Tuesday, October 21, 2014

Aqumin Volatility Newsletter 10/21/2014 - $SPX $VIX

Upside Call IV Destruction

I was trying to find a good word to describe what happened with the implied volatility today but the best thing I can think of was the phrase “burning down the house”. Note the deep red destruction of the upside implied volatility in the SPY on my OptionVision™ landscape.

Each building represents a call series with the change in implied volatility and it is mostly down and really down for the upside calls. This is the market saying whatever rally we have is not going to be the big Fed induced love fests of the past. Like in the Smith Barney commercials of old, the market will have to make money the old fashioned way; it will have to earn it.

10-21-2014 8-54-53 AM

That brings us to the trade idea now. IV is still at nice levels and we had a lower closing VIX for the first time in ages. The best trade would be a delta balance iron condor, maybe a little closer to the money than normal. The upside destruction of the call skew is letting us know it is ok. Think the bigger indexes like SPX.

OptionVision™ – data from ORATS

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Tuesday, October 14, 2014

Aqumin Volatility Newsletter 10/14/2014 - $EXAS, $XLV, $XLF, $XLU

Stocks are in shock

Equities are rolling into the close trying desperately to hold onto the gains they made earlier in the day. Those higher prices are not there but the intraday movement still is. The fact is that realized volatility is at a very high price. Note the OptionVision™ realized volatility landscape set up below.

10-14-2014 3-14-55 PM

Roughly 85% of stocks are showing increasing realized volatility. All the green stocks mean that the 10 day realized volatility is higher than the 20 day realized volatility. It is does not happen that often when stocks do this. Red stocks are showing reduced volatility. Usually something big is afoot when there is all this movement. The strange thing about this current selloff is the lack of really bad news. Notice most of the landscape graph is blank meaning those stocks are down for the week. Financials, Utilities and Healthcare are still active just not getting hit like everything else. Oil and Gas explorers are getting it the worst.

This is what stocks look like when the Fed exits. The only thing I can pin a time on is the Fed not raising rates any time soon, scaring the growth story. There will be no more QE even if Europe slows down. Oil prices dropping on supply is hitting a big chunk of the growth in stocks this year and OPEC is staying quiet. That should be good for the consumer. Toss in some bad headline news and there are several factors contributing to the slide but not terribly so. It is best to stay with what is doing ok and not make a big call on the areas that are getting stung.

A trade I like, is take the ETFs that are doing better like XLF, XLV or XLU and look at some upside butterflies in a slightly longer cycle. To dabble in the sector ETFs that are getting hit buy some OTM put time spreads (plus the flies) just in case to generate some decay and more vega if they keep imploding.

EXAS is bucking the entire market trend and might make an interesting long play.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, September 29, 2014

Aqumin Volatility Newsletter 09/29/2014 $SPY

Vol buyers looking toward NFP

It is possible we are back to the days when the NFP numbers mean something. Stocks are more edgy lately as the intraday volatility picks up. The 16 VIX right now is justified on the touchy moves over the last 4 or 5 sessions. The bid for volatility today belies something else.

Note on my snap from OptionVision™ today the way IV is up in the SPY. There is some weekend effect in the options from the day reset but note how smooth the change in IV was. Volatility did not jump too much in the OTM option relative to the ATM options. What this says is that traders think IV should be higher all up and down the curve.

9-29-2014 3-03-02 PM

IV is telling us the market is going to move. The VIX futures kept up a healthy gain today and are following the change in the VIX cash closely. Normally if the spike in IV is viewed as short lived, the futures will lag the cash VIX by a substantial amount. That is not the case today. The even move in IV all up and down the curve is telling us that.

This payroll number will come and go but will the volatility remain? Stay tuned for Friday afternoon but I think the bid for IV does not last past Friday. I like the idea of flat delta iron condor in SPX or RUT. If worried about a sustained selloff after the NFP, hedge with cheap 4-5 point wide butterflies in the VIX Oct cycle with the Iron Condors.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit