Reading the Cone Graphics What are the cones on the price graphics — and what’s the significance of the colors? I’ll explain…

The cone represents a 30-day theoretical expected price range — the larger the cone, the greater the expectation of stock price move. The cones are calculated using the option’s implied volatility. The higher the implied volatility, the larger the expected move of the underlying stock and thus the greater the breadth of the cone.

The color of the cone is significant. The darker the color, the more “extreme” the implied volatility (IV) which is represented by implied volatility rank (IV Rank). The higher the IV Rank, the more expensive the prices of the options have been historically. This information can help you decide on a trading strategy.

What Are We Looking At? The charts on the right are many of the stocks and etfs that we are looking at. See the next two pages of Cherry Picks for more information.

Cherry Picks Futures Edition Pete Mulmat’s “Futures Edition” Cherry Picks was sent out on Sunday — a cheat sheet showing popular futures, their notional sizes, and their etf equivalents — it is super useful information for anyone interested in futures. If you didn’t receive it, please reach out.

We welcome comments/feedback. Best of luck in this week’s trading.

Michael Rechenthin, PhD Kai Zeng research@tastytrade.com

October 31, 2017

IV Rank near 100%

IV Rank near 0%

Theoretically, 68% of prices fall within the boundary.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest.

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3-Month Correlation Matrix of Price Returns

What Do We Find Interesting? • The Utilities etf (XLU) continues to provide nice diversification with the S&P 500 (SPY) — and implied volatility is getting to be more

expensive. This is starting to make this an ideal ETF to begin selling premium in. • The Oil Services etf (OIH) seems to have recovered a bit from selling that occurred last week. IV Rank is relatively low (20%), but an

implied volatility of 26 makes options in OIH have twice as much premium in them than the S&P 500 (SPY). • We are keeping sizes relatively small in the metals — low implied volatility in Silver (SLV) and Gold (GLD) make them not as

attractive as premium sellers. The correlation between Gold (GLD) and the S&P 500 (SPY) are currently slightly negative (-0.35) — expect to see this relationship strengthen and the negative correlation get stronger if stocks begin to sell off. At least that is what usually happens.

• Junior Gold Miners (GDXJ) has had some large moves over the past month — down 7%. IV Rank might be on the low side, but with an implied volatility near 30, and the large movements, it looks fairly appealing from a contrarian standpoint.

• Healthcare (XLV) continues to be in the news — currently the liquidity is surprisingly poor, which is unfortunate considering IV Rank is beginning to look good. Look toward some of the big capitalization individual stocks if you want to play this sector.

• Expect to see the relationship between the major market indices, S&P 500 (SPY), the small-cap Russell 2000 index (IWM), and the Nasdaq (QQQ), strengthen if we begin to have some selling in the market.

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DIA Dow EEM Emerging Index Fund EFA MSCI EAFE EWZ Brazil FEZ Euro Stoxx 50 FXI China Large Cap GDX Gold Miners GDXJ Junior Gold Miners GLD Gold

IWM Russell 2000 ETF KRE Regional Banking OIH Oil Services QQQ Nasdaq 100 SLV Silver SPY S&P 500 TLT 20+ Year Treasury Bond ETF XBI Biotech XLB Materials

XLE Energy Select Sector XLF Financial XLI Industrial XLK Tech XLP Consumer Staples XLU Utilities XME Metals and Mining XOP Oil & Gas Exploration & Product XRT Retail

Popular ETFs

What Has High Implied Volatility? • Brazil (EWZ) has a nice combination of high implied volatility (e.g. nearly 3x as much premium as the S&P 500) and historically

expensive options (i.e. high implied volatility rank) • Tech (XLK) and Euro currency (FXI) and Retail (XRT) are all displaying implied volatility ranks near 50%. • Not shown on the scatter plot above, but General Electric (GE), A&T (T), Apple (AAPL), CVS, Facebook (FB), Cisco (CSCO), Disney

(DIS), Intel (INTC), Wal-Mart (WMT), and Costco (COST) all have high implied volatility rank.

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Earnings season is coming to an end. Seen below are some of the stocks with earnings we are keeping our eye on. We highlighted the ones that are on our “tastytrade watchlist.”

Symbol DescriptionExpected

Report Date Time of DayWeekly Options

In Dow?

In S&P 500?

In Russell 2000?

In tastytrade Watchlist?

Market Cap (Billions)

X United States Steel Tue Oct-31 After Close Yes - - - Yes 5

EA Electronic Arts Tue Oct-31 After Close Yes - Yes - - 36DDD 3D Systems Tue Oct-31 After Close Yes - - Yes - 1GRPN Groupon Wed Nov-01 Before Open Yes - - Yes - 3

FB Facebook Wed Nov-01 After Close Yes - Yes - Yes 522

GPRO GoPro, (Class A) Wed Nov-01 After Close Yes - - Yes - 1RIG Transocean Ltd Wed Nov-01 After Close Yes - Yes - Yes 4

QCOM QUALCOMM Wed Nov-01 After Close Yes - Yes - - 81YELP Yelp Wed Nov-01 After Close Yes - - Yes - 4TSLA Tesla Wed Nov-01 After Close Yes - - - Yes 53

SHAK Shake Shack (Class A) Wed Nov-01 After Close Yes - - Yes - 1APA Apache Thu Nov-02 Before Open Yes - Yes - - 16YUM Yum! Brands Thu Nov-02 Before Open Yes - Yes - - 26CHK Chesapeake Energy Thu Nov-02 Before Open Yes - Yes - - 3

BABA Alibaba Group Thu Nov-02 Before Open Yes - - - Yes 462

RL Ralph Lauren Thu Nov-02 Before Open Yes - Yes - - 7ATVI Activision Blizzard Thu Nov-02 After Close Yes - Yes - - 49

SBUX Starbucks Thu Nov-02 After Close Yes - Yes - Yes 80

AAPL Apple Thu Nov-02 After Close Yes Yes Yes - Yes 861

P Pandora Media Thu Nov-02 After Close Yes - - - Yes 2

RCL Royal Caribbean Cruises Ltd. Fri Nov-03 n/a Yes - Yes - - 26CVS CVS Health Mon Nov-06 Before Open Yes - Yes - - 70

KORS Michael Kors Holdings Limiteds Mon Nov-06 Before Open Yes - Yes - - 7PCLN The Priceline Group Mon Nov-06 After Close Yes - Yes - Yes 92

TRIP TripAdvisor Mon Nov-06 After Close Yes - Yes - - 5COH Coach Tue Nov-07 Before Open Yes - Yes - - 11HUM Humana Wed Nov-08 Before Open Yes - Yes - - 37

M Macy's Inc Thu Nov-09 Before Open Yes - Yes - - 6NVDA NVIDIA Thu Nov-09 After Close Yes - Yes - - 122DIS Walt Disney Thu Nov-09 After Close Yes Yes Yes - Yes 151

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Stocks and ETFs with an upcoming dividend.

In the money short call options are the only options at risk of additional early assignment due to the dividend. If the extrinsic value of the in the money short call is less than the dividend, the option is at (a greater than average) risk of being assigned.

Symbol Description Ex-Dividend DateDividend Per

Share In Dow?In S&P 500?

In Russell 2000?

In tastytrade Watchlist?

WFC Wells Fargo & Thu, Nov 02 0.39 - Yes - -UN Unilever NV Thu, Nov 02 0.422 - - - -KKR KKR & Co. L.P. Fri, Nov 03 0.17 - - - -NBL Noble Energy Fri, Nov 03 0.1 - Yes - -MET MetLife Fri, Nov 03 0.4 - Yes - -C Citigroup Fri, Nov 03 0.32 - Yes - Yes

INTC Intel Mon, Nov 06 0.273 Yes Yes - -FE FirstEnergy Mon, Nov 06 0.36 - Yes - -TJX TJX Companies Wed, Nov 08 0.313 - Yes - -GSK GlaxoSmithKline PLC Thu, Nov 09 0.499 - - - -BBT BB&T Thu, Nov 09 0.33 - Yes - -PFE Pfizer Thu, Nov 09 0.32 Yes Yes - -

Additional upcoming ex-dividends in popular etfs:

Wed, Nov 01 HYG, LQD, TLT, IEI, GOVT, IEF, TIP, PFF, IPFF, JNK

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Some of the most popular segments include:

