Wednesday, April 20, 2011

Aqumin Volatility Newsletter 4/20/11 $AMZN and $VXX

There are strange days and there are stranger days. S&P cuts the outlook to negative for US sovereign debt and the VXX tanks 4.8%. Either the market does not put much stock in the ratings any more or the Federal Government now has to do something. Most likely it is a bit of both but either way it is not a positive outlook. At some point the bond market will decide on the appropriate level of spending. This short report will look at interesting volatility buying opportunities because even if the market yawns on bad news, I would rather look for cheaper options to buy.


The nice thing about options on ETF’s is you can dial the strategy for literally any securities segment. Using AlphaVision you see all ETF’s that trade options in one, easy updating 3D chart. What I like most is you can see both action, note the drop in Aqumin’s AlphaVision Landscape in the VXX below, and non-action like the FAS and the FAZ (very flat which means little movement on Tuesday). The red color and the order (row in the back) here mean these names are close to their 30 Day Implied Volatility lows of the year and relative to the rest of the traded ETF’s, lowest of the group.


THE Direxion Daily Financial Bull 3x ETF (FAS) and the Direxion Daily Financial Bear 3x ETF (FAZ) are both trading near lows for the year in 30 Day Implied Volatility even with the US Treasuries’ negative outlook. Buying longer dated premium in these fast moving ETF’s would provide a nice hedge (at a nice entry point) for whatever may come.

Also of note is the iShares FTSE/Xinhua China 25 Index (FXI) in the dead back of the back. More on this name after the equity focus.


The Google crash was a bit of an eye opener in Internet stocks. It is hard to believe GOOG is considered “old tech” but here is an Aqumin Landscape to show why. The set up in our 3D chart has green towers showing stocks trading farther away from 1 year highs in 30 Day Implied Volatility. The green means the volatility is relatively cold (low) (all though REDF is bit of a data outlier with short trading history) the red (high) means the volatility is relatively hot. Most of the Hot Names are in the Chinese Internet area with both the stocks and implied volatility flying. The building heights are the relative values of the moves on Tuesday (note GOOG still moving but cheaper implied volatility). You can contrast this with the FXI above where the Chinese Blue Chip type stocks are hitting Implied Volatility lows (a lower risk way to enter that market with not a single Chinese Internet stock in the index).


After a bit of clicking in the landscape I saw Amazon trading well off of its highs and still sports a pretty high P/E multiple. Outside of both GOOG and AMZN, paper is definitely bidding up the volatility in the hotter Chinese Internet names and drifting away from a couple of older Internet players. I will stick with buying the cheaper options in both GOOG and AMZN for now since it does not take much to make one of these names move.

No comments:

Post a Comment