the Volatility Kings ™ the degree of uncertainty for upcoming reports may not be comparable to previous quarters. Indeed, some companies are on the list one quarter and not the next while others seem to remain on our list quarter after quarter. Since the focus is on earnings, others with high-implied volatility due to takeover speculation or FDA announcements do not appear along with those lacking sufficient liquidity due to low option volume.

The list was made after whacking through the weeds looking for stocks with prices greater than 5, since when prices are too low there are usually not enough strike prices or liquidity for spreads or other strategies.

Volatility Kings™ 3Q 2017

In order to focus on those with the best options volume and liquidity, both the weekly and month average volume requirement is greater than 20K contracts and may result in inclusion one quarter but not the next. However, the objective is to find those stocks with sufficient options liquidity and therefore reasonable bid/ask spreads to use for various multiple leg strategies, such as Calendar Spreads, Butterflies, Iron Condors and others.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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