Friday, July 24, 2015

Aqumin Volatility Newsletter 07/24/2015 - $XME, $XOP, $XLE, $LNCO

Is inflation dead?

Equity prices are very near all-time highs with the help of financials and technology this week. What is conspicuous by its absence are the commodity names. Oil, natural gas, iron and anything remotely close to those industries are deteriorating at a rate we have not seen in a while.

Below I have arranged the OptionVision™ Landscape by realized volatility. The “parking lots” in the foreground are the big 3 sectors for commodities and the realized volatility is racing up with the names putting 1 week lows. Usually declining prices in rising volatility is a capitulation of sorts. I don’t know when this will end, but these names have been taken to the woodshed and then some with oil hovering in the $50s.

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It is true that gold is putting in multi-year lows and all of this has the look of a stampede out of these names. Note that Treasuries have been rising even as the Fed talks up rates. Somebody thinks commodities are dead and leaving in a hurry. I don’t deny the price action, but when I see so much one -sided action in these landscapes it usually does not last forever. The best idea is to own calls and puts in bigger commodity ETFs (XLE, XOP, XME) and trade the deltas as they come.

Disclosure: positions in commodity ETFs.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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