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.

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