October - Bourse de Montréal

INVESTORS’ OPTIONS TRADING LETTER
Market Review
OCTOBER 2015
Options Trading Volume by Sector
2% Utilities
Ô Canada!
Earlier this quarter, falling oil prices, a stronger US dollar and divergent
monetary policies, remains great uncertainties on energy-dependent
Canadian economy.
While US economy is strengthening, sustained by a booming private
sector, Canadian investors’ portfolio has seen much turmoil.
What to expect for Canada? A period of higher volatility!
2% Consumer Staples
0% Health Care
2% Information Technology
2% Telecommunication Services
5% Consumer Discretionary
33% Energy
5% Industrials
Emerging Markets
Currency devaluation and economic slowdown in emerging markets may
support USD potential to appreciate further.
In the meantime, elsewhere in the world, the benefits of European and
Japan Central Bank Quantitative Easing (QE) programs are now showing
effects.
US strong labor market and substantial increase in investment spending,
are stimulating US domestic demand and improving economic activities
overall.
23% Financials
26% Materials
Will Fed decide to raise interest rate before the end of the year? We’ll see!
In Canada, good producing industries are experiencing a solid rebound.
Equity P/C Ratio:
NEUTRAL
BEARISH
Source: OIC
BULLISH
4,000,000
3,000,000
3,000,000
2,000,000
2,000,000
1,000,000
1,000,000
0
TOTAL MONTHLY VOLUME
Sept. 15
Aug. 15
0
July 15
Other market technicians find the put-call ratio to be a good
contrary indicator. This means that when the ratio is high, market
bottom is near and when the ratio is low, a market top is imminent.
Traders and investors generally buy more calls than puts where
stock options are concerned. Therefore, the equity put-call ratio is
a number far less than 1.00. If call buying is heavy, the equity putcall ratio may dip into the .30 range on a daily basis. Here are some
numbers that you can use for illustrative purposes of the contrarian
view:
4,000,000
June 15
Some market technicians suspect that a high volume of puts
relative to calls indicates investors are bearish, whereas a high ratio
of calls to puts shows bullishness.
5,000,000
May 15
The put-call ratio is the number of puts traded divided by the
number of calls traded. It can be calculated for stock options, index
options or futures options on a daily, weekly, or annual basis.
5,000,000
Apr. 15
Did you know that ... ?
Total Monthly Volume and Open Interest
Mar. 15
Options strategies are great ways to take advantage of this market
conditions.
Feb. 15
So what to expect for Canada? A period of higher volatility!
Equity and ETF Options
Jan. 15
On another note, [Thomson Reuters says TSX60 Financial sector is
expected to report a quarterly gain of 12%] indeed, Canadian big banks
should benefit from strong US exposure.
OPEN INTEREST
How to… enhance yield from a volatile market?
Top 10 Most Active Option Classes (Sept. 2015)
Bear Call Spread (credit call spread)
Looking for a decline in the underlying stock’s price during the life of
the options. As with any limited-time strategy, the investor’s long-term
forecast for the underlying stock isn’t as important, but this is probably
not a suitable choice for those who have a bearish outlook past the
immediate future. It would take an accurately timed forecast to pinpoint
the turning point where a coming short-term rally would turn into a
bearish long term.
A bear call spread is a limited-risk, limited-reward strategy, consisting
of one short call option and one long call option. This strategy generally
profits if the stock price holds steady or declines. The strike price of the
short call is below the strike of the long call, which means this strategy
will always generate a net credit at the outset.
The most it can generate is the net premium received at the outset. If the
forecast is wrong and the stock rallies instead, the losses grow only until
the long call caps the amount.
The chance to earn income with limited risk, and/or profit from a decline
in the underlying stock’s price.
Bull Put Spread (credit put spread)
Looking for a rise in the underlying stock’s price during the options’
term.
While the longer-term outlook is secondary, there is an argument for
considering another alternative if the investor is bullish on the stock’s
future. It would take careful pinpointing to forecast when an expected
decline would end and the eventual rally would start.
A bull put spread is a limited-risk, limited-reward strategy, consisting of
a short put option and a long put option with a lower strike. This spread
generally profits if the stock price holds steady or rises.
NAME
SYMBOL
1
iShares S&P/TSX 60 Index Fund
XIU
XEG
RY
SU
COS
TD
FM
BNS
CNQ
MFC
2
iShares S&P/TSX Capped Energy Index Fund
3
Royal Bank of Canada
4
Suncor Energy Inc.
5
Canadian Oil Sands Trust
6
Toronto-Dominion Bank (The)
7
First Quantum Minerals
8
Bank of Nova Scotia (The)
9
Canadian Natural Resources Limited
10
Manulife Financial Corporation
486 788
42 264
54 937
49 519
20 800
40 235
160 673
37 709
35 340
23 483
Announcements
NAME
SYMBOL
ANNOUNCEMENTS
Empire Company Limited
EMP.A
» Stock Split
Catamaran Corporation
CCT1
» Accelerated Expiry Initial Use
Talisman Energy Inc.
TLM1
» Accelerated Expiry Initial Use
News Equity Options Classes
NAME
SYMBOL
Canam Group Inc.
CAM
GS
UNS
GluskiSheff + Associates Inc.
Uni-Select Inc.
Investors initiate this spread either as a way to earn income with limited
risk, or to profit from a rise in the underlying stock’s price, or both.
For more information on these strategies, click here.
MONTHLY
VOLUME
Blog Posts
TITLE
AUTHOR
» Creating Income from Franco-Nevada
Patrick Ceresna
» Is Air Canada Stock About to Take Flight
Jason Ayres
» Have We Seen the Market Bottom?
Patrick Ceresna
» Seeking Income
Richard Croft
Weekly Option Volume (Jan.1 – Oct. 3, 2015)
Options Trading Volume by Sector (Q3, 2015)
YRI
Health Care
MFC
CVE
Information Technology
CNQ
NA
CNR
Utilities
SLW
BTE
Consumer Staples
TCK.B
BCE
POT
Telecommunication Services
COS
DGC
Consumer Discretionary
BB
CM
CPG
Industrials
BNS
XIU
BMO
Financials
ABX
ECA
Materials
G
SU
TD
Energy
RY
10,000
0
20,000
30,000
40,000
50,000
0
500,000
1,000,000
SEPT. 2015
1,500,000
2,000,000
Q3 2015
Useful Links
GUIDES
MX INDICES
OTHERS
» Equity derivatives
»M
X Covered Straddle Writers’
Index (MPCX)
» Put/Call Ratios
» Index derivatives
» Currency derivatives
» Equity options tax regime
» S&P/TSX 60 VIX Index (VIXC)
»M
X Covered Call
Writers’ Index (MCWX)
» Options List
Trading Tools
m-x.tv
OptionMatters.ca
m-x.ca/twitter
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m-x.ca/linkedin
m-x.ca/rss
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