Sunday, June 21, 2015

Aqumin Volatility Newsletter – 6-22-15 $SPY

Bidding up the Weekend

Greece once again takes center stage as the EU and ECB get fed up with non-compliance out of their Mediterranean neighbor. The huge rallies one day are replaced with the disappointment the next locally. For the first time in a while VIX is going up into the weekend. While Greece is a drop in the bucket in the global picture GDP-wise, it still has broader implications for the Euro and stability. The equity market hates political instability.

The reality is that IV is up only a bit. Every rally is met with a selloff until Jun 30th when Greece defaults or not. Until then the best play has been to buy dips in volatility.

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The best method for this would be buying just OTM put time spreads in the SPY that sell Jun 26 Weeklys. If history is any guide, we will move a bit but nothing will come of it until the following week.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Wednesday, June 3, 2015

Aqumin Volatility Newsletter 5-29-15 $SPY

Withering Volatility

Try as we might the volatility market cannot hold a real bid. Is there a volatility market you ask? Of course there is, it just depends on where you look. Today the VIX cash was up .63 to 13.92 as stocks sold off about .6 %. That is about normal as VIX will increase when the market falls. The question is there a demand for put options at this level?

If you look at a 3D snap of how volatility is moving the answer is mostly in the near term. We are getting some near term pops in IV per strike, but nothing on the longer end of the curve. Until I see the long end jump I am not going to worry too much.

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Junky GDP numbers after the long winter are becoming a habit and this cycle was no exception. The second quarter will probably be better. With Greece the only real issue in the near term there is not much else to worry about. The Fed and ECB are still driving the boat and they have been known to crush the volatility.

It is not just the VIX, but how the IV moves that matters. Long term changes in IV are more important than short term changes. Using the short term pops in volatility to buy upside broken wing butterflies for credits has been very reliable this year. Keep the terms less than 2 weeks and create the short strike around new all-time highs in the SPX.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, May 1, 2015

Aqumin Volatility Newsletter 05/01/15 - $SDEX $VIX

Rally With Morning Coffee

We have a mild rally this morning and it is not too surprising.  The selling this week was more like someone needed to sell.  Many of the big cap names were slammed, most likely to pay for bond positions that were blowing up.  The short Euro trade must be hurting a lot of folks.  Those folks should want some juice.

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The thing is the skew did not get steeper. Note the volatility surface in OptionVision™. The big bulges in IV were closer to the money and the OTM puts did not rise as fast.

The SDEX is a fairly new skew product, but is a nice indicator for steepness of skew in the 30 day cycle for the 25 delta put.  The general range is 71 for a steep skew to 61 for a flat skew.  Today the SDEX tanked to 63.31 down 1.46.  What does this mean?  Put owners were taking profits and the ATM option got bid.  Traders are looking for a move from the money not a crash to the OTM. We are getting that move this morning.

The skew should steepen again as we rally if the ATM starts to decline (rally mode). Upside call butterflies in the big indexes will look good.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit