Wednesday, March 28, 2012

Aqumin Volatility Newsletter 03/28/2012 - $AMZN $AAPL $PFE

Window Dressing

Ah, the end of a fat quarter for equities. The naysayers are going to have to re-establish new higher levels to short as most of them got plain run over. The VIX is hanging stubbornly around 15 which I view as the Goldilocks Level, not too hot and not to cold. For the most part April volatility is cheap on a yearly basis as individual equity volatilities are back to or below pre-crisis levels. As the 1st quarter winds down to remind folks that stocks can go higher, I have a nice view to point out.

The view below is just the standard AlphaVision™ Landscape for Bloomberg that shows real time price change and market capitalization. Fat buildings have larger market caps and skinny buildings have smaller ones. The green stocks shown here were up yesterday. Wow it is a big deal, right? Except I get to see all stocks that trade options in real time. I get what is on my Watch List plus the market. On a dead day yesterday where the liquidity was bone dry I did notice some nice market patterns. One, the smaller caps are still showing some strength into the quarter end and two, there were a few big cap names up on the day. These I will call the Window Dressing stocks.

3-28-2012 9-26-11 AM

On a slow day most of these big name gains would be lost under all the bigger gains of the small caps on a downloaded list. This way it is easy to see the pile on toward the quarter end in AMZN, AAPL (big surprise there) and PFE.

For now the Implied Volatilities are relatively cheap in these names and a flyer on some long call spreads into the quarter end might not be a bad idea. All the money sitting on the sidelines in Q1 2012 will have to dress the pig somehow, so take the little cue early on in the week.

Read more from Andrew at Option Pit

Wednesday, March 21, 2012

Aqumin Volatility Newsletter 03/21/2012 $DOLE

Gone Bananas

As most market participants know the SPX has crept back up to 1400, mostly on the back of AAPL and the reawakening of the Financials. The NASDAQ is above 3000 which for me is a trip back to my youth in the late 90’s. This time though the valuations are a bit saner. While the new Tech Boom is getting headlines, let’s look at some names slipping under the radar.

Using the Realized Volatility Landscape in AlphaVision™ for Bloomberg below, you can see lots of “pop” in many of the sectors. This is just 1 week total return on the upside. Most sectors of the market are pretty lively with some upside action with dark green stocks showing 10 Day Realized Volatility 15 points above the 30 Day Trailing Volatility. If the name is Dark Green and flat it just means the name made a big round trip (up and down and near unchanged) and is hanging out. But there was some action at some point during the week.

3-21-2012 9-56-24 AM

As you can see from above DOLE had some swirling action then cooled a bit. Normally if I get a pull back like that I add the name to the list for a buy write candidate. Money that piles in tends to do it again. Also note how flat the Consumer Non-Cyclicals are right now after a good start to the year. With the super low realized volatilities in the group they have become unsexy as money looks for more risk. Keep an eye on them since the hotter money is not there, yet.


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Wednesday, March 14, 2012

Aqumin Volatility Newsletter 03/14/2012 - $MS, $WFC

Stressed Out

The Fed released the Stress Test results yesterday and I don’t think there were too many surprises. The banks that fared best in the 2008 crisis are doing better now and banks that had troubles still have not totally righted the ship. Here is a pre-announce Volatility Landscape from yesterday morning.

What I have below is view of 30 Day implied volatility (IV) and market cap. Any stock in red is trading at a 30% implied or lower. Note many of the financials are green (30%+) to dark green (40%+) which denotes higher IV’s. All of those green banks were based in Europe except for Morgan Stanley (MS). It is still too early for the Euro Banks to shake off the Greek Crisis. Note that many of the big US Banks still had very low IV’s. The Stress Test for many I think was not a big deal. The big footprint means the banks have larger market caps and normally they have the lowest absolute IV’s of the sectors. For instance, WFC is the largest financial by Market Cap (lower left –Financials Sector) according to Bloomberg Data.

3-14-2012 9-02-45 AM

Mostly there is a lot of red out there as the bigger market names have had their volatilities come in, large US Banks included. Most of the 40%+ implied volatilities are in the smaller cap, more speculative names now, which is more normal. The issues for the Euro Banks probably won’t end soon. I think MS is interesting because it has not recovered with the other banks price wise and is still showing higher IV’s. Perhaps now that the Fed Stress Test is over the IV’s were signaling a bigger move for MS to get back and join the US group.

Tuesday, March 6, 2012

Aqumin Volatility Newsletter 03/06/2012 - $SNDK

Dusting Off the Old Crisis

The sell off today is just another round of the Greeks messing with everyone’s mind. No wonder the Romans ran over them back in the day. This crisis still has legs (albeit shorter legs) and the volatility markets were pretty severely bid even though not much was happening in the underlying volatility markets. How can you tell that?

Take a look at the AlphaVision™ screen below that measures 10 Day Historical Volatility less 30 Day Historical Volatility. Much of the red you see means that the 10 Day Historical Volatility is trading under the 30 Day Historical Volatility. In layman’s terms that means most of the market was grinding to a halt. Also note that much of the 1 Week Total return was below the landscape horizon (negative). Most of the downside green spikes were stocks that have just gapped lower this past week.

3-6-2012 3-49-22 PM

The Greek Debt timetable is pretty well known, but the story seems to have changed drastically today, at least that is how the equity market reads it. Most of today’s move was priced into the volatility indexes even as the underlying volatilities (all the red buildings above and below) were not moving much before on balance.

I think the play with the mini-crisis is buying option premium in relatively low volatility names right now. If, as I expect, the EU pushes this debt swap through things will feel a bit buoyant again and most of the IV in name stocks is at or near 52 week lows already. From a risk point of view it is probably not worth fading the crisis yet, better to buy options that are already in the bottom (much like Greece’s economy). Look at names like SNDK that were already in the volatility basement and see if buying the future movement is worth the price. If recent history is any guide, this might be just the first shot.