Friday, January 16, 2015

Aqumin Volatility Newsletter 01/16/2015 $XHB $KBH

More Volatility for Homebuilders

We are finishing a volatile week for global markets and it most likely will stay that way until the ECB comes up with some announcement on Jan 22nd and/or the Greeks decide to elect a new government by the end of the month. Earnings reports so far have been mediocre and without the promise of domestic QE, stocks have not been able to recover. Short term, things will stay choppy.

1-16-2015 7-50-38 AM

Once again I have Homebuilders leading the realized volatility averages (foreground). Oil and Gas Explorers and Producers are showing the largest relative decrease in realized volatility (back left corner). I don’t know if this is the end of the drop in oil prices but at least it is decelerating. The group even had a few stocks up on the week which is a nice showing relative to the S&P 500. The group is worth keeping an eye on now but I don’t expect any grand bounce.

Rates in the USA continue to tick down. Why? It seems we are the only one of the big 3 tradable economies in the West that are bothering to pay interest. Germany and Japan are at or near 0. That should be good for housing as current reports have huge numbers of home refinancings.

A trade that could work would be to take advantage of KB Home (KBH) crush and sell a just in the money put since this name has already led the Homebuilders down. Hedge with buying a put of same duration, but less money, in the Homebuilder ETF (XHB).

With volatility so high everywhere one needs to be careful. The last time we had Homebuilders leading in relative RV it made a power move up. Past performance does not guarantee future results, thus the slight hedge given our ugly market.

OptionVision™ – data from ORATS

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Friday, January 9, 2015

Aqumin Volatility Newsletter 01/09/2015 $SPY $SPX $VIX

No oomph to the selloff

2015 is starting off as the year of many swings. For all the big daily moves in 2015, equities have not really gotten anywhere. The post-FOMC rallies are fueled by the notion of lower rates and we run. Then the sad realization of why we need lower rates hits and we sell off. The only think I can say for this year is that the swings are solid and VIX is off the basement floor.

Even on a down day stocks cannot muster up a big move in volatility. Why? I have VIX up .42 as I write this as stocks are down around ¾%. That is an underwhelming move for VIX as it should pop around 7% for every 1% drop in SPX. Note in the OptionVision™ Volatility Landscape that the only options that have a jump in IV are some upside calls in the near term. The sea of red is a decline in strike IV across the SPY. VIX up but IV down per strike is always curious.

1-9-2015 1-50-53 PM

There is not a lot of heft to the selloff, if we use volatility as an indicator. VIX got near even for the day at some point. The reason being is that VIX is already pricing 1% daily moves. If they don’t come for the downside, I expect we will bounce next week. There is some weekend effect holding down VIX but usually worry will overtake the decay factor. The trades I like have been upside flies in the indexes, say SPX, with a junk protect put just in case.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Wednesday, December 31, 2014

Aqumin Volatility Newsletter 12/31/2014 $SPY

Crazy Volatility Rally!

With stocks ringing up another banner year the most unloved asset is making a move into the close. No I do not mean oil. That asset is volatility. VIX is up 1.60 to 17.52 as I write this, as players are getting very nervous moving into 2015. The relative volume landscape tells a more enlightening story.

Note how the IV is up on just about every strike in the SPY. That is the green color on the relative volume landscape in OptionVision™. The spikiness is for relative volume. Note the most active series outside of closing Quarterlies is the Jan 2 weekly ATM puts. Volume there is 1.8 x average and almost everything else is trading way below that. In short we are having a volatility spike on small volume. Welcome to holiday trading.

12-31-2014 1-16-25 PM

The volume, if there is any, is concentrated in the Jan ordinary cycle. Well before the Greek elections and smack in the middle of earnings season. The fact that the activity is there is driving up prices in other terms. This looks like a good opportunity to sell more OTM put spreads, maybe in a delta neutral Iron Condor catching the Jan Ordinary cycle. That will expire long before the Greek elections come to pass.

Happy New Year!

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit