The Euro shivers still resonate. No doubt. Usually for a day or two lately but they are very real and drive our equity and volatility markets to hair raising swings. The stock market does not seem to care about fundamentals or earnings anymore. Does any of the recent volatility moves make anything standout as a possible opportunity?
I created a Volatility Landscape of 3 key components of activity on Friday the 14th- Daily Price Moves, Option Volume and Implied Volatility. For Implied Volatility I am choosing the 90 Day ATM (at the money) Implied Volatility (IV90) to see if there has been long term assumption changes given the very violent short term movements. If the action in the Euro Zone looks like it is cooling down this week, I will be looking to take advantage of some of the volatility that ratcheted up from last week. More volatility means more premium!
4:50 ET Friday, 5/14/2010
First I look for the winners on Friday the 14th. The entire landscape above shows stocks and ETF’S up on the day. The big sector in the lower left is Industrial Materials- the Gold Stocks. The short flat buildings in the upper right corners of 
each sector had no Call Option Volume on the day so I discount the names when I am surveying the Volatility Landscape. For volatility movements to be interesting on a big day like Friday there should be option volume in the name. The Tall, skinny buildings had a sharp change in 90 Day ATM Implied Volatility but no volume (just a wide market in an illiquid name) so out it goes. Issues that were up on the day with increases in 90 Day ATM IV on decent volume get my attention. I have the ETF’S highlighted because there is more activity there that is dispersed around the group. One ETF, in particular, stands out on volatility movement and option volume, the TLT (iShares Barclays 20+ Year Treasury Bond Fund). The other names in the ETF group were mostly contra and short funds and some of the Gold ETF’s. The TLT’s showed the greatest positive change in 90 Day ATM IV on names that were up with solid option volume on Friday.
By limiting names to only those issues that perform positively on the daily gyrations of the Euro/Greece problems, I am selectively looking for securities I think will decline the sharpest as the Euro events subside. The long term US Treasury is performing as the flight to quality instrument and the longer term volatility in the TLT rose sharply because of it. The out of the money call spreads in the TLT are starting to look interesting at these levels. Maybe there is a trade to be had here for someone?
The opinions expressed by the author are his alone, and do not reflect the opinions of Aqumin LLC, its shareholders, partners or affiliates.
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