VIX and More

Over the years it has not been difficult to find charts in which Apple (AAPL) and Yahoo! (YHOO) have been moving in opposite directions. In fact, just make a chart of any random time frame and it’s a good bet that AAPL will be rising and YHOO will be falling.

For the last three months, however, that relationship has been reversed and it has been YHOO stock that has been on the rise, while AAPL’s fortunes have been on the wane, as the chart below reflects.

[source(s): StockCharts.com]

Part of the resurgence in YHOO is no doubt due to Marissa Mayer, the new CEO, who has already begun to put her stamp on the company and has given analysts and customers something to talk about. In fact, I searched the blog and it turns out that the company has not warranted a reference here since 2008, seemingly ready to go the way of AltaVista.

Pairs trades in the technology sector can be a rocky ride, but for those who are willing to be long YHOO and short AAPL, the potential for a big winner continues through today’s trading.

Related posts:

• A Brief History of Apple Earnings, in Pictures
• The Case for Selling Apple Puts
• Apple Products vs. Platform
• Looks Like Apple VIX (VXAPL) Futures Are Coming Soon
• Pairs Trading with ROB
• The VIX-VXX Minotaur Trade

Disclosure(s): long YHOO and short AAPL at time of writing

For the second week in a row, investors cited the U.S. fiscal cliff as the top risk to the stock market, followed closely by fears about the European sovereign debt crisis. Concerns about weak earnings, a distant third last week, gained significant ground as Apple (AAPL) and others continued to report disappointing earnings and revenues while guiding future expectations lower.

As was the case last week, geography appears to have a significant influence on results, with a clear Americentric bias coming from U.S.-based respondents. In the U.S., for instance, concerns about the fiscal cliff outpolled the European sovereign debt crisis by 9.5%, but outside of the U.S. the European sovereign debt crisis topped concerns about the fiscal cliff by 8.2%. Similarly, 15.2% of U.S. respondents cited U.S. election uncertainty as the biggest risk to stocks while just 5.5% of non-U.S. respondents judged U.S. elections to be the top risk factor.

This week I added inflation and deflation to the list of pre-populated answers. Both responses fell far down the list of concerns, but almost twice as many respondents expressed concern about inflation relative to deflation.  While the graphic below shows the week-to-week changes in the top four issues driving stock market fears, it will probably be several more weeks before this graphic offers meaningful insights.

Once again, there were quite a few write-in votes, but there was no discernible theme among write-in responses.

With U.S. stock markets closed today due to hurricane Sandy, the VIX currently stands at 17.81, some 7.2% higher than it was a week ago when I published the results of the inaugural VIX and More Fear Poll.

Related posts:

• U.S. Fiscal Cliff Concerns Top Results in Inaugural VIX and More Fear Poll
• Expectations, Surprises and Fear in 2011
• A Conceptual Framework for Volatility Events
• Forces Acting on the VIX
• Fukushima Daiichi and ‘Event Theta’
• Thinking About Volatility (First in a Series)
• How to Trade Options Around Volatile Events (Barron’s)
• Be Greedy While Others Are Fearful (Barron’s)

Disclosure(s): long VIX and short AAPL at time of writing

You really need a scorecard to keep up with the new product launches at the CBOE. Today was potentially a big one, with the launch of futures on the Nasdaq-100 Volatility Index, which most of us simply refer to as VXN or Vixen.

As the table below shows, the VIX continues to account for approximately 99% of the volatility index futures at the CBOE Futures Exchange (CFE). Today VXN futures (VN) traded 20 contracts on its opening day. While futures in the CBOE Emerging Markets ETF Volatility Index (VXEEM) are currently positioned at the #2 product at the CFE, VXN futures certainly have a lot of potential, with the likes of Apple (AAPL), Facebook (FB) and Google (GOOG) and other technology high fliers folded into this security.

On a related note, for anyone who may be interested, I authored the feature article, The Expanding Volatility Megaplex, in the current edition of Expiring Monthly. This article chronicles the history of volatility indices and looks at how the CBOE has recently begun to aggressively expand the scope of volatility indices and turn these into product platforms for futures, options and exchanged-traded products.

