Thursday, December 18, 2014

Aqumin Volatility Newsletter 12/17/2014 $XHB

Happy Housing

The stock market got a gift from the FOMC minutes release today by leaving the status quo largely unchanged.  I guess there is enough jazz in the mix with oil prices, Russian solvency and high yield debt for the Fed to chew on for a while.  There has been plenty of volatility to go around with VIX trading just over 23 today on a  run down to the 19s.

On my OptionVision realized volatility landscape, I have rearranged things so the most volatile names on average are in the front of the 3D vol map.  The surprise is the Homebuilders are showing the most volatility over the last 10 days relative to the last 20.  You would think Energy and Oil, but those names have already been volatile so relatively speaking they were just moving like they were in the slide.

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I read this as homebuilders got caught up in the recent market vol. and got tossed a bit more than others on average because they were so stable earlier.  Now that the rate picture is clear these should do ok.  I think a long OTM call time spread in XHB (Home Builders ETF) would work ok, or selling some OTM puts spread in a farther term cycle.  Maybe both together if you are feeling frisky.  Cheaper gas means it will be cheaper to build houses too, just saying. 

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, December 5, 2014

Aqumin Volatility Newsletter 12/05/2014 $GDP $VIX

The Parking Lot

Ahead of the NFP number stocks have made a quiet rally this week to all-time highs. VIX is back in the 12 handle and the ECB seems to have had its fill stimulus. Really the most interesting news is the slide in oil prices and the destruction of all the E&P companies as the USA is upsetting the world apple cart for oil.

If you look at the IV/HV OptionVision™ landscape below, note that the Oil and Gas, Energy and Mining names have been taken to the woodshed. The price of oil and the future price of oil have cut some of the stocks in half and many speculative names by more than that. Look at GDP which is now trading below book value, although I assume that book value will get re-evaluated at $65 a barrel oil. While the stock is in the tank in GDP the IV is sky high (green downward spike).

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I think for some of the spec stocks like GDP, a combination of short volatility in the individual name and short position in oil could make some sense. The pricing is starting to get compelling. The formation on the landscape is what we call a “Parking Lot” meaning the whole sector is for sale. Normally these are opportunities but traders need to be patient.

Buy midterm put spreads in USO and sell OTM or ATM puts in a GDP type name to pay for it if oil keeps tanking. The short juice in GDP should pay for the short oil position if the skid stops and should allow a couple of sales in the name stock.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Wednesday, November 26, 2014

Aqumin Volatility Newsletter 11/26/2014 $EGO $GDX $GDXJ

Gold might glitter again

Stocks are still managing to stay near their all-time highs as we wait for OPEC to deliberate on production cuts. So far there is not much in the way of news on that except for some snippets from oil ministers that they are not cutting. The price of oil remains in flux to put it mildly. Another commodity making some moves lately is gold.

With the raft of easing going on between Japan and the ECB, it is a wonder that gold does not take off. What gold has done for most of the year is fall apart. Most of the gold miner indexes are near the lows. When you view that in the OptionVision™ realized volatility landscape, the miners are actually starting to bounce. On average the Metals and Mining group has the best average 1 week total return (bottom left hand sector).

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Also note that the realized volatility is declining for most of the sector, keeping with the overall pattern of realized volatility decline in the market. I selected EGO as sample miner with rising prices and declining realized volatility. This is what you want to see for a group on the mend after getting smoked for most of the year.

With easing likely to continue, gold miners are making their way out. A good way to play this would be selling OTM puts in the GDX or GDXJ. As long as you can stomach the ETF’s down here this is not a bad way to play the record equity prices.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit