The two sides of the volatility sword
Even judged by the standard of a record bull market, Cboe Global Markets (CBOE) enjoyed a pretty tasty 2017. CBOE shares climbed 69% last year—ok, maybe not as much as a few white-hot tech stocks, but more than any other S&P 500 financial stock—and they did it with so little volatility the stock seemed to be on cruise control.
S&P 500 index (SPX), 1/24/18–3/5/18

Source: OptionsHouse

The stock’s biggest setback in 2017 occurred in February, when prices drifted all of 3.9% lower over the course of six days. After that, CBOE’s most significant pullback was a 2.8% slump in December.

That serene bullishness ended when, after jumping another 10% in early 2018, CBOE tumbled 29% from its January 25 record close of $137.16 to its February 9 intraday low—a move that was probably amplified by the specifics of the volatility story that was front-and-center during the correction.

You see, the Cboe is home to the Cboe Volatility Index (VIX) futures and options that were used by many volatility-shorting trading programs that imploded when the VIX spiked more than 190% in two days as stocks sold off. Fears that demand for VIX instruments would subsequently plummet led some to reassess CBOE’s attractiveness—including Goldman Sachs, which downgraded the stock from buy to neutral on February 7.1

Cboe Global Markets (CBOE), 12/29/16–3/6/18

Source: OptionsHouse

But since the February 9 low, CBOE prices have been quite resilient. Aside from the February 9 spike low, the stock has more or less traded in a range, retreating to the vicinity of the February 6 low ($108) on February 23, then turning higher to surpass the February 15 high around $117.60 yesterday, as the stock rallied around 2%.

Also, Cboe recently announced a $150 million share buyback program,2 and some analysts have pointed out the company’s upside given the likelihood (based on similar past VIX episodes) of a rebound in VIX trading volume. Wells Fargo, for example, while noting Cboe’s stock price tended to bottom five months after the start of such VIX events, upped their price target from $120 to $128.3

Regardless of the longer-term outlook, additional follow-through above recent resistance could have the potential to trigger a short-covering rally as bearish traders scramble to cut their losses.

JPMorgan Chase (JPM), 1/24/18–3/6/18

Source: OptionsHouse

Market Mover Update: After pushing to record highs on February 26-27, JPMorgan Chase (JPM) pulled back with the rest of the market last week before jumping 1.5% on Monday. But thanks to yesterday’s modest pullback, the stock is actually a bit lower than it was when “Trading the inflation card” outlined the advantages bank stocks may have in a rising interest rate environment.

Also, Networking and cloud computing firm Arista Networks (ANET), jumped nearly 4% on Monday and more than 3% on Tuesday, breaking out above a two-day consolidation/pullback and closing almost all the down gap described in “Cloud computing at a discount.”


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1 Goldman downgrades Cboe after the 'unwind' of wacky volatility products. 2/7/18.

2 Cboe Global (CBOE) Authorizes Share Buyback Plan Worth $150M. 2/28/18.

3 Barron’s. When VIX Aftershocks End, So Will Cboe Global’s Pain. 3/5/18.