Related posts:

• Looks Like Apple VIX (VXAPL) Futures Are Coming Soon
• CBOE to Publish VIX-Style Indices for Individual Stocks
• The Case for Selling Apple Puts
• CBOE to Launch Futures on Emerging Markets Volatility (VXEEM)
• CBOE Adds Options to Emerging Markets Volatility Index (VXEEM)
• The Evolution of the Volatility Index Family Tree

[source(s): CBOE Futures Exchange]

Disclosure(s): The CBOE is an advertiser on VIX and More

In case anyone missed it, I wanted to highlight a report yesterday from Reuters which quoted  Edward Tilly, President of CBOE Holdings, as saying that not only is the VIX product line ripe for expansion, but:

“We have benchmarks on a number of other products. I would point out one that is a favorite of mine that I wouldn't be surprised if I saw us launch in the near future - futures on Apple VIX.”

The Apple VIX (VXAPL) was launched in January 2011 along with similar single stock volatility indices for the following:

• Amazon (AMZN): volatility ticker: VXAZN
• Google (GOOG): volatility ticker: VXGOG
• Goldman Sachs (GS): volatility ticker: VXGS
• IBM (IBM): volatility ticker: VXIBM

A successful launch of futures on VXAPL might open the door for futures on one or more of the other single stock volatility indices above.

The chart below, courtesy of Livevol (StockCharts.com, you really should have VXAPL in your database) shows that VXAPL has tended to remain in the mid-30s, but has ranged between the high teens to the high 50s in the first 17 months of its life.

Recall that the CBOE Futures Exchange (CFE) launched futures on the emerging markets volatility index (VXEEM) in December 2011 and followed up by launching options on VXEEM at the end of January. The CFE also launched futures based on VXEWZ (CBOE Brazil ETF Volatility Index, which is based on EWZ) on February 21 and added options to VXEWZ on March 6.

If you enjoy trading volatility products, it looks like we may be entering the golden era of shrink-wrapped volatility indices, which can serve as a product platform for futures, options and even exchange-traded products. If you think VIX-based ETPs are fun, just wait until a VXAPL-based ETP is rolled out. Of course, if there is not enough demand for the futures and options, some of these ETPs may never see the light of day, so early adopters, don’t shy about hitting some of those bids.

Finally, on a somewhat tangential note, I think I received more emails on The Case for Selling Apple Puts than on any other post in the history of VIX and More. To all those who wrote, including those who elected to sell Apple (AAPL) puts, the current environment may be suitable for a revisiting this trading strategy.

Related posts:

• CBOE to Publish VIX-Style Indices for Individual Stocks
• The Case for Selling Apple Puts
• A Brief History of Apple Earnings, in Pictures
• Apple Products vs. Platform
• Using the iPad for Trading
• CBOE to Launch Futures on Emerging Markets Volatility (VXEEM)
• CBOE Adds Options to Emerging Markets Volatility Index (VXEEM)
• The Evolution of the Volatility Index Family Tree

[source(s): LivevolPro.com]

Disclosure(s): long AAPL at time of writing; Livevol and the CBOE are advertisers on VIX and More

If a picture is worth a thousand words, then perhaps I can save quite a few keystrokes and maybe even a few tweets with the compendium below.

This is a visual post, so I will keep my comments brief, except to note that the graphics below originate from LivevolPro.com and provide a graphical history of Apple (AAPL) earnings from July 2010 to the present.

Each column represents one earnings reporting cycle and includes three charts and four earnings periods:

1. Top candlestick chart shows eleven days of AAPL stock prices, with five days before and after the earnings report
2. Middle chart shows the prices of straddles in the front month and second month for AAPL options (useful for determining the degree to which investors under or overestimated the post-earnings price move)
3. Bottom chart shows 30-day implied volatility derived from the front month and second month AAPL options (similar to what is now available from VXAPL)

Remember that you don’t have to have an option about Apple’s earnings report, but since everyone else does and the markets have one priced in, it may be helpful to put the current situation into historical context.

