Monday, April 7, 2014

Aqumin Volatility Newsletter 04/07/2014 $SPX, $VIX, $SPY

The volatility drop that wasn’t

The stock market looks like it has had enough of tepid jobs reports. There were big hopes of 275k jobs or so but all of those hopes were dashed today. The happy number was private payrolls are back up to the pre 2008 crash highs. I guess that means government payrolls are not, but somehow we are spending a whole lot more money than we were back then. Either way stocks were a bit grumpy about it.

As I sit now the SPX is down around 21 points but 30 points from the run it made for 1900 when it stopped short at 1897.28. That is almost a 2% move but the VIX is only up a whopping .83 right now to 14.82. After spending the open in the 12 handle, VIX pretty much drifted up for the rest of the day. The curious thing is that IV ATM is barely moving. While the VIX is meant to increase on a drop in the market, it does need a jump in IV to really make it hop.

4-7-2014 10-42-13 AM

As you can see from the OptionVision™ Landscape there was a jump in the skew, barely, but hardly a whiff of IV jump At the Money (ATM). I don’t think the market players are taking this jump very seriously. This is probably a good chance to sell a 30 day or less broken wing butterfly on the downside in the SPY or large index. The non-vol. response is telling on a day when IV should be jumping.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, March 28, 2014

Aqumin Volatility Newsletter 03/28/2014 $SPY

The Weekend won’t go away

Stocks made a little rally today on the good economic news in the morning. Much of the early gains went away as the day wore on. For what seems like the 5th time this week the VIX cannot hold the lows of the day into the close. As I write this with 30 minutes to go today, the sub-14 VIX came and went with the slow deterioration of sentiment.

Where did it come from? To keep with the story of the last couple weeks the OTM puts continue to attract the attention of premium buyers. Maybe the Russian’s massing on the boarder has something to do with it but there is still a bid for OTM IV going into the weekend.

3-28-2014 3-06-38 PM

The one thing about buying juice on a Friday without a mark down is that it is near certain to suffer two days of decay. That might not mean much if the Russians decide to bite off a bigger chunk of Eastern Ukraine. Even so, market for volatility is giving it some respect. It is not a bad idea.

I think a decent weekend trade would be a VIX strangle. Buy a 16/21 call spread and a 15 put in the Apr cycle. Try to get the package for $1.30 or so. If nothing happens and the Russians go away, 13 VIX will be possible as the skew melts away leaving the Strangle nicely in the money. If they march in, the call spread will be an easy close to finance the whole thing plus some.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, March 24, 2014

Aqumin Volatility Newsletter 03/24/2014 $QQQ

Market is still worried

Stocks sniffed all-time highs again and pulled back from the brink. The simple answer is there is no reason to be running at all-time highs. That was enough to push stocks back off of their shiny new plateau. Since we are a volatility newsletter, let’s look at the underlying currents.

First off, the skew is not coming in from the panic levels we set earlier this week. If you look at the OptionVision™ Landscape, ATM IV is coming in but the further one moves OTM the rate of decline seems to taper. That would be the highlighted row moving right to left. What that means is there is a lack of willing sellers of downside puts.

3-24-2014 9-02-40 AM

As we going into the weekend there seems more to worry about than be happy about. The Fed broached the possibility of raising rates which means there is a bit more economic activity than they are letting on. The 90s went along quite well with rates that would be considered usurious right now. Those masses of capital out there sitting around are definitely not selling puts.

My simple advice then is to avoid buying the OTM options. I still like the QQQ as much of that index is in tech heavy, relatively low multiple names. The best trades would be to go out 6 months, buy an ATM call and near OTM put spread and sit and wait. If the skew buyers are right and they start to dump their puts, it would be a good time to lighten up on the spread in this strangle. If they give up earlier and you start to see deep red in the OV landscape on the downside puts, we might be in for new highs.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit