Options & Futures Intelligence Report Webinar Notes

A daily Options & Futures Intelligence Report provides investors and traders with information that reflects the market’s expectations of future price movements. This exclusive IB report includes seven volatility tables that provide essential information for participants in the options market. The tables and the accompanying options market commentary are updated hourly between noon and the close.

The data used for the daily commentary is available to TWS users in the Market Scanners feature, and includes statistics for the top issues:

The percent trading day’s 30-day Implied Volatility is divided by the prior trading day’s 30-day Implied Volatility to determine the change in volatility for the day and the top 20 gainers and losers are posted. Gainers are those symbols which the options markets believe will have the greatest up or down price movement in the future as compared to the past, and losers are those symbols which the options markets believe had a large up and down price movement and will stabilize in the future. Implied volatility, closing price, and change in price from the prior day are also displayed.

The 30-day Implied Volatility is divided by the 30-day historical volatility. This ratio highlights those symbols in which the market prediction of future volatility is much different from the volatility in the market over the last 30 days. The formula for historical volatility as defined by Garman-Klass. The top twenty symbols with the highest ratios as well as the top twenty symbols with the lowest ratios are displayed.

Implied volatility, historical volatility, closing price, and change in price from the prior day are also displayed.

Implied volatility is the options market's prediction of how volatile a given underlying will be in the future. Implied volatility is calculated by inputting all known information into an options pricing model (i.e. option price, interest rates, dividends, strike price, and expiry date) and backing out the implied volatility.

Twenty symbols with the highest implied volatilities are ranked in descending order and displayed on an annualized basis. Implied volatility is calculated using a 100-step binary tree for American style options, and a Black-Scholes model for European style options. Interest rates are calculated using the settlement prices from the day’s Eurodollar futures contracts, and dividends are based on historical payouts.

The IB 30-day volatility (V30) is the at market volatility estimated for a maturity thirty calendar days forward of the current trading day. It is based on option prices from two consecutive expiration months. The first expiration month is that which has at least eight calendar days to run. The implied volatility is estimated for the eight options on the four closest to market strikes in each expiry. The implied volatilities are fit to a parabola as a function of the strike price for each expiry. The at-the-market implied volatility for an expiry is then taken to be the value of the fit parabola at the expected future price for the expiry. A linear interpolation (or extrapolation, as required) of the 30-day variance based on the squares of the at market volatilities is performed. V30 is then the square root of the estimated variance. If there is no first expiration month with less than sixty calendar days to run we do not calculate a V30. Closing price, and change in price from the prior day are also displayed.

Options volumes for the day are displayed for the top twenty symbols with the highest volumes.

The trading day’s options volumes are divided by the previous ten trading day’s options volumes average and the top twenty gainers are posted by symbol.

Closing price, and change in price from the prior day are also displayed.

Put option volumes are divided by call option volumes for the trading day, and the symbols for the twenty highest ratios are displayed. For the put/call ratio, the HIGHER the value, the more negative the sentiment since it would indicate more puts traded than calls. A ratio of less than one indicates more call volume than put volume.

Call option volumes are divided by put option volumes for the trading day, and the symbols for the twenty highest ratios are displayed. For the call/put ratio, the HIGHER the value, the more positive the sentiment since it would indicate fewer puts trading than calls. A ratio of less than one indicates more put volume than call volume.

Closing price, and change in price from the prior day are also displayed.

Put option open interest is divided by call option open interest, and displayed for the top twenty symbols with the highest ratios. This ratio may indicate negative sentiment in the options market.

Call option open interest is divided by put option open interest, and are displayed for the top twenty symbols with the highest ratios. This ratio may indicate positive sentiment in the options market.

Open Interest ratios reflect a longer time period than Put/Call and Call/Put daily volume ratios and therefore tend to be less volatile.

Closing price, and change in price from the prior day are also displayed.

An Exchange for Physical (EFP) allows the swap of a long or short stock position for a Single Stock Future (SSF). SSFs have an interest rate built into their price that is determined competitively by numerous market participants. Like Repos and Reverse Repos in the debt markets, EFPs provide a cheap and efficient financing vehicle. The EFP transaction is one where you sell the stock and buy it back for future delivery by buying the SSF future, or you buy the stock and sell the SSF.

There are several reasons to use this type of transaction:

• If you carry a long stock position on margin, the EFP gives you the opportunity to reduce your financing cost because you will likely be able to sell the stock and buy the forward at a premium that is lower than your margin rate.
• If you are short the stock, you receive interest on the credit balance generated by your short sale, but this interest is less than the premium you would receive by selling the SSF and buying back the short stock.
• If you have excess cash in your account and would like to earn a higher return, you could buy stock and sell it forward at a premium higher than the interest your cash generates.

The tables above highlight the highest (investment opportunity) and lowest (borrowing opportunity) synthetic EFP rates available in the market. These synthetic rates are computed by taking the price differential between the SSF and the underlying stock, netting dividends, to calculate an annualized synthetic implied interest rate over the period of the SSF. All SSFs are settled through the Options Clearing Corporation, an AAA rated entity, making any interest earned through implied interest safer than with many other interest earning alternatives.

The fair value of an index futures contract is computed by combining all the underlying values, adding an interest cost of carry for the duration of the futures contract, and subtracting any dividends that are paid during the duration of the futures contract. The table above compares near futures contracts with the fair value of the underlying representing a contract. When a futures price is greater than the fair value, there is a premium, indicating that the market believes there is a potential for increase in the underlying price or a decrease in the futures price. When a futures price is less than the fair value, there is a discount indicating the market believes there is a potential for a decrease in the underlying price or an increase in the futures price.

The data used for the daily commentary is available to TWS users in the Market Scanners feature, and includes statistics for the top issues regarding: implied volatility, volatility gainers, options volumes, options volume gainers, implied/historical volatilities, put/call ratios, and call/put ratios. Data is updated every 60 seconds.

There are 13 scans that will display option volatility rankings. Hot by Option Volume, rankings of highest/lowest volatility gainers and losers, etc.

• Click on the Market Scanner toolbar icon to open a blank scanner window
• Set Instrument to Stocks
• Select filtering criteria*
• Click the Parameter to select from a list of the Volatility Scanners available
• Click Query to return the top 50 contracts that meet your search criteria.
  
  * Filters Used for the Options Intelligence Report Tables screen out:
  
• Underlying stocks that trade for less than $5
• Options which had less than 1000 contracts trade (for underlying)
• Underlying stocks that trade less than one million shares in the session
• Companies that have less than $1 billion in capital
  

• Right click functions allow access to
  • Contract Info, Details to easily identify unfamiliar symbols
  • Tools such as OptionTrader and SpreadTrader
  • Analysis features such as Real-time Charts and Company Profiles
• Data updates every 60 seconds, use the Time in Scan column to identify newer entries as the data refreshes.
• Open multiple scanner windows by simply selecting the Market Scanner icon and identifying criteria to display.
• If the Query Button is not grayed out, you have set new scanner criteria and must click Query to refresh the scanner with the specified parameters.
• Change column can be viewed as an absolute value or a relative percentage. Click on column header to toggle between absolute or percentage change since previous close.
• You cannot modify Page settings for Market Scanners or add underlying instruments to a Market Scanner page.
• Drag & drop columns to rearrange.

• At the Money volatility estimated for a maturity 30 calendar days forward of current trading day.
• Black Scholes is used for European style options, Binomial (100 step) used for American style options.
• Interest rates calculated from the implied yield of the Eurodollar settlement prices.
• Dividends are based on historical payout patterns.
• Based on option prices from two consecutive expiration months.
• First expiration month must have at least 8 calendar days to expiration to be included.
• 4 strikes closest to the underlying price are used in each month – both calls and puts.
  

Options involve risk and are not suitable for all investors. For more information, read the “Characteristics and Risks of Standardized Options” before investing in options. For a copy call 203 618-5800 or click here.

Interactive Brokers LLC is a member of NYSE, NASD, SIPC

Security futures trading involves the risk of loss, including the possibility of loss greater than your initial investment. Security futures may not be suitable for all investors. Consult your broker or financial advisor before trading. All investors will be required to review risk disclosure materials and meet suitability requirements established by their brokers. You should carefully review all disclosure statements and ensure you understand the risks of trading security futures.