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

Wednesday, July 23, 2014

Aqumin Volatility Newsletter 07/23/2014 $SPY

Someone wants the upside

This kind of reminds me of the anticipation before walking on a trading floor some mornings. Something is going to happen but you just don’t know what. The first instinct is to raise the bid in the options a little bit and do some price discovery. The corporate earnings news and economic data has been pretty good lately so the heebie jeebies are not there.

Then there is the Ukraine and Gaza that is setting a sad back drop for a mostly rosy market picture today. The rule I learned early is the market hates uncertainty, and there seems to be something behind door number 1 or number 2 but no one really knows what it is.

7-23-2014 3-24-00 PM

Note in the OptionVision™ landscape above, where the skew is catching a bid today that is mostly on the upside. The SDEX which measures downside skew is down on the day as the ATM options are catching a bid and the downside volatility is fading. This feels a bit like price discovery to me. The upside is lurking as it has so many times this year when traders least expect it. That is what the feeling is like right now, if we can get past the issues on the other side of the Atlantic.

Use the skew and buy upside Broken Wing Butterflies in the indexes for credits 2 weeks out. Set them for max benefit on a $200 SPY. If the geopolitical stuff gets ugly, keep the credit.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit