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Adam Warner over at Daily Options Report discusses the differences between the cash VIX and futures VIX.
The best analogy is to the weather. Think of the *cash* VIX as today's weather, and the VIX futures as a contract that guesses the temperature 30 days forward from the day they expire. The same way a warm day in August will not help you call December weather, a blip up or down in the VIX will not likely impact Dec. VIX futures all that much.
Okay, so what are the cash VIX and future VIX values? If you go to the CBOE website and mouse over the VIX symbol in the upper left hand corner, you can see how cash VIX has changed throughout the day. And if you click on the VIX symbol, you will get the latest cash VIX quote (with the quote delay).
A list of futures symbols can be found at the CFE site. Simply click on the month of interest, and you will get the latest quotation.
As Adam mentions in his article, the current cash VIX is less than the futures VIXs. Thus, if the cash VIX were to pop, the futures VIX is unlikely to pop as much, because the futures VIX is already anticipating that over time the cash VIX will rise.
For those interested in learning more about the VIX, here are two articles that might be of interest:
The white paper provides more specificity on how the VIX is calculated.
Adam has repeatedly made the point that you should not look at the absolute value of the VIX, but rather look at it in context. For example, today's VIX is about 21. Is that high or low? The answer to that question depends upon how VIX has been trading recently. If you look at Yahoo!'s VIX chart, you will note that today's VIX is toward the lower end of its range for the past year. Part of the reason why it is lower is that we are in a very slow part of the year, just before Labor Day. As Adam points out, the futures VIX for September is about 23, which looks much closer to the middle of the values in previously referenced Yahoo! chart.
The point of this article was to provide additional information on the VIX. I have given you links to where you can find quotes on the cash and futures VIXs. And you can follow Adam's blog where he often discusses VIX values.
My photograph of the Mount Edith Cavell is hosted at Flickr. If you click on the picture, you will be taken to my Flickr account where you can see more pictures.
Update: 27 August 2008
Adam has another very salient post VIX Vx. VIX on this topic.
With the recent market turbulence, I am sure a lot of you are anxious about your stock holdings and what you should do next. Your first step in making any decisions should be to understand what you own.
Barry Ritholtz wrote an article back in October 2005 titled, Apprenticed Investor: "How My Doin?", where he provided a spreadsheet. Rather than link to Barry's spreadsheet from here, I ask that you visit Barry's article. After completing his spreadsheet with each of your holdings allocated to a sector, you will clearly see how diversified you are. Moreover, you will see for each of your stocks its overall percentage of assets. You will also complete some standard valuation measures such as dividend yield, price to earnings ratio, projected growth, PEG ratio, and beta.
Another excellent source of information to be used in conjunction with Barry's spreadsheet is the S&P 500 website with quantitative data. With the S&P data and your spreadsheet, you can see whether or not you are overweighted in different sectors relative to the index.
If you are managing your own money, you are most likely weighted significantly different than the index. You have taken a deliberate strategy to be different. However, you should review your portfolio periodically and ensure that your current weighting reflect your intentions. Over time, your portfolio weightings will change as some sectors lose while others gain.
My portfolio has a large cash position relative to the overall portfolio. I have been purchasing more oil stocks during this current correction. And if prices continue to fall, I will purchase more. My intent is to be overweight commodities in general and oil related stocks in particular. Nonetheless, I still have stocks from other sectors. So I am not completely concentrated in commodities.
A correction is a good time to realign your portfolio. You should review your holdings to ensure that your overall portfolio reflects your current beliefs and desires. For example, if you believe that financials have been through the worst, you might begin to overweight the financials. As you think through your portfolio holdings, you can begin to think through different scenarios. For example, if the market falls another five percent, you plan to do x. If the markets rally hard, you plan to do y. The key point is to thoroughly review your stock holdings to make sure that you are comfortable with your current position.
During the past week, I moved my weblog to a different web host pair Networks. While I expect to be back in full production within a week, I am still working out some of the bugs. So I need your patience for a few more days.
The markets are certainly interesting. I will comment more soon.
Comments and Trackbacks have been temporarily disabled. I hope to have both items enabled again in the near future.
My personal favorite RSS reader is now free: FeedDemon v2.6. Previously, I paid for FeedDemon. That is no longer required.
For those unfamiliar with FeedDemon, it is an extremely useful and powerful program that allows you to efficiently read your RSS feeds. Rather than me trying to highlight all the important features, I urge you to click on the link above, read more about FeedDemon, download it, and try it.
I have used FeedDemon for several years and am a very satisfied user of Nick Bradbury's software. He created FeedDemon and TopStyle Pro, CSS and HTML editor. Both products are extremely well designed and functional. Again, I urge you to try FeedDemon v2.6. It is now being offered to individuals for free.
While I still have more work to do on my weblog, it is now operational.
Although I liked the look of my old weblog, I prefer the look of my new weblog better.
Thank you for your patience while I made my changes.
Shortly, I will be upgrading my weblog to the latest version 4.01. This conversion will require some time, so I appreciate your patience.
I wish everyone a Happy, Healthy, and Prosperous New Year 2008. I hope everyone enjoyed their festivities last night and arrived home safe and sound.
As those who regularly read my blog know, I usually comment on business and finance. I expect 2008 to be rather interesting. While there are a lot of economic headwinds as we enter 2008, I expect that the housing crisis will dominate the investment landscape for at least the first half the year. For the latter half, I am not sure. From an investment perspective, the year 2008 promises to be more volatile and exciting than recent prior years.
Earlier this last year on Saturday, 15 September 2007, I photographed the picture above of Lake Louise in Banff National Park, which is located in Alberta near the Alberta and British Columbia provincial border. I believe the top of the mountain in the picture is on the continental divide, which is also the border between Alberta and British Columbia. In Banff National Park, the rivers on the British Columbia side flow west to the Pacific Ocean, and the rivers on the Alberta side flow east to the Atlantic Ocean. There might be some rivers from Banff that flow north to the Arctic Ocean, though I am not sure. The Athabasca River begins in Jasper National Park, which is to the North and shares a border with Banff National Park, and does flow to the Arctic Ocean.
This picture itself is a composite of two pictures. When I originally photographed this scene, I bracketed my exposures. I took one photograph one ƒ stop below exposure, one at proper exposure, and one photograph at one ƒ stop over exposure. I did not use the overexposed photograph. I used the sky from the underexposed photograph and used the remainder from the properly exposed photograph. Out of the camera, the photograph had a slight bluish cast, which I have tried to remove. In more technical speak, the original white balance had too much blue. The sky has been darkened, and the rest of the scene has been slightly manipulated as well, mostly contrast adjustments to bring out the detail better. Lake Louise itself has a magical color in that the fine silt from the glacier runoff produces this amazing bluish turquoise color.
In making these adjustments on the photograph, I used some of the techniques that I learned from Chromasia Photoshop Tutorials. I tremendously enjoy his photoblog and his tutorials, so I am happy to promote his site.
On a somewhat related note, I am still working my way through my Flickr challenges. I will have more to say in a few days. For now, I have restored some of my photographs on Flickr and my weblog. I still have much more work to do, however.
The above picture is hosted on Flickr. If you click on the picture, you will be taken to my Lake Louise picture on Flickr. Almost all of my Banff and Jasper National Park pictures are missing, because I have not had an opportunity to reload them yet.
In this week's Barron's magazine, Dick's Sporting Goods, Inc. (DKS) was a featured company in the column The Striking Price (subscription required).
It's possible to trade against Smith & Wesson (SWHC), Ruger (RGR) or Cabela's (CAB) by selling calls to bet their stocks won't bounce higher, or by buying puts to bet the shares will decline, but a better trade may involve Dick's Sporting Good (DKS). The broad-based retailer hasn't been associated with a spillover effect from the hunting slowdown, although its implied-volatility levels are unusually high.
The 30% difference between one-month historical and implied volatility on Dick's options indicates significant concern ahead of its Nov. 19 earnings announcement. The spread represents an extreme pricing dispersion that has happened only one other time in the past three years, and then quickly adjusted. Implied volatility, meanwhile, is also extremely high in Merrill Lynch's Retail Holdrs Trust (RTH), which many traders view as a sector proxy.
Sveinn Palsson, Credit Suisse's derivatives strategist, graciously modeled a Dick's trade for us that costs nothing to implement and has a potential 15% return in six weeks. The risk is that Dick's stock, already up 36% this year, continues to advance.
Note: I added links to the companies' websites along with links to their Yahoo stock profiles.
Although Stephen M. Sears, the author of the article, does not mention housing specifically, he does reference a consumer spending slowdown. My assumption is that most—certainly substantial portion—of the consumer spending slowdown is related to housing. Higher energy prices too might be having an effect. Housing, however, is likely the larger culprit.
According to the most recent conference call transcript (courtesy of Seeking Alpha), Dick's Sporting Goods had not been adversely affected the housing fallout.
Michael Keara - Merrill Lynch
Certainly in contrast to a lot of other names. I know you guys aim at a much different demographic and most of your core stores are located in what are probably considered not... probably not located in what are considered bad housing market. But have you seen any signs of weakness in demand, say like in Detroit area which is probably considered a tough housing market?
Edward W. Stack - Chairman and Chief Executive Officer
We really haven't. I mean no that... and we have talked about this before. We are going to travel in a narrower band in the economy as a whole.
Michael Keara - Merrill Lynch
Right.
