The big bounce yesterday in Silver, which seems to be on a lot of minds, made me want to look at some of the Commodity ETF’’s to find a story that might not have caught the attention of everyone yet. The crazy metal frenzy should show up in a somewhat predictable way. I thought it would be instructive to view how the market is pricing volatility for some of the more popular Commodity ETF’s to see what pops out. Next to follow is a look at a post earnings stock to see if there are any opportunities in the current volatility pricing for that name.
The views created were out of AlphaVision for Bloomberg using the 2300 actively traded options universe.
ETF Focus
First looking at the AlphaVision Landscape detail you notice the Commodity BICS Industry group is mostly flat and green. That means the Proshares Ultra Silver Fund (AGQ) was leading the group (43 points) in 30 Day Implied Volatility running higher than the 60 Day Trailing Historical Volatility (Dark Green) and was pretty much flat for the week as far as where it started and where it ended stock price-wise. The ProShares Ultrashort Silver ZSL was a close second. The march higher in Silver is pushing implied volatilities way above their 60 Day Historical and it looks like the market is expecting bigger moves. This is speculative paper jumping into the mix in a big way.
Let’s contrast that with the ProShares UltraShort DJ-UBS Oil ETF (SCO) which sits at the opposite end of the spectrum and has been grinding down steadily since the beginning of the year as Oil has steadily wound up. The Implied Volatilities are much more in line with the 60 Day Historical and provide a better value for a pure long option play in the Oil arena. A big reason for this is volume. The ZSL trades 15k contracts (the hot name) per day and the SCO trades a little more than 500. If you can grab some contracts in the SCO, this might be the play for some cheaper options to play the Commodity Craze.
Equity Focus
Using the same view in AV for Bloomberg let’s look at a different segment of the Equity Market in Miscellaneous Manufacturing. In the selected name the 30 Day Implied Volatility is much less than the trailing 60 Day Historical. Like the ETF’s just mentioned, relatively flat for the week even though there was an up and back move to get there.
When you look at Ceradyne Inc. (CRDN) the name had the biggest differential in 30 Implied Volatility and 60 Day Historical Volatility. Since a relatively solid earnings report the CRDN has pulled back some now might make a better candidate for a vertical or ratio call spread that is long the more at money option to pick up the volatility movement. The shorter term historical volatilities are starting to pull the 60 day Historical Volatility down (chart on the right) which makes that type of spread a better candidate to fit the current action.
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