Put vs. call options skew is at the highest level in seven years

As the Fed meeting kicks off and we lead up to the Brexit vote, put protection is trading at the most expensive levels relative to upside calls over the past seven years (chart below). But with put option transaction volumes healthily below their median levels, the upcoming news events haven’t led to a notable surge in investors looking to hedge equities. With many staying on the sidelines, today’s options pricing presents opportunities with attractive backtesting results depending on your directional view:

Longs: Consumer Discretionary (XLY) Risk Reversals

Put writers: Biotech (XBI), Nike (NKE)

Covered call writers: Twitter (TWTR), Viacom (VIAB)

Hedgers: S&P 500 Put Spreads

Option put call skew

Announcing targets, stop losses, public beta, and more

Options backtesting with targets and stop losses

Targets and stop losses have been your most requested features over the last couple months, and we’re very excited to finally bring them to you. You can now set targets and stops for every backtest you run on Volatility, even systematic strategies and earnings trades. You can also choose to include or exclude estimated liquidation costs for stop losses.

Try it now and send us your feedback!

Backtest your custom prices

Another important backtesting update we’re releasing today is the ability to enter custom prices for options in your backtests. This allows you to easily backtest and evaluate live prices you see in the market intraday. A couple other benefits include helping you find the best levels to place your limit orders or helping you better understand the impact of bid/ask spreads on your strategy’s performance.

Public beta and thank you

We are also announcing a shift from private to public beta today. Your friends and colleagues can now more easily try Volatility, and we’re looking forward to hearing their feedback.

Finally, we want to sincerely thank you for being a part of our private beta and for helping us make Volatility into an essential tool for options traders. Looking forward, we will be launching Volatility out of beta soon. To show our appreciation for all your feedback and help, we’re offering you discounts on plans for a limited time. Learn more here.

Upside call buyers disappear

As the S&P 500 stagnates in the 2,040 to 2,100 range, bullish index option volumes have dropped to the same low levels that occurred just before the 10% market declines in February and August (chart below). Interestingly, the lack of upside buying has not coincided with increased buying of put protection, indicating that many may be sitting on the sidelines instead of putting capital to work. With at-the-money volatilities low and skews high, hedgers can find attractively priced put spreads and longs can find well-priced call spreads.

Today’s attractive put-writes and covered calls

3m 10% OTM by historical success probability and backtested expected value. Click the stock to view backtesting results.

Put-writes: Allergan (85.3%; 2.6%), Viacom (85.0%; 2.3%), Gilead (87.8%; 2.0%).

Covered calls: Twitter (87.7%; 4.9%), Alibaba (83.5%; 1.0%), Aloca (85.0%; 1.0%).

SPY call volumes are unusually low

Introducing earnings backtesting

We’re excited to announce two new features today as earnings season kicks off. The first feature is the ability to analyze earnings strategies with just a few clicks. We’ve assembled a large amount of historical earnings data which you can now leverage to backtest your earnings trades.

As an example, Citigroup reports earnings Friday, and you can determine in seconds that selling short-term straddles ahead of their reports would have been profitable over 16 of the past 21 earnings releases (76% historial success rate) at today’s pricing. You can now quickly craft and optimize your earnings strategies.

We’ve also included the ability to exclude earnings dates from backtests, which is very useful for evaluating systematic strategies that you actively avoid trading around earnings announcements.

Try it today. Click on Earnings within Advanced Parameters.

Industry filtering

We also added industry filtering to the Equity, Put Writing, and Covered Call screens. This makes it easier to find the most attractive technology put-writes or the cheapest bank hedges, for example. Many of you have been avoiding energy names lately, and this also lets you quickly remove them from the screens.

Interested in private beta access? Sign up here.

C Earnings Backtest

Valeant puts struck at 2.50

Puts struck at the scary level of 2.50 started trading on Valeant in the last several days, and they’ve already accumulated an open interest of 5,000 contracts. Options traders are positioning for a large decline more than ever before with puts struck >50% down trading in record size, breaking October’s activity (chart below). The majority of the today’s bearish volume is centered on 7.50 and 10.00 puts expiring in April and May, which are pricing in a roughly 12% chance of 10.00 by expiry. They would have a ~3x return in a repeat of the September through November 70% decline.

VRX put volume