Date Segment Title Link

Tue, Oct 31 Market Measures Short /ES & Short SPY Strangles LINKTue, Oct 31 Options Jive Stacking the Deck LINKTue, Oct 31 Strategies for IRA Trades For Your IRA: Getting Started LINKMon, Oct 30 Market Measures FOMC and Trading Opportunities LINKMon, Oct 30 Options Jive Calculating Expected Moves Using Options LINKMon, Oct 30 Best Practices Risk & Reward of Strategies LINKFri, Oct 27 tasty Extras TP Says | Using Futures LINKFri, Oct 27 tasty Extras Sosnoff Says | Opportunity is Now LINKFri, Oct 27 tasty Extras The 3rd Industrial Revolution | Money LINKFri, Oct 27 Market Measures The Importance of Being Neutral LINKFri, Oct 27 Resize & Analyze Week of October 23rd LINKFri, Oct 27 Closing the Gap - Futures Edition Euro/Yen at an Extreme LINKThu, Oct 26 Market Measures Contract Size & Tail Risk LINKThu, Oct 26 Options Jive Implied Volatility & Two Types of Reversion LINKThu, Oct 26 Trades From the Research Team LIVE Trades From the Research Team LIVE LINKWed, Oct 25 Market Measures Portfolio Volatility - 1 SD Strangle LINKWed, Oct 25 Options Jive Visualizing Trading Expectations LINKWed, Oct 25 tasty BITES The Defining Effect LINKTue, Oct 24 Market Measures The Problem With VIX Calendars LINKTue, Oct 24 Options Jive Option Value Basics LINKTue, Oct 24 Best Practices Vertical Spreads LINKMon, Oct 23 Market Measures VVIX to VIX Ratio At All Time Highs? LINKMon, Oct 23 Options Jive Managing Ratio Spreads and Lizards LINKMon, Oct 23 Anatomy of a Trade Bad Timing, Good Mechanics in TLT LINK

 © tastytrade.com, 2017 Michael Rechenthin, PhD | Kai Zeng Page � of �7 10

 © tastytrade.com, 2017 Michael Rechenthin, PhD | Kai Zeng Page � of �8 10

 © tastytrade.com, 2017 Michael Rechenthin, PhD | Kai Zeng Page � of �9 10

 © tastytrade.com, 2017 Michael Rechenthin, PhD | Kai Zeng Page � of �10 10

Reading this Report Expected Range Cone. The following pages show stocks and ETFs that the tastytrade Research Team currently find have relatively high or low volatility.  The colored cone represents a 30-day expected theoretical price range that is calculated from the options’ implied volatilities.  If the implied volatility is relatively high, then the market is expecting a larger price change in the underlying stock or ETF.  From this we can derive the market’s 1 standard deviation theoretical expectation of where prices might be in the future.  In other words, the market is expecting, with a 68% theoretical probability, that prices will fall within the boundary of the cone at the end of 30 days.

Cone Color. The color of the cone is significant. The darker the color, the more “extreme” the implied volatility (IV) which is represented by implied volatility rank (IV Rank). This information can help you decide on a trading strategy.

Glossary IV. Implied Volatility is the estimated volatility of a security’s price derived from its option price; the higher the IV, the more expensive the option and therefore the larger the expected price move. IV is an annualized number of volatility, e.g. a IV of 27 means the option’s market is pricing in an annualized price range, either plus or minus, of 27%.

IV Rank. IV by itself doesn’t tell us if if the volatility is high or low - but IV Rank does. An IV Rank of 70 means that the IV is 70% between its low and high IV over the past year. The higher the IV Rank, the higher the security’s IV is compared to its past year. We provide six levels to make evaluating easier:

• Extremely High: IV Rank between 90 and 100 • High: IV Rank between 75 and 90 • Moderately High: IV Rank between 50 and 75 • Moderately Low: IV Rank between 25 and 50 • Low: IV Rank between 10 and 25 • Extremely Low: IV Rank between 0 and 10

Option Liquidity. At tastytrade we have our own theoretical measure of option liquidity, Poor, Moderate, Good, or Great. It examines the options’ bid/ask spread, open interest, and the number of strikes with non-zero bids.

Correlation with S&P 500. Correlation is a statistical measure of how strong a relationship two securities have with one another. A correlation of -1 means the stocks are perfectly negatively correlated (they move in opposite directions), while a correlation of +1 means the stocks are perfectly positively correlated (they move in the same direction). A correlation of 0 means there exist little relationship.

Earnings. The earnings date of the security. In practice we tend to see stocks have a larger amount of implied volatility (IV) nearer to earnings as the market is pricing in the fear of the upcoming earnings announcement. In parenthesis, is BTO or AMC; "Before the Open" or "After Market Closes", respectively. Upcoming earnings dates do sometimes change.

Disclosures Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options: https://www.theocc.com/components/docs/riskstoc.pdf

tastytrade content is provided solely by tastytrade, Inc. and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC). All customer futures accounts' positions and cash balances are segregated by Apex Clearing Corporation. Futures and futures options trading is speculative and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading futures products found in Disclosures under the Documents tab.