OptionMetrics Blog

October 28, 2020

Is Exxon Stock in for a Dividend Cut? What Options Data Is Suggesting

By Abhinav Gupta

Exxon Mobil Corp (NYSE:XOM) is set to declare its quarterly dividend on October 29, and while historically Exxon has been top-tier dividend paying stock, there is growing speculation the Texas-based giant will cut its current 87 cent quarterly dividend. The graph below represents the cumulative returns of various sector ETFs and XOM in 2020, and it shows that while sectors such as tech (XLK), financials (XLF), and healthcare (XLV) have rebounded during the pandemic, energy (XLE) and XOM continue to struggle.   More»

October 23, 2020

Election Volatility: Insights Across Markets

By Garrett DeSimone, PhD

The volatility complex has clearly priced the 2020 Presidential Election as a major risk event. Speculation on contested elections, a blue senate flip, and another stimulus agreement have made hedging November volatility a pricey endeavor. This is captured by the backwardation of the VIX curve between the November and December contracts. This abnormal shape of the VIX term structure indicates that there is a larger premium for insuring against short-term variance relative to longer term variance.   More»

August 24, 2020

The Put/Call Demand Ratio: Surpassing P/C Volume

By Garrett DeSimone, PhD

With the rapid growth of the options market, the Simple Put/Call Ratio has become a staple technical indicator. Simply dividing total put volume by total call volume allegedly provides miraculous insights into investor sentiment, or so it goes. But, the problem with the Simple P/C Ratio’s validity is it tells us absolutely nothing about trade direction. Bearish buy and bullish sell orders in puts are lumped into simple volume, making it ambiguously useless.   More»

July 8, 2020

Wells Fargo: Sizing Up the Implied Dividend Cut

By Garrett DeSimone, PhD and Abhinav Gupta

On June 25th, the Federal Reserve released results of its 2020 stress test for banks. New guidelines were published forcing banks to halt buybacks and reduce dividend payouts. As a result, Wells Fargo (WFC) will have to cut its dividend, but by precisely how much? The bank will give its answer on July 14, along with company earnings on July 14. Sell-side analysts have come forth with their forecasts regarding the reduction.   More»

June 9, 2020

Extraordinary Times for the Variance Risk Premium

By Garrett DeSimone, PhD

The S&P 500 has clawed back nearly all its losses since hitting its COVID-19 induced low late March. This remarkable rally of over 40% is historical considering it also ranks as one of the best 50-day runs of all time. It is also extraordinary from a volatility perspective, and what we know about risk premiums. The volatility risk premium is compensation investors receive for providing “insurance” against changes in market volatility.   More»

May 4, 2020

Tail Risk in the Energy Sector

By Garrett DeSimone, PhD

The energy sector has been hammered in the combined wake of OPEC’s failed output deal and plummeting demand for oil as a result of Covid-19. Oil futures have gone negative, to establish a whacky super contango precedent. This crash in prices is a death blow for highly leveraged oil companies. The bankruptcy dominoes have already begun to fall, with Whiting Petroleum and Diamond Offshore earlier this month. A common fundamental approach to determining long term viability in this environment is breaking down accounting metrics, such as Debt-to-Equity or EBIT/Net Interest.   More»

April 22, 2020

Gamma Traps and Dealer Imbalances

By Garrett DeSimone, PhD

The market has seen some wild moves over the last month, which has drawn parallels only to the price action at the onset of the Great Depression. Several pundits are willing to blithely attribute this environment to some form of derivatives dealer behavior with minimal economic intuition. The goal of this introductory post is to enlighten readers on some derivatives mechanics at play here using some (light) quant intuition.   More»