Trader in Residence has concluded for the semester.
Written by Sid Mohapatra
Domestic risk markets post their best weekly gain since April last year leading the TSX to close at record high levels. We continue to observe the effects of the vaccine rollout and improved expectations on President Biden’s fiscal stimulus package as drivers of this rally. On the commodities front, WTI had a phenomenal week and reaching a 52 week high, clocking in an almost 10% gain for the week, which in turn supported Canadian equities. Despite such positive movements, we did see a significant job loss in the January job report in Canada with the economy shedding 213,000 jobs thereby putting the unemployment rate at 9.4%, the highest since August. Having said that we continue to maintain the recovery of jobs in labour markets through the course of the year. This will be the result of a decrease in new COVID 19 cases and a gradual easing of the lockdown measures. More importantly, consumer spending will remain robust as it continues to be supported by fiscal spending, accommodative central banking actions and the steady rollout of vaccines.
The TSX closed at 18,123 with a 4.5% gain over the week and the S&P 500 finishing at a strong 3,887 for the week up nearly 4.6%. Oil had a terrific rally finishing at $56.28 per barrel, which gained a whopping 9.2% for this week.
The earning season continues in Canada with roughly 20% of TSX listed companies reporting this week but the economic calendar is light in Canada for the coming week. In the US, we can expect the small-business optimism report on Tuesday, with important inflation data on Wednesday followed by consumer confidence on Friday.
Read full storyWritten by Chadi Halahel
Option Pricer
This article is meant to serve as a tutorial on how to access the Option Pricer on the Reuters Eikon software to graph potential options strategies. It is important to remember that security prices are always changing and therefore the potential payoff of these strategies is also changing. Furthermore, no live trading is permitted when using Reuters Eikon software. This is strictly an educational guide on how to better understand the various strategies one can create using options, along with how their payoffs theoretically look like. Lastly, this guide assumes you understand the basics of what equity options are. For those who would like to learn more about the basics of options please visit https://www.investopedia.com/options-basics-tutorial-4583012. Using the software is a great way to better understand the various types of options strategies and how options are priced.
How to access the Option Pricer:
Step 1: Log into Reuters Eikon and select the Eikon symbol on the top left corner of the screen.
Step 2: Select “Analytics & Calcs” then select “Option Pricer”.
OR: Search for the Option Pricer using its function OPR in the search bar.
The Option Pricer should look like the screenshot below. Now, you can add multiple components to your trading strategies by adding “legs” (The plus sign next to “Leg 1/1”). You must input an underlying security in the “underlying/option code” area, along with the “leg type”.
Example:
Let us assume we want to go long on Tesla in the short to medium term. We are long 100 shares and want to limit our downside risk on such a large position. We can use a common options strategy known as a protective put to limit our downside risk. For every 100 shares, we must buy 1 put option at a specific strike price and date. In this scenario, I am planning on buying 100 shares of Tesla at $335.54 (Leg 1) and purchasing 1 put option at a strike price of $325 expiring January 17, 2020 for $18 (Total cost = price of contract * number of contracts * 100, $18 * 1 * 100 = $1,800).
The theoretical payoff and breakeven point of such a strategy can be shown by selecting the “Show Scenario” button on the top-right header of the calculator. Below is what the strategy may look like given the current inputs, ignoring commissions and liquidity risk.
| Date | Release | Actual | Consensus | Prior |
|---|---|---|---|---|
| Monday | CAD Foreign Portfolio Investment in Canadian Securities(Nov) | 11.78 B | 6.93 B | |
| JPY Industrial Production (YoY)(Nov) | -3.9% | -3.4% | -3.4% | |
| Tuesday | USD 3-Month Bill Auction | 0.085% | 0.09% | |
| USD 6-Month Bill Auction | 0.095% | 0.09% | ||
| Wednesday | CAD BoC Consumer Price Index Core (YoY)(Dec) | 1.5% | 1.2% | 1.5% |
| CAD Consumer Price Index (YoY)(Dec) | 0.7% | 1% | 1% | |
| Thursday | USD ADP Employment Change(Dec) | -28.8 k | -219.8 k | |
| USD New Housing Price Index (YoY)(Dec) | 4.6% | 4.6% | ||
| Friday | CAD Retail Sales (MoM)(Nov) | 1.3% | 0.1% | 0.4% |
| CFTC Gold NC Net Positions | 246.6 k | 246.2 k |
