Aqumin Volatility Newsletter 09/27/2011, $WAG

How to find a WAGging dog?

For the last few weeks I have been mentioning Euro Zone issues and some of the specific highlights in market volatility, especially around some of the outliers in the metals (Flaming Cheese, OPA!). More whispers of EuroTARP have filled the air and all the bulls came out storming. But even as I write this today, things are already starting to fade and maybe because the Euros have not really solved anything yet. I want to highlight a more mundane market activity, an earnings announcement, and see if there is something to all of this broad market quoting, especially when you look at relative relationships. And I will throw in a small volatility observation to boot.

AlphaVision at its core is a 3D quoting screen (using market data of course). It does what a normal quote screen does, but as my 4 year old daughter would say it does it “betterer”. How so? Simply, the landscape helps generates ideas. In the AV for Bloomberg Equity Landscape below I have my normal market quote view. This little gem was put together by Jason Javarone, our VP of Solutions and we call it Real Time VWAP Deviation. Essentially you are looking at multiple lines of 1500 different charts at once (for the S&P 1500). There were not many Big Cap stocks down at the time this morning so WAG caught my eye. The building height is [Price to VWAP-1] which just means the buildings sticking up (I have the landscape flipped over) are trading below their Value Weighted Average Price. The Color of the Landscape is Percentage Change in Price (quote “fatness” is Market Capitalization) so the embedded Bloomberg Chart is showing WAG down for the day (red) and trading below WVAP (note the last tick position in the chart). The AlphaVision buildings are just the “last tick” for the data points selected. For whatever reason, the market did not like Walgreens (WAG) earnings even on a very green day.

In the second screenshot below, taken about 20 minutes later, you will notice many more buildings moved to the WAG side of the landscape horizon. The stocks are still up for the day but peeled off of their highs and many were trading below their VWAPS. Just looking at the Consumer Staples plate it is very clear. WAG barely moved. I read this relative activity as the money that moved in for the earnings pop has already left the building (no pun intended) and when the market started to sell off a bit WAG held up. This is good for the name and with Implied Volatilities more toward the higher end of the spectrum, WAG here (with the market action), makes a nice entry point with some short put spread-type trades or In the Money Buy Write. The market dog is not WAGging this one, and for now that is a good thing. Might be worth a look.

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