Wednesday, September 17, 2014

Aqumin Volatility Newsletter 09/17/2014 $SPY $VIX $RUT

Where the volatility is

So the Fed is leaning toward 2015 to start raising rates? There is not much different in that announcement as the Fed watchers look to parse all of the twists and turns in the FOMC meeting minutes. I think that after this long in our plodding recovery, market players would be happy to see the Fed exiting. That means things should be getting better, but that is just me.

Slightly strange then today as the usual drop in VIX had more juice come out of the ATM options. Granted the news was more status quo so the ATM IV should drop, but I thought it would take more of the OTM IV as well. The drop in the curve would be more uniform. That is not the case as you can see from the OptionVision™ Inverse Volatility Landscape. IV ATM came in a bunch (tall red buildings are the most) but the skew heavy downside did not come in much at all. There is one more issue on the horizon.

9-17-2014 2-49-04 PM

I think the skew is staying bid because of the Scottish referendum. The Euro Zone (or near it) does not need another bird leaving the nest and the dose of instability it will cause is enough to unnerve traders. 2011 is still fresh in everyone’s mind.

At this stage I will go with the exit polls and say Scotland stays in. William Wallace might be rolling over in his grave but he did not have free healthcare and Cool Britannia. The trades that make sense are Iron Condors in the big indexes. RUT or SPX is probably best as the last of the skew should die by Friday. Stay away from the ATM in case William Wallace gets his revenge.

OptionVision™ – data from ORATS

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Tuesday, August 26, 2014

Aqumin Volatility Newsletter 08/26/2014 - $PCG

Lots of energy

$200 close on the SPY and an almost close of $2000 on the SPX on Monday makes $1500 a long way back in the rear view mirror. Time is slowly erasing the financial crisis as asset prices start to really take off again. The problem of course with a market at all-time highs is finding a bargain in the first place. I think that is where the US equity market finds itself today.

If we look at the out of the ordinary option trades, the tenor of a few of them is a bit odd. I was looking at my Relative Volume screen in OptionVision™ and a large buyer of the PCG Oct 46 calls showed up. Note the green spike has a jump in IV so the big volume was mostly buying.

8-26-2014 9-06-50 AM

The curious item is why buy an ATM call in a stock, a utility, that is going to go ex-Dividend during the cycle of the call. Paying $1 for the call means the holder will miss the dividend if the call is still just ATM. Unless of course the call buyers think PCG is going to jump big out of the gate and missing the potential dividend won’t matter too much. Still, PCG has to make a big move up for this to happen. Maybe the volume thinks PCG is in play. You can accomplish a stock capture play by just selling the Oct 45 put and take the stock at the $44.20 just in case PCG does not make the monster move the trader keeps the credit. All-time highs lead investors to do curious things.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, August 8, 2014

Aqumin Volatility Newsletter 08/08/2014 $SPY

Kicking the rascals out

I started trading options as a floor trader in 1991 right about the same time as Gulf War 1. The run up to the war was characterized by gloom, volatility and really weak stock prices. I think the Dow was 2300 or so. Not much has changed in the 24 years since then (17000 Dow!) through several other political crises and GW2. The one constant has been after the USA goes in and starts shooting, stocks rally and the VIX cracks. Until today that is, or maybe.

We are getting a 1% rally but only a small sell off in the VIX. This time there are a few more bad apples with both ISIS and Russia so the USAF is just the start. I think this skirmish will be more protracted but I am confident we will prevail. Stocks were a little hesitant this morning after the big overnight moves in VIX futures.

8-8-2014 2-43-13 PM

As you can see from the OptionVision™ 3D volatility chart most of the volatility crush has been to the upside. We might rally but it won’t be fast and I agree with that. We also have a ways to go for the volatility to come in so operating OTM might work best. It is good that we went in to kick some ISIS fanny but the game is not over yet. The Russian’s ending their “exercises” on the border has to be helping the rally too. Let’s see how that plays out by Monday.

The simple trade is an unbalanced Iron Condor in the SPY. Sell more put spreads than call spreads so the trade is not short delta.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit