A lot of the trading story right now is centered on the Commodities with the Silver bust among the most spectacular of the crumbles. For this update I want to examine volatility and market capitalization. For the most part the bigger market caps command smaller implied volatilities because of the more stable nature of the underlying. Let’s take a look a couple of the bigger standouts.
The views created were out of AlphaVision for Bloomberg using the top 2300 actively traded option classes.
ETF Focus SLV, SCO
For the ETF’s what I mentioned two weeks ago was the higher implied volatilities of the metals, namely the ZSL, SLV and AGQ, as Silver was going straight up. Normally as names wind higher, the implied volatility compresses to some degree but that was not the case with those three and we had a serious correction as the option prices indicated. The landscape is arranged where the rows are organized by Market Cap from left to right and they decrease as you move to the back. The SLV is now the 6th (front row, 6th from the left) biggest Market Cap ETF among the actively traded ETF’s so there has been big inflows in there. The dark green color indicates a 30 Day Implied Volatility of over 40 and you can see it is a standout among the large market cap ETF’s. It might be time to make a short Vega bet in the SLV since the correction looks to be sticking a bit. As a side note, I had noted two weeks ago the SCO might be a good volatility play in commodities since it was driven near into the hole and only one direction seemed assured. Since then implied volatilities have near doubled.
Stock Focus FCX
Using the same view as above but looking for interesting stocks instead I noticed the dark green, Big Cap Materials name FCX (Freeport McMoRan). First the name is in the top 10 of Market Cap but also is showing the highest 30 Day Implied Volatility of any of the Big Cap Materials names. No doubt this is a spillover from the Commodities moves. The stock is flat since October even with the prices of the metals sky high. With the more expensive volatilities and near flat performance over the last 6 months this might be a decent candidate to buy write at this point.
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