Keeping up with the latest market trends and developments is essential for investors who want to succeed in today’s rapidly changing economy. In this article, we will provide a market analysis for the day, focusing on the Cboe Volatility Index (VIX) and its relationship to equity markets. We will examine the latest VIX option volume and put/call ratios to determine market sentiment and volatility levels. Additionally, we will look at the top volume contracts and identify potential trading opportunities based on this data. By staying up-to-date on market analysis, investors can make informed decisions and stay ahead of the curve.
Market Analysis for March 23, 2023
The current debate in the financial world revolves around which version of Wall Street will manifest itself: the one that soared after the Federal Reserve increased rates and hinted at a potential pause, or the one that plummeted later that same day after discovering that a rate cut may not be in the Fed’s plans for 2023.
Thus far, it appears that today may be a more positive day for the markets.
During the overnight session, stock index futures showed signs of recovery after a tumultuous day on Wednesday that saw stocks plummet following Federal Reserve Chairman Jerome Powell’s announcement that a rate cut was unlikely this year. Additionally, Treasury Secretary Janet Yellen informed lawmakers that the government was not considering implementing “blanket” deposit insurance to stabilize US lenders, causing bank shares to take a hit.
Federal Reserve
The Federal Reserve is in a precarious position, trying to balance its commitment to fighting inflation while also being mindful of credit conditions and the stability of the banking industry. While the Fed has been raising rates to combat inflation for the past year, it appears that a change may be on the horizon. However, any shift in policy will likely be gradual, with the Fed stressing the importance of being data-driven and maintaining optionality.
The 10-year Treasury note yield fell slightly to 3.48%, while the US Dollar Index remained nearly flat at 102.24. The Cboe Volatility Index® futures eased to 21.36 after spiking above 22 the previous day. WTI Crude Oil continued to recover from its recent 15-month lows, trading at $70.56 per barrel, while Natural Gas prices were up by 1.57% to $2.205/MMBtu.
Netflix and Regeneron
Netflix (NFLX) and Regeneron (RGEN) were among today’s top gainers, with NFLX rising by $26.52 to $320.41 and RGEN climbing $53.75 to $805.06. Although there was no recent news on NFLX, the stock has gained over 9% in the past two weeks and is currently trading above the 100-day SMA. Call options on NFLX were more active than puts, with the March 24th 320.00 call having the highest volume at 20,206. RGEN’s gains were due to a phase 3 trial of Dupixent, a treatment for chronic obstructive pulmonary disease, meeting its primary and secondary endpoints. Calls and puts on RGEN were traded about equally, with the April 21st 725.00 put receiving the most attention from traders with a volume of 713.
Block and Coinbase
Block (SQ) and Coinbase Global (COIN) were among the biggest decliners of the day. SQ fell by $14.34 to $58.31 after Hindenburg Research alleged that the company had inflated user metrics for its Cash App and made it easy for bad actors to create multiple accounts for the purpose of committing identity fraud and other scams. Puts on SQ were more active than calls, with the March 24th 55.00 put seeing the most action from traders with a volume of 9,945. COIN dropped by $12.50 to $64.64 after the crypto trading platform received a warning notice from the SEC for violating investor protection laws and requiring SEC registration for its staking products. Puts on COIN were more active than calls, with the March 24th 60.00 put seeing the most action from traders with a volume of 7,961.
New 52-week highs were seen in 34 companies, including On Holding AG (ONON), Lattice Semiconductor (LSCC), Allegro Microsystems (ALGM), and TravelCenters America (TA). Meanwhile, 78 companies hit new 52-week lows, including Advance Auto Parts (AAP), Petco Health & Wellness (WOOF), Amedisys (AMED), Dominion Energy (D), and M&T Bank (MTB).
Put Activity
In notable put activity, Cinemark Holdings (CNK) saw an unusual volume of puts compared to calls (approximately 13:1). A vertical put spread was executed for the June 16th expiration, with 8,000 contracts sold at $0.42 for the 10.00 puts (open interest of 254) and 4,000 contracts bought at $1.19 for the 12.50 puts (open interest of 659). As 2x as many puts were sold as bought, the trader likely expects CNK to close above the 10.00 level at expiration or is comfortable taking a long position of 400,000 shares of the stock if it closes below that level.
Volume Signals
Option volume is significantly higher than usual on two stocks today, EPR Properties (EPR) and New Gold (NGD), indicating increased trading activity. EPR Properties, a real estate investment trust, has seen 31 times its daily average option volume, with a large portion of the activity on the June 16th 30.00 put. The volume on this contract is 13,293, much higher than its open interest of 285, which indicates a new position. A single block trade of 10,000 contracts was executed at prices ranging from $0.85 to $1.03, implying bearish sentiment as it was above the midpoint of the bid/ask spread.
On the other hand, New Gold has seen 12 times its daily average option volume, driven by activity on the January 19th 1.50 call. The volume on this contract is 10,127, compared to an open interest of 5,288, indicating a new position. A single block trade of 10,000 contracts was executed at the ask price of $0.15, implying bullish sentiment.
Volatility
The Cboe Volatility Index (VIX) has seen a drop of 1.76 to 20.50 throughout the day. This is likely due to the current mid-day rise in equity markets, with the DJI up by 377, the SPX up by 56, and the COMPX up by 237. VIX option volume has been below average today and is not listed in the “Top Volume by Underlying” list. The highest volume contract is the June 21st 60.00 call, with a volume of 30,304 and an open interest of 35,352. The volume put/call ratio is 0.51.