What Worked and What Didn’t in the Option Market Last Month

April 15, 2015 Presented by Russell Rhoads, CFA Senior Instructor – The Options Institute

Interactive Brokers Webcast

2 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

Disclosure

Options involve risks and are not suitable for all investors. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation at www.theocc.com. Futures trading is not suitable for all investors, and involves risk of loss. The information in this presentation is provided solely for general education and information purposes. No statement within this presentation should be construed as a recommendation to buy or sell a security or futures contract or to provide investment advice. Any strategies discussed, including examples using actual securities or futures price data, are strictly for illustrative and educational purposes only. In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all transactions and must be considered prior to entering into any transactions. Multiple leg strategies involve multiple commission charges. Investors should consult with their tax advisors to determine how the profit and loss on any particular strategy will be taxed. Past performance does not guarantee future results. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available from CBOE upon request. CBOE and Chicago Board Options Exchange are registered trademarks and The Options Institute is a service mark of Chicago Board Options Exchange, Incorporated (CBOE). Russell 2000® is a trademark and service mark of Frank Russell Company, used under license. All other trademarks and service marks are the property of their respective owners. CBOE is not affiliated with Interactive Brokers. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-CBOE product or service described in this presentation. Copyright © 2015 CBOE. All rights reserved.

3 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

What Worked and What Didn’t

Outline

LULU Earnings NKE Earnings FDX Earnings OTM RUT Spread

4 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

LULU Earnings

Bull Put Spread

LULU reported earnings before the open Thursday March 26 Early Wednesday with LULU trading at 62.50 there was a neutral to bullish trade using short dated LULU puts

Three year summary of LULU earnings reactions

Buy 1 LULU Mar 27th 58.50 Put at 0.99 Sell 1 LULU Mar 27th 59.00 Put at 1.14

Net Credit = 0.15

Max Min Abs Avg. Last Q 13.91% -17.54% 9.34% 9.11%

Data Source: Bloomberg

5 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

-0.50

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

55.50 56.50 57.50 58.50 59.50 60.50 61.50 62.50

LULU Earnings

Bull Put Spread

Long LULU 58.50 Put / Short LULU 59.00 Put

+0.15

-0.35

Trading Time 62.50

Closing Price 60.96

6 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

LULU Earnings

Short Strangle

LULU reported earnings before the open Thursday March 26 Two hours before the close LULU was trading at 61.79 and a neutral trade came into the market

Three year summary of LULU earnings reactions

Sell 1 LULU Mar 27th 56.00 Put at 0.50 Sell 1 LULU Mar 27th 67.00 Call at 0.70

Net Credit = 1.20

Max Min Abs Avg. Last Q 13.91% -17.54% 9.34% 9.11%

Data Source: Bloomberg

7 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

-3.00

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

LULU Earnings

Short Strangle

Short LULU 56 Put / Short LULU 67 Call

+1.20

-11.31%

Trading Price 61.79

+10.37%

8 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

54

56

58

60

62

64

66

68

70

1/7/15 1/23/15 2/9/15 2/25/15 3/12/15 3/27/15

LULU Earnings

Price Action

Daily Prices

Data Source: Bloomberg

Earnings Reaction

9 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

NKE Earnings

Ratio Spread

NKE Reported earnings Thursday March 19 after the market close A very precise bullish ratio spread came into the market when NKE was trading at 98.10

Three year summary of NKE earnings reactions

Buy 1 NKE Mar 20th 100 Call at 1.09 Sell 2 NKE Mar 20th 103 Calls at 0.37 each

Net Cost = 0.35

Max Min Abs Avg. Last Q 12.23% -9.40% 4.98% -2.31%

Data Source: Bloomberg

10 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

96 97 98 99 100 101 102 103 104 105 106 107 108 109 110

NKE Earnings

Ratio Spread

Long 1 100 Call / Short 2 103 Calls +2.70

-0.35

Trade Price 98.10

110 ≈ +12.23%

103 ≈ 4.98%

11 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

NKE Earnings

Price Action

Daily Prices

85

90

95

100

105

12/30/14 1/15/15 2/2/15 2/18/15 3/5/15 3/20/15

Earnings Reaction

Data Source: Bloomberg

12 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

FDX Earnings

Bear Call Spread

FDX Reported earnings Wednesday March 18 before the market open Early in the trading day, with FDX stock around 178.04 someone sold a bear call spread

Three year summary of FDX earnings reactions

Sell 1 FDX Mar 20th 177.50 Call at 3.72 Buy 1 FDX Mar 20th 182.50 Call at 1.57

Net Credit = 2.15

Max Min Abs Avg. Last Q 6.16% -6.89% 3.08% -3.72%

Data Source: Bloomberg

13 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

FDX Earnings

Bear Call Spread

Short 1 177.50 Call / Long 1 182.50 Call

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

167.50 170.00 172.50 175.00 177.50 180.00 182.50 185.00 187.50

+2.15

-2.85

Trade Price

178.04

14 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

FDX Earnings

Bull Put Spread

FDX Reported earnings Wednesday March 18 before the market open Later in the trading day, with FDX stock around 176.80 someone sold a bull put spread

Three year summary of FDX earnings reactions

Buy 1 FDX Mar 20th 170.00 Put at 0.91 Sell 1 FDX Mar 20th 172.50 Put at 1.46

Net Credit = 0.55

Max Min Abs Avg. Last Q 6.16% -6.89% 3.08% -3.72%

Data Source: Bloomberg

15 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

FDX Earnings

Bull Put Spread

Short 1 172.50 Put / Long 1 170.00 Put

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

167.50 170.00 172.50 175.00 177.50 180.00 182.50 185.00 187.50

+0.55

-1.95

Trade Price

176.80

16 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

FDX Earnings

Price Action

Daily Prices

165

170

175

180

185

12/30/14 1/15/15 2/2/15 2/18/15 3/5/15 3/20/15

Data Source: Bloomberg

Earnings Reaction

17 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

OTM RUT Spread

Bear Call Spread

March 12, 2015 Russell 2000® Index at 1235

Sell 1 RUT Mar 20th 1280 Call at 0.30 Buy 1 RUT Mar 20th 1290 Call at 0.20

Net Credit = 0.10

18 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

OTM RUT Spread

Bear Call Spread

Short 1280 Call / Long 1290 Call

-10.00

-9.00

-8.00

-7.00

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

1210 1220 1230 1240 1250 1260 1270 1280 1290

+0.10

-9.90

Trade Price 1235

1290 ≈ +4.5%

1280.10 ≈ +3.6%

19 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

OTM RUT Spread

Price Action

Daily Prices

1100

1120

1140

1160

1180

1200

1220

1240

1260

1280

1300

12/30/14 1/15/15 2/2/15 2/18/15 3/5/15 3/20/15

Break-even

Data Source: Bloomberg

20 COPYRIGHT 2015 CBOE. ALL RIGHTS RESERVED.

Questions / Resources / Suggestions

Questions?

www.cboeoptionshub.com www.cboe.com/weeklys

Contact with suggestions

rhoads@cboe.com