Related posts:

• The Case for Selling Apple Puts
• Apple Products vs. Platform
• Using the iPad for Trading
• CBOE to Publish VIX-Style Indices for Individual Stocks

[source(s): LivevolPro.com]

Disclosure(s): Livevol is an advertiser on VIX and More

Lately it seems as if everyone with a keyboard is aflutter about the two weeks of selling in Apple (AAPL). I was about to label this a correction, but really, which is more correct: AAPL at 644 or AAPL at 582? How about the Topeka Capital Markets analyst that put a 1001 price target on the stock?

With earnings due out on Tuesday, there are rumors circulating about possible revenue beats and misses, what may emerge from the product pipeline when, etc.

There are a lot of investors out there that would like to own AAPL or add to an existing position. Many of those see the stock as an excellent value at 582, but are worried about the possibility of a negative earnings surprise, so they are not sure what to do.

Yesterday I tweeted the following trade idea:

“Simple idea: pick a price at which you would like to own $AAPL and sell the puts”

“$AAPL May 520 puts at 7.25. Think of it as being paid 7.25 to see if you can get the stock at a $70 discount”

One of the reasons I love options is that they allow for so much trading flexibility. Jared Woodard of Condor Options likes to say that options allow for a more nuanced language with which to express an idea about the markets. Rather than having the debate be about whether AAPL is a buy at 582, a better question might be, “What sort of ‘stink bid’ do I think might reasonably get filled in AAPL and how much can I get paid for making that bid?”

Looking at the AAPL options graphic below, the May 550 puts (right column) are currently available for 15.10, so if the short put expires in the money, the net cost for these shares will be 535. The May 520 puts referenced yesterday are still available for 7.25, which translates into a cost basis of about 513. It is even possible to sell the May 500 puts for about 4.30, which would mean a cost basis of about 496.

So if you really want to own AAPL and don’t want all of the risk associated with next week’s earnings announcement, consider selling some out-of-the-money puts. You can collect some premium for those puts and if that worst case scenario comes true, you can also lock in the stock at a nice discount to today’s price.

Finally, for those who may be interested in following me on Twitter, you can find @VIXandMore at Twitter.com/VIXandMore

Related posts:

• Can Selling Options Make You a Better Trader?
• Apple Products vs. Platform
• Using the iPad for Trading
• CBOE to Publish VIX-Style Indices for Individual Stocks
• VIX and More and the 2012 Bespoke Roundtable
• On Twitter
• Milestones Past, Present and Future

[source(s): LivevolPro.com]

Disclosure(s): Livevol is an advertiser on VIX and More

I was delighted to be invited back for the third year in a row to share my thoughts about 2011 and 2012 as a part of Bespoke Investment Group’s third annual Roundtable.

As someone who trades options, just predicting what one stock or index will do over the course of a four-week expiration cycle can be a humbling experience. Since I rarely focus the bulk of my thinking more than two or three expiration cycles into the future, I always embrace the process of what I have come to think of as Bespoke’s comprehensive 37 question “take-home final.” Of course you don’t have to have an opinion about every issue out there to be a successful investor, but being informed about as many issues as possible makes you better prepared when the next surprise hits. As I noted in The Education of a Trader, anyone who has ever uttered, “Do we have to know this for the test?” is not cut out for trading, as every day in the financial markets is an open book pop quiz.

When it comes to formulating answers to these 37 questions, I tried to balance what I think are the most likely scenarios with more provocative comments about some low probability scenarios that I believe that a higher likelihood of coming to fruition than the rest of the crowd. The result is typically a patchwork of the unexciting and the outrageous. In 2012 it looks like I am leaning more toward the unexciting end of the scale, which is not difficult to do in a year in which the Mayan calendar may be predicting the end of the world, while many pundits are calling for at a minimum the end of the euro zone as we know it. That being said, I do think I have some provocative things to say about a wide range of issues, from Apple (AAPL) vs. Google (GOOG) to social networking and beyond.

The full set of my comments for 2012 is here.

For those who are curious how my crystal ball has fared in years past, my archived predictions for 2010 are here. If I can locate a link to my (decidedly less impressive) 2011 predictions, I will post that here as well.

I also recommend reading through some of the comments from the other participants in the 2012 Bespoke Roundtable. A splash page for the full set of predictions is here.

Related posts:

• VIX and More and the 2011 Bespoke Roundtable
• VIX and More and the 2010 Bespoke Roundtable
• The Year in VIX and Volatility (2011)
• Expectations, Surprises and Fear in 2011
• The Education of a Trader
• Comfort Zones, Focus and Thinking Like a Biotech Firm
• Trader Development Stage Model – Version 2.0
• The Art of Being Wrong
  
  

Disclosure(s): none

Apple (AAPL) is an unusual stock for several reasons, not the least of which is the strong retail demand for the stock and a large contingent of customer-zealots who regularly worship at the altar of Steve Jobs.

Throw together the factors mentioned above, Apple’s history of important product announcements at major events and the return of Jobs and his unique talent for unveiling new cutting edge products and you get an interesting confluence of events – and expectations – at Monday’s Apple Worldwide Developers Conference.

These conferences are always abuzz with rumors and speculation about the next big thing that Apple is going to announce which will once again change the technology landscape. When is the next iPad coming? What new features will it include? When will the iPhone 5 be out? What will the next iOS and Mac OS operating systems do? What will be the implications for the devices they run? What is the iCloud and what does it mean?

In the end, those hoping for groundbreaking new products were disappointed. The iPad, iPhone, iPod, MacBook, iMac, Mac Pro, AppleTV, etc. were not on stage. Instead, the hardware devotees had to settle for innovations which were confined to operating systems enhancements and the iCloud – stuff you can’t wait in line for at an Apple store, take home and dazzle your friends and family with.

The irony is that the obsession with hardware misses the big point. New products are critical to Apple’s business, but at best it gets them a first mover advantage that is not guaranteed to endure. The truth is that from a strategic perspective the iCloud is much more important to Apple’s future than any new product, because the iCloud is a platform play that enhances the value of the full range of Apple products and services, including future products and services.

Let me illustrate this with a personal example. I have about a quarter of a century of PC-based computer experience. I probably owned two dozen laptops before I bought my first Apple product, an iPhone. When the iPad 2 came out, however, it was easy for me to expand my stable of Apple products. Now that I am habituated to iTunes and the App Store, it is easier for me to contemplate something like the MacBook. With all of these devices seamlessly sharing data in the background on the iCloud, the data argument for expanding my suite of Apple products becomes that much more compelling. It is a similar story for my wife, who only recently began playing with her first Apple product, the iPad. She has been so completely won over that an iPod will soon follow and then I’m betting an iPhone will be too difficult to ignore. By the time she gets around to replacing her laptop, I’m fairly sure the MacBook Air will win her over – even if she doesn’t even know what it is right now.

I suspect that something similar is in the process of happening across the globe. Many of us who have spent the majority of our careers in a PC-centric corporate environment have often found Apple products to be too much of a compatibility issue to be worth the trouble. They have been relegated to toy status rather than serving as our our central computing devices. The iCloud gives Apple a chance to convert those PC cling-ons not only to exciting Apple products and services, but to a iCloud data world that could be a platform revolution. Device-independent data sharing is just around the corner and Microsoft (MSFT), Google (GOOG) and their ilk better have a strong alternative – and soon.

As for AAPL stock, it is down about 3% since Steve Jobs took the stage on Monday. Savvy investors should be thinking more about Brian Arthur’s Increasing Returns and the New World of Business and less about the timing of new product announcements.

Unless FedEx (FDX) and Apple (AAPL) have their facts wrong, today the iPad 2 will arrive at my door step.

Since I passed on the iPad 1, this will be my first chance to play with something that I have no idea what I will ultimately end up interacting with. This could turn out to be new computer in a different form factor a toy or anything in between.

While I will try to integrate the iPad into my trading, I am not sure how this is going to happen either. I am not a big fan of using my iPhone for trading unless my environment does not allow any alternatives. As for the iPad, I can imagine it as a complement to my main trading setup, an excellent portable alternative to the iPhone and perhaps filling a bunch of other roles that I am not able to anticipate.

I would love hearing from other traders about how they use the iPad in their trading, whether it means news, charts, quotes, trade execution or whatever. If I get enough responses of note – either here or on Twitter (http://www.twitter.com/VIXandMore) – I will summarize the information in a future post and add in my own experiences as well.

Related posts:

• VIX and More and the 2011 Bespoke Roundtable

The volatility space continues to expand in the direction of the atomic level, with today’s announcement by the Chicago Board Options Exchange (CBOE) that it will begin disseminating implied volatility data utilizing the VIX calculation methodology for five stocks as of Friday, January 7^th.

The five stocks are:

• Amazon (AMZN): volatility ticker: VXAZN
• Apple (AAPL): volatility ticker: VXAPL
• Google (GOOG): volatility ticker: VXGOG
• Goldman Sachs (GS): volatility ticker: VXGS
• IBM (IBM): volatility ticker: VXIBM

• It will be interesting to see how much divergence there will be between the CBOE NASDAQ 100 Volatility Index (VXN) and the volatility indices for some of the key components of the NASDAQ-100 index, notably Apple, Google and Amazon
• A Goldman Sachs volatility index will be particularly useful in terms of financial crisis
• IBM is an interesting choice for a fifth wheel here, as IBM does not have the same bellwether status that it once did
• Finally, first with weekly options and now with volatility indices for individual stocks, the CBOE has managed to shorten the scope of volatility analysis both at the issue level and in terms of the time frame. I’m calling this the march toward atomic volatility.

• The Evolution of the Volatility Index Family Tree
• Weekly Options Gain Momentum
• CME to Use VIX Methodology for New Crude Oil, Corn, Soybean and Gold Volatility Indices

For the second year in a row, I have elected to stick my neck out and make my best guess at what the investment world will look like in the coming year in conjunction with the Bespoke Investment Group’s second annual roundtable.

As someone who has a tendency to focus almost all of my predictive powers on the next two options expiration cycles, I find that forcing myself to think in terms of a one year time horizon is a daunting task. Still, just going through the process and committing some ideas to paper makes this exercise worthwhile and fun.

Frankly, I was surprised by how accurate many of my predictions from last year turned out to be and for better or (more likely) for worse, this has emboldened me to be even more provocative and more specific this year, including some outrageous comments about AAPL.

More to the main theme of this blog, I think readers may find the following predictions for 2011 to be of interest:

“2011 will mark the rise of volatility as an asset class.  Part of the reason for this rise will be the runaway success of VIX-based ETNs and ETFs, notably the recently launched XIV, which will prove that volatility vehicles can be good buy-and-hold investments.  XVIX will also prove to be a popular and successful buy-and-hold ETN and once liquidity improves, TVIX will hit a tipping point and become the darling of day traders.”

• VIX and More and the 2010 Bespoke Roundtable

This week the allied forces of the SEC and CFTC released their joint report on the ‘flash crash’ with the title of Findings Regarding the Market Events of May 6, 2010.

While many were underwhelmed by the report, it provides traders with a sense of some of what happened during a day in which the Dow Jones Industrial Average fluctuated some 1138 points.

The chart of the week below shows what happened to IWM, the highly liquid ETF for the Russell 2000 index. IWM trades more than 60 million shares per day and is regularly one of the most active issues traded. Up until 2:43 p.m. ET, IWM was acting normally. Then as the price (dashed line, right scale) began to accelerate downward, liquidity (green and blue bands, left scale) suddenly began to dry up. By 2:46 p.m., market depth (the height of the green and blue bands) in IWM had almost completely disappeared. Over the course of the 74 minutes left in the normal trading session, liquidity began to return slowly to the markets. At the time the markets closed, approximately 60% of the normal market depth from earlier in the day had returned to IWM.

The report linked above has some interesting graphics surrounding trading in ACN, PG, MMM, IBM, AAPL, GE and IWM beginning on page 91 of the PDF. If anything, the action in IWM is the least extreme of the group.

If you have some time, the report is worth at least a scan.

Related posts:

• Some Thoughts on the Seis de Mayo Crash (my moniker did not stick…)
• Volatility and Wide-Range Days with Neutral Closes
• Thinking About Volatility (First in a Series)
• Forces Acting on the VIX
• A Conceptual Framework for Volatility Events
• Availability Bias and Disaster Imprinting
• What My Dog Can Tell Us About Volatility

One half hour into today’s trading, I would expect to see some evidence that the recent spike in volatility in stocks is subsiding. That seems to be the case, as the VIX opened at 27.21 and is now just over 26.00.

Before volatility falls any farther, I will be looking at some possible or buy-write (covered call) trades with the new weekly options that are expiring tomorrow.

When I screen for buy-write candidates, I generally start with a screen for the highest implied volatility stocks, ETFs and indices, then qualify these on liquidity terms, examine the proximity of the current price relative to the various strike prices, then review the charts for some of the finalists and add some sort of secret sauce at the end to come up with trades that fit my objectives.

In the graphic below, I have included all of the weekly options in which the underlying has an implied volatility is at least 30. The list has 18 candidates and prominently atop that list is the triple ETF pair for the financial sector: FAS and FAZ. Going down the list, Ford (F) and Bank of America (BAC) show excellent liquidity, while Apple (AAPL) is hovering just under an important round number and strike.

Enterprising souls may even consider buy-writes on both FAS and FAZ.

Volatility is up and the end of the week is nearing. Anyone looking at a buy-write strategy should take a close look at earnings for today and tomorrow which may impact the market, as well as a number of economic reports due out tomorrow morning, most notably the July retail sales data.

For more on related subjects, readers are encouraged to check out:

• Weekly Options Gain Momentum
• What a Difference a Weekly Makes
• The Value of Selling Covered Calls
• BEP and the Joy of Covered Call Funds
• Chart of the Week: Four Key Economic Indicators
• Chart of the Week: Retail Sales Recovering

Disclosure(s): short VIX at time of writing; Livevol is an advertiser on VIX and More

Long-time readers will know that when it comes to charts of implied and historical volatility, I have a preference for using free charts from the International Securities Exchange (ISE) and iVolatility.com. In fact, when I started using the ISE Implied Volatility Charts on a regular basis about 1 ½ years ago, I was literally bombarded with requests for information about how readers could create their own charts.

Last November, I chronicled some enhancements to the ISE’s charts in International Securities Exchange Revamps Implied Volatility Charts and eventually went on to recognize these charts as the Best New Free Volatility Tool in the inaugural VIX and More 2008 Volatility Awards.

I mention all of this because the company that developed the ISE volatility charts, Livevol, recently released a new suite of options tools that has now become my personal favorite for volatility and options analytics. Called Livevol Pro, the web-based application was developed by professional traders for both professional and retail investors.

I am glad to have had a chance to spend several weeks with the beta version and was delighted to see Livevol Pro come out of beta this week. If you have an interest in volatility, at the very least you should check out the 5 minute demo movie or the more extensive demo of the full set of features to see what the product has to offer. Among my favorite features are:

• A company tab that displays a comprehensive overview of options data for a selected company/ETF/index, including: implied volatility and historical volatility percentile ranks relative to the last 52 weeks of data; percentage of put and call transactions bought on the ask and sold on the bid; and much more
• An options tab which displays real-time streaming options quotes and implied volatility data – which quickly transitions to level II quotes with built-in options charts
• Options time and sales data which can be filtered by strike, trade size, exchange and date. Included are two years of historical options time and sales transactions.
• A powerful scanning tool with 22 built-in scans that include a number of ways to slice and dice implied volatility, compare IV to HV, track order flow (volume, open interest, ISE sentiment), flag important price changes, and uncover some interesting time spread setups
• Last but not least is a nifty earnings tool that offers two years of a visual history of price and implied volatility changes in the underlying around earnings releases. In the screen capture below, you can see that each earnings period includes five days before and after the earnings release. The graphics track price changes in the underlying (APPL in this instance) on the top row, changes in the value of a straddle position for the front month and second month in the middle row, and changes in implied volatility in the front month and second month in the bottom row

I will be featuring some Livevol Pro graphics and content in this space going forward, but wanted to inform readers about this application, now that it has gone live and is available to the general public. When it comes to options, everyone has their own ideas of what information is important, but for me, Livevol Pro is everything I want, all in one place, and for only $100 per month.

For those who may be interested, Livevol also has a free version of the application available with end of day data that updates after the market close.

For more information, readers are encouraged to visit http://www.livevol.com.

[graphics: Livevol Pro]

Technology is back and large cap technology is helping to lead the recent rebound in equities.

Even after a four week rally, 2009 has been mostly a sea of red. In fact, the two headline indices, the Dow Jones Industrial Average and S&P 500 index, are down 8.65% and 6.73% so far in 2009. Neither large caps nor small caps are performing particularly well, with the large cap S&P 100 (OEX) down 8.27% and the small cap Russell 2000 (RUT) down 8.67% year to date.

The technology-heavy NASDAQ has been a very different story, with both the NASDAQ composite index (+2.84%) and NASDAQ-100 (+8.63%) in the green.

In the chart of the week below, I have highlighted the NASDAQ-100 index (NDX), which closed at its highest level since early November on Friday, following a strong earnings report and increased guidance from Research in Motion (RIMM). The NDX is a weighted index of the largest 100 companies in the NASDAQ, as measured by market capitalization. As such, the largest weightings read like a who’s who list of large technology companies: Microsoft (MSFT); Google (GOOG); Cisco (CSCO); Apple (AAPL); Oracle (ORCL); Intel (INTC); Qualcomm (QCOM); etc.

Whether or not the resurgent NDX can continue to rally and retrace its steep drop from September and October will go a long way toward determining if the broader markets will be able to gain enough momentum to also finish 2009 in the green.

In this market, I find it hard to think of any stock as ‘running strong’ unless they are in the precious metals business, but strong can also be a relative term.

Some stocks have held up better than others – and even shown considerable buying interest – over the course of the past few weeks and months. Four which stand out from the past are the so-called Four Horsemen of Technology: Research in Motion (RIMM); Amazon (AMZN); Google (GOOG); and Apple (AAPL).

All four of these large cap tech generals have recently provided a positive earnings surprise, with the most recent surprise coming with Google yesterday afternoon. Had it not been for the Steve Jobs health issue, all four stocks would be crushing the S&P 500 index over the course of the past two months highlighted in the chart below. In fact, even with the Jobs issue, Apple is relatively even with the broad market index.

Investors are wondering which stocks will provide leadership in the next bull leg. My guess is that the next group of leaders will include one or more of these tech titans.

Options Action is a new options-oriented show that made its debut on CNBC on Friday night at 11:30 ET. Hosted by Melissa Lee, the show is clearly an options derivative of Fast Money, from the format to the graphics to the audio.

Given the choice between targeting options-savvy viewers and a broader audience, CNBC has elected to aim for the generalist audience by emphasizing the news and issues, while including some recommended stock trades along with the options trades. If you have a casual interest in options, this show could help grow your knowledge base; if you already consider yourself to be a relatively sophisticated options trader, Options Action is not likely to have a great deal of appeal.

The format relies on current news and investment issues, with Melissa Lee keeping things moving by prompting the guests for some brief analysis and asking for recommended stock and options trades. Financials were the top story on Friday, with some debate about the plight of Wells Fargo (WFC). Steve Jobs and Apple (AAPL); crude oil; and Microsoft (MSFT) vs. Google (GOOG) were the other items on the agenda.

For a debut offering, I thought guests Joe Terranova, Stacey Gilbert, Jim Iurio, Mike Khouw and Brian Stutland did an excellent job of bringing a variety of perspectives to bear on each issue, with reasonably strong interplay among the group. My favorite part of the show centered around the discussion of a naked sale of Google June 300 puts for 43.00, as recommended by Stutland, or selling a put spread instead, as recommended by Gilbert.

In terms of options-specific material that you might not find on Fast Money, in addition to the proposed options trades, there was a quick blurb on unusual options volume at United Technologies (UTX) as well as several charts that showed five day options volume trends in some of the other featured companies. Other than that, the name of this program could easily have been Fast Money: Options Edition.

CNBC has Friday’s show archived in three parts for anyone who wants to see what they missed:

• Part 1 -- Wells Fargo and the financials; Apple; crude oil
• Part 2 -- Microsoft vs. Google
• Part 3 -- Final trades: Apple, ConocoPhillips (COP), Microsoft, infrastructure plays

For the last three weeks, I have been impressed by the confidence and resolve shown by the bulls as they have consistently used pullbacks to flood the market with new long positions. Perhaps algorithms have no fear…

More recently, however, as the bull leg has stalled around the SPX 900 mark, I have found myself thinking about the lack of ‘proper’ leadership. Yesterday and today, the rallies have been led by commodities, with gold and energy equities the top performers.

At the same time, the three sectors I think are most critical to the recovery, my so-called ‘indicator species’ sectors (financials, homebuilders and consumer discretionary stocks), have been unable to get out of the red today.

I am not sure where the leadership will come from that will eventually push the SPX back over 1000. Today large cap technology names First Solar (FSLR), Apple (AAPL), Dell (DELL), Research in Motion (RIMM), eBay (EBAY) and Intel (INTC) are all strong performers. Frankly, I would expect technology to play a strong role in the next big leg up, but leadership may come from a number of other sectors.

There are few guarantees in the stock market, but I can guarantee that gold and energy are not going to pull the SPX up over the 1000 mark and leave financials (XLF), homebuilders (XHB), and consumer discretionary stocks (XLY) behind.

[source: StockCharts]

Stocks of all sizes and shapes are trading up today, but which ones will continue to do well if the market holds up?

In the graphic to the right (courtesy of Yahoo) I highlight nine large cap stocks that appear to be the biggest targets of institutional interest not just today, but when the markets moved up in spurts last week too. Those that made the cut did so on the basis of several price factors and several volume factors. The list consists of five technology names (MSFT, AAPL, RIMM, ORCL, and DELL), two mining/metals stocks (RIO, FCX), and two energy stocks (PBR and CHK). Interestingly, two of the nine companies are based in Brazil.

At the very moment at least, these nine companies look to be at the top of the heap: quality stocks at attractive valuations, with considerable institutional interest. I would expect these names to continue to lead the way in subsequent bull moves.

Note that one company on this list may be somewhat of a special case. Chesapeake Energy (CHK) CEO Aubrey McClendon was forced to sell “substantially all” of his 33 million shares last week to meet a margin call. With that forced selling completed, the stock is bouncing back today.

One of the trading tools that satisfies my inner investment voyeur is the Trading Patterns feature at optionsXpress. If the “Trading Patterns” name doesn’t ring a bell, you might also know this feature as “People Trading ___ Also Traded…” in the spirit of Amazon’s recommendation technology and predecessor technology that dates back to internet pioneer Firefly Network Inc.

In the past, I have used the Trading Patterns data to see which companies were being most actively traded by those who are seeking high risk speculative momentum plays. I somewhat arbitrarily made BIDU the poster child for these momentum chasers and have twice looked at what those who were playing with BIDU were also trading.

With all the discussion around potential substitutes for the VIX at least as a hedging tool, I thought it might be interesting to get a broader picture of those who trade VIX options. Thanks to Trading Patterns, I have captured just such a snapshot below. Not surprisingly, VIX traders are aggressive risk takers. In aggregate, they appear to be hoarding gold (GLD) and going short with the double inverse ETFs for real estate (SRS) and the NASDAQ-100 index (QID). It’s just a guess about the direction of some holdings, but the other positions appear to fall squarely in the short finance and technology camp: SPY, WB, AAPL, YHOO, and NVDA. The one finding that I see as somewhat surprising is the presence of the ProShares Ultrashort Oil & Gas ETF (DUG). Given the list of trading vehicles, I am concluding that the VIX players see oil and gas as overbought instead of a safe haven like gold. In any event, it is clear that the pessimism of VIX traders continues to be grounded in an expansion of the real estate and financial woes, the expectation that this will drag technology down with it, and the opinion that gold is the most sensible long position at the moment.