Theoretically, 68% of prices fall within the boundary. IV Rank near 100% IV Rank near 0%

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1 October 31, 2017 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. Theoretically, 68% of prices fall within the boundary. IV Rank near 100% IV Rank near 0% 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 Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest.

2 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. tastytrade.com, 2017 Michael Rechenthin, PhD Kai Zeng Page 2 of 10

3 Popular ETFs 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 XLF XLI XLK XLP XLU XME XOP XRT Energy Select Sector Financial Industrial Tech Consumer Staples Utilities Metals and Mining Oil & Gas Exploration & Product Retail 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. tastytrade.com, 2017 Michael Rechenthin, PhD Kai Zeng Page 3 of 10

4 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 Description Expected Report Date Time of Day Weekly Options In Dow? In S&P 500? In Russell 2000? In tastytrade Watchlist? X United States Steel Tue Oct-31 After Close Yes Yes 5 Market Cap (Billions) EA Electronic Arts Tue Oct-31 After Close Yes - Yes DDD 3D Systems Tue Oct-31 After Close Yes - - Yes - 1 GRPN 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 - 1 RIG Transocean Ltd Wed Nov-01 After Close Yes - Yes - Yes 4 QCOM QUALCOMM Wed Nov-01 After Close Yes - Yes YELP Yelp Wed Nov-01 After Close Yes - - Yes - 4 TSLA Tesla Wed Nov-01 After Close Yes Yes 53 SHAK Shake Shack (Class A) Wed Nov-01 After Close Yes - - Yes - 1 APA Apache Thu Nov-02 Before Open Yes - Yes YUM Yum! Brands Thu Nov-02 Before Open Yes - Yes CHK Chesapeake Energy Thu Nov-02 Before Open Yes - Yes BABA Alibaba Group Thu Nov-02 Before Open Yes Yes 462 RL Ralph Lauren Thu Nov-02 Before Open Yes - Yes ATVI Activision Blizzard Thu Nov-02 After Close Yes - Yes 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 CVS CVS Health Mon Nov-06 Before Open Yes - Yes KORS Michael Kors Holdings Limiteds Mon Nov-06 Before Open Yes - Yes PCLN The Priceline Group Mon Nov-06 After Close Yes - Yes - Yes 92 TRIP TripAdvisor Mon Nov-06 After Close Yes - Yes COH Coach Tue Nov-07 Before Open Yes - Yes HUM Humana Wed Nov-08 Before Open Yes - Yes M Macy's Inc Thu Nov-09 Before Open Yes - Yes NVDA NVIDIA Thu Nov-09 After Close Yes - Yes DIS Walt Disney Thu Nov-09 After Close Yes Yes Yes - Yes 151 tastytrade.com, 2017 Michael Rechenthin, PhD Kai Zeng Page 4 of 10

5 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 Date Dividend Per Share In Dow? In S&P 500? In Russell 2000? In tastytrade Watchlist? WFC Wells Fargo & Thu, Nov Yes - - UN Unilever NV Thu, Nov KKR KKR & Co. L.P. Fri, Nov NBL Noble Energy Fri, Nov Yes - - MET MetLife Fri, Nov Yes - - C Citigroup Fri, Nov Yes - Yes INTC Intel Mon, Nov Yes Yes - - FE FirstEnergy Mon, Nov Yes - - TJX TJX Companies Wed, Nov Yes - - GSK GlaxoSmithKline PLC Thu, Nov BBT BB&T Thu, Nov Yes - - PFE Pfizer Thu, Nov Yes Yes - - Additional upcoming ex-dividends in popular etfs: Wed, Nov 01 HYG, LQD, TLT, IEI, GOVT, IEF, TIP, PFF, IPFF, JNK tastytrade.com, 2017 Michael Rechenthin, PhD Kai Zeng Page 5 of 10

6 Some of the most popular segments include: Date Segment Title Link Tue, Oct 31 Market Measures Short /ES & Short SPY Strangles LINK Tue, Oct 31 Options Jive Stacking the Deck LINK Tue, Oct 31 Strategies for IRA Trades For Your IRA: Getting Started LINK Mon, Oct 30 Market Measures FOMC and Trading Opportunities LINK Mon, Oct 30 Options Jive Calculating Expected Moves Using Options LINK Mon, Oct 30 Best Practices Risk & Reward of Strategies LINK Fri, Oct 27 tasty Extras TP Says Using Futures LINK Fri, Oct 27 tasty Extras Sosnoff Says Opportunity is Now LINK Fri, Oct 27 tasty Extras The 3rd Industrial Revolution Money LINK Fri, Oct 27 Market Measures The Importance of Being Neutral LINK Fri, Oct 27 Resize & Analyze Week of October 23rd LINK Fri, Oct 27 Closing the Gap - Futures Edition Euro/Yen at an Extreme LINK Thu, Oct 26 Market Measures Contract Size & Tail Risk LINK Thu, Oct 26 Options Jive Implied Volatility & Two Types of Reversion LINK Thu, Oct 26 Trades From the Research Team LIVE Trades From the Research Team LIVE LINK Wed, Oct 25 Market Measures Portfolio Volatility - 1 SD Strangle LINK Wed, Oct 25 Options Jive Visualizing Trading Expectations LINK Wed, Oct 25 tasty BITES The Defining Effect LINK Tue, Oct 24 Market Measures The Problem With VIX Calendars LINK Tue, Oct 24 Options Jive Option Value Basics LINK Tue, Oct 24 Best Practices Vertical Spreads LINK Mon, Oct 23 Market Measures VVIX to VIX Ratio At All Time Highs? LINK Mon, Oct 23 Options Jive Managing Ratio Spreads and Lizards LINK Mon, Oct 23 Anatomy of a Trade Bad Timing, Good Mechanics in TLT LINK tastytrade.com, 2017 Michael Rechenthin, PhD Kai Zeng Page 6 of 10

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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: 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. tastytrade.com, 2017 Michael Rechenthin, PhD Kai Zeng Page 10 of 10