Thursday, November 20, 2014

Aqumin Volatility Newsletter 11/20/2014 $TGT $WMT $SSI

On Target

The FOMC did not announce a whole lot in the way of surprises yesterday. Chairman Yellen is not too concerned about the global tumult and probably with good reason. The USA is starting to get back to normal without Fed help. There are big bills to pay but it is doable. The Fed’s paid back WWII debt and they can do it again with reasonable policy. The future looks ok and lower gas prices are not hurting. Confident consumers will take those bucks and go spend.

It looks like they are spending them at Target (TGT). While it is not the exact demographic as Wal-Mart (WMT), TGT shoppers go there for nice products at good prices. If you look at the OptionVision™ realized volatility landscape, TGT was the best performing big retailer on the back of surprisingly good earnings. Stage Stores, Inc. (SSI) was the other performer but not a blue chip. TGT was up sharply and running ahead of most of the industry with some momentum.

11-20-2014 9-02-50 AM

TGT has some catching up to do since it has spent most of the headline news on data issues and turnover at the upper levels. The stock just turned positive for the year last week. As petrol dollars flow back into the US, that should only get better. Selling Jan OTM puts to pick up the stock for unchanged on the year is probably a good do.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Tuesday, November 11, 2014

Aqumin Volatility Newsletter 11-11-14 $SPX, $VIX

The Vol walls are coming down

This may be the 3rd or 4th recent record for the S&P 500 as I cannot remember because we have had so many.  Stocks are seeing renewed buying interest after the election and for now the wind is at the market’s back.  There is not much wind in option premiums.  All the bears got their time in mid-October and for now that is all they have to hold onto.  The bump from the BOJ and ECB has put the kibosh on the bear’s hopes for now.

That brings us to the crush in IV yesterday.  Traders crushed it on Friday and they crushed it Monday.  Even another dustup in Ukraine was not enough to make folks worry.  Note the upside selling in the OptionVision™ 3D volatility chart below.  The scale is inverted so the tall red spikes are more selling.

11-11-2014 9-58-22 AM

Traders are discounting the big rally now.  We can still rally but the crazy QE induced stuff should be out of the way.  Old fashioned economic stuff will have to drive stocks and there is not much of that until after Thanksgiving.  I don’t think there is more than 1 point in the VIX to drop over the next two weeks, if it drops that much, after today.

An idea would be Double Calendars in the SPX (50 points wide) since there is some backwardation and liquidity providers have discounted Thanksgiving options already.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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

Read more from Andrew at Option Pit