VIX Closes Down Under $23.00

The VIX did not test its 200-day moving average of $23.44, suggesting hedgers purchasing protection on the anticipation the VIX will continue to trend lower.
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Stocks ended higher on light volume, following a pair of upbeat economic reports. The Dow Jones Industrial Average ended up 28.23 points, or 0.27%, to close at 10,415. The S&P 500 gained 5.31 points, or 0.48%, to close at 1104, and the Nasdaq was up 7.33 points, or 0.33%, to finish at 2236. Most key S&P sectors were higher, led by financials, health care and telecom, while materials were lower.

The CBOE Volatility IndexI:VIX closed down $0.44 at $22.81 on more puts than calls. Put option volume of 190,000 contracts compares to call volume of 79,000 contracts. With the bulk of the put volume in September 25 and October 25 puts. The VIX did not test its 200-day moving average of $23.44, suggesting hedgers purchasing protection on the anticipation the VIX will continue to trend lower. CBOE Volatility Index Futures: September closed down $0.15, at $23.70, November down $0.28, at $28.82, a wide differential of $5.12, suggesting larger November price movement.

The SPDR S&P 500 ETF (SPY) - Get Report closed up $0.51, at 110.92. The SPY high of the day of $111.68 tested its 200-day moving average of $111.78 and then sold off. A trader initiated a SPY December 108 put purchase of 77,000 contracts during the mid-afternoon, paying $4.58 for the puts. SPY December 108 puts are trading at a option implied volatility of 26, lower than a level of 30 from last week. The buyer of the puts was taking advantage of the lower volatility (price) as a hedge into a historically volatile October. SPY September quarterly put option implied volatility is at 21, November is at 24, suggesting larger November and December price movement.

Volatility is trending lower as the PowerShares QQQQ Trust (QQQQ) trends higher. QQQQ closed up $0.18, at $46.43, as the U.S. trade deficit narrowed in July on stronger than expected exports. QQQQ put option volume of 255,000 contracts compares to call volume of 156,000 contracts. September monthly put option implied volatility is at 19, October is at 21 and November is at 24; below its 12-week average of 26, suggesting decreasing near term price movement. Apple (AAPL) - Get Report is the largest component in the QQQQ, with a weighting of 13.3%. AAPL overall volatility of 34 is below its 26-week average of 37.

Health care benefit company's volatilities decreased as shares trended higher, suggesting market participants are pricing in less risk. Aetna (AET) overall option implied volatility of 30 is below its 26-week average of 35; UnitedHealth (AET) overall option implied volatility of 29 is below its 26-week average of 32; Humana (HUM) - Get Report overall option implied volatility of 31 is below its 26-week average of 34; Cigna (CI) - Get Report overall option implied volatility of 35 is below its 26-week average of 37; WellPoint (WLP) overall option implied volatility of 33 is below its 26-week average of 35 according to Track Data, suggesting decreasing price movement.

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