Exchange operator Cboe Global Markets Inc (NASDAQ:CBOE) was one of the biggest losers in the recent market pullback, with J.P. Morgan Securities yesterday suggesting the historic drop in leveraged volatility ETNs will hurt trading volumes going forward. The brokerage firm cited a similar development in 2011 when volatility spiked and VIX trading volumes declined substantially afterward. As such, the firm downgraded CBOE stock to "neutral" from "overweight," and cut its price target to $110 from $131, just ahead of the company's earnings release tomorrow morning.
Taking a closer look at the recent slide in the shares, the security touched a record high of $138.54 back on Jan. 29, but has since pulled back to trade at just $113.32 -- an 18.2% correction. Still, the equity has seemingly bottomed just above the 200-day moving average, and remains up 47.2% over the past year.
As for earnings, the stock will be looking for its first post-earnings win since May, with the shares pulling back 0.9% and 1.6% in the sessions after the last two reports, respectively. On average over the past two years Cboe Global Markets has moved 1.9% in either direction the day after earnings, but volatility expectations are way higher this time around. Specifically, implied volatility data is pricing in a swing of 7.1%.
The shares do have a history of topping volatility expectations. This is according to their Schaeffer's Volatility Scorecard (SVS) of 96, which shows a strong tendency to make moves bigger than the options market was expecting over the past year.
Speaking of options traders, many are taking a put-skewed approach ahead of the quarterly event. For instance, the Schaeffer's put/call open interest ratio (SOIR) for CBOE stands at 1.08, putting it in the 94th annual percentile. This means put open interest outweighs call open interest among contracts expiring within three months by a much wider-than-normal margin. This is partly due to peak open interest at the February 130 put.