Edward W. Stack - Chairman and Chief Executive Officer
And so these athletes... young athletes and high school athletes are... they are going to be playing baseball, they are going to be playing soccer, football, etc., and where we have been fortunate to be the destination of choice. We worked very hard at that and the housing market really has not impacted our business with these athletes.
I am curious to see if Dick's position remains the same when it announces its earning on November 19. My guess is that housing will not have played a strong role because its stores are largely outside the most affected areas. The other companies are more mature in that they cover more the U.S. than does Dick's. Thus, I am not sure that one can look at the other mentioned companies and automatically transfer the same weakness onto Dick's. That said, we are still learning true severity of the housing weakness.
With regard to the actual options strategy outlined by Sveinn Palsson, I will look to Adam Warner over at Daily Options Report for his analysis. He usually covers the Striking Price column on Mondays.
Disclosure: I am long stock in Dick's Sporting Goods.
Edmonton model Nikki G is featured in the photograph, which is hosted at Flickr. If you click on the picture of Nikki, you will be taken to where you can view a larger version and see even more pictures of her.
The new royalty structure is largely a nonevent (see New Royalty Framework document (PDF, 950kb)). I expect that most oil companies have long term oil price projections of $55 to $65 WTI, with $55 being the more likely target. Companies are conservative by nature.
At $60, the terms are very nearly back to 1% gross revenue royalty and 25% net revenue royalty. So in terms of future development, the net effect should be muted. At higher prices, new entrants are discriminated against relative to existing players.
It is only at significantly higher prices that larger provincial takes kick in.
The markets, despite all the hoopla, have largely shrugged off this event. Suncor Energy Inc. (SU) and Canadian Oil Sands Trust (COS-UN.TO) were off less than 1.5% combined—easily within daily trading noise—yesterday, the first business day after Premier Stelmach's proclamation.
Some might think that these Suncor and Canadian Oil Sands were already down in anticipation of the royalty review. Not so, this link to a Yahoo price chart shows Suncor in U.S. dollars and Exxon Mobil Corporation (XOM) in U.S. dollars. You will note that Suncor has outpaced Exxon during the last three months. It did not tank prior to or after the Panel's published report.
Without crunching the numbers, a worthwhile exercise, I think the terms that existed during the mid 1990s were possibly harsher with the higher provincial and federal taxes that were about 50% higher than today's percentages. It is only under significant and sustained high prices, say $75+, that the new regime might be more punitive. And even that might be moderated going from synthetic crude oil to bitumen royalty regime. This entire last paragraph is intuitive guesswork that should be more thoroughly investigated.
With regard to the royalty percentages exceeding 25%, I would not be surprised to see the federal government cap royalty deduction at 25% of resource income. If that happens, then there will be a slight further hit to the oil companies. I remain skeptical that the federal government will offer to pay about 20% of the oil companies' increased royalties.
Given the final outcome, I am disappointed with the Panel's work. They had the opportunity to create a meaningful and workable royalty regime. Instead, they presented a wonky royalty regime with an oil sands separation tax, which was not tax deductible and extraordinarily difficult to pass politically. That combined with a royalty rate above 25% would have been very punitive on the oil companies.
After I think more about the Premier's new framework, I will likely comment further. I might even run some numbers through my economic models and discuss the comparisons. At present, however, I think the new framework is largely a nonevent.
I also urge you to read two other weblogs that discuss the new framework: WTF Journal by Ian Langdon and Ken Chapman by, you guessed it, Ken Chapman. My view differs from those of both writers. And that is okay. Blogging should be about informing. Our differing views will allow others to see arguments from different perspectives—a good thing.
Calgary model Jennifer Nguyen is featured in the photograph, which is hosted at Flickr. If you click on the picture of Jennifer, you will be taken to where you can view a larger version and see even more pictures of her.For those interested in more discussion, particularly of a political nature, concerning the Alberta Royalty Review, I encourage you to read Ken Chapman over at his blog. I have not followed his blog closely; however, by reading several of his recent posts, I get the strong impression that he is a voracious reader with strong opinions. And, I note that he has some hecklers that participate in his comments, which is always a good thing. A few hecklers and doubters always spice up a blog.
I have largely ignored the political aspects of the Alberta Royalty Review. I have read and heard some media commentary on the Panel's work, but found the media coverage wanting. I do not think the media has a solid understanding of the issues, or how and the fiscal terms were created. Lacking a strong background, the media tends to parrot various sources.
Again, for those looking for more of a political interpretation and analysis of how the Royalty debate is progressing in Alberta, I urge to read Ken Chapman's blog.
Ian Langdon has an informative blog WTF Journal where he writes about issues facing Alberta. Naturally, many of his recent posts concern the Alberta Royalty Review. His blog is a great resource and highly recommended for finding current commentary.
