Tuesday, May 29, 2012

Aqumin Volatility Newsletter 05/29/2012 $NUGT

Is there Gold in them there hills?

Last week began the countdown to the Greek elections and a referendum on whether the Euro holds together in its current form. As of now, I have no idea how it will turn out, except the polls are about even, with the left-wing Syriza party losing some of its early advantage. Maybe the thought of temporary economic collapse, along with tougher talk out of the Euro ministers, is starting to register. The equity market has a taste of what’s to come until mid-June - a little of nowhere punctuated by sheer panic. And then at some point, there will be an answer. Last week’s action was typical.

Below is the AlphaVision™ for Bloomberg Momentum view. Each the names listed on the CBOE (about 3000+) are represented by one of the colored buildings on the landscape. I use a difference of HV10 and HV30 (10 Day Historical Volatility minus 30 Day Historical Volatility) for both color and sorting. Dark green means that volatility is spiking, and tall means that the name is up sharply in price over the past week; I’m looking at tall green spikes. The times I think this really matters is when a name stands out, with few others doing the same in the sector. That shows that some capital was moving in. NUGT (Direxion Daily Gold Miners Bull) was moving out when most ETF’s were relatively flat last week. I don’t trade the levered ETF’s much, but I do watch their movement. Usually when one name really pops in this landscape, when the other names are flat, that name should start to run out of gas. It looks like the Gold Miners are getting there on an old fashion dead cat bounce.

5-29-2012 10-21-20 AM

The Gold Miners are very near the bottom of their range for the year and are showing a healthy bounce. The uncertainty surrounding more macro issues will give these names some support. I don’t think they are a short. Better to sell some controlled downside premium or mid to flat upside that is contract neutral in the Jun cycle. The Greek Elections are June 17th, after expiration, and after that selling gamma will not be on the top of my list.

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Thursday, May 24, 2012

Aqumin Volatility Newsletter 05/24/2012 - $AAPL

Peeled back in Apple

The market had a nice reversal yesterday. Over the last couple of days AAPL has generally been leading the market out of the Greece induced doldrums. I don’t think we get into any big rally mode until there is some clarity on the Euro issue (remember the 1st quarter rally?) so for now, market players have to take what they can get.

Look at the strike by strike activity yesterday in AAPL. In the morning, paper was piling into the name in June. Note the high relative volume (spiky green strikes) and pop in volatility when things looked extra ugly in the morning. The OptionVision Landscape gives a nice sense to the bid in volatility in the morning. Will it hold up?

5-24-2012 11-01-01 AM

Now as the day progressed and AAPL started to catch a slight bid the upside volatility started to peel back a bit. Note the upside strikes in the OptionVision Landscape below. The red buildings are showing the hints of implied volatility coming in and this was a good signal to start selling the IV in general in June. While the more ATM contract stayed bid 2% above their opening value, they did drop from about 4% over. Either way, the bid in volatility coming off was a good signal to sell it.

5-24-2012 11-03-06 AM

Watching the volatility flow in action helps create positions. With the higher IV, AAPL is setting up mostly for butterfly type trades and catching a downturn in IV helps add some positive p/l in a hurry.

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Thursday, May 17, 2012

Aqumin Volatility Newsletter 05/17/2012 - $HLF

Is Herbalife going to be cut in HLF?

While most of the market teeters on the anticipation of Greek elections in mid-June, there are still events outside of the worry that are fun to watch. As I prefer to see market activity in 3D color, I thought watching the new flow product OptionVision from Aqumin and ORATS (Option Research and Technology Services) would be helpful.

Using OptionVision traders can see intraday option flow for individual equities, indexes and ETF’s. Pretty much anything ORATS already covers. Just type in the name and up pops the Relative Volume and Implied Volatility change for the name you want. Since I was all ready following HLF on the heels of the first Einhorn questions during the HLF earnings, this is a great way to keep on top of the order flow per strike. The name plunged from $70 to $41 last week and I wanted to see if I could get a hint if it was going to rally. I had a time spread pick going in TheStreet’s Option Profits once HLF hit about $42.71.

The screenshot from yesterday shows how the volume was pumping into the upside calls in May. The Option Relative Volume describes how much the current volume on a strike is spiking over the 20 day average for the front 5 months active series. Before the news hit the tape the action got kind of bubbly as you can see. Either way it provided a nice out for the time spread.

5-17-2012 10-13-37 AM

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Wednesday, May 9, 2012

Aqumin Volatility Newsletter 05/09/2012 $AVP, $DF

Putting Lipstick on the Pig

I am officially deciding the Euro fiscal problems are a permanent part of the equity markets in the USA. While the USA will no doubt have similar problems if the government fails to act at some point, you would not know it from the strength in Treasury Bonds. The new volatility is nerve racking for equity holders but great for traders, especially if you have a nice way to keep track of the movement intraday. The buy near the open and sell near the close has held out now 3 days in a row. The Euro Banks sell in their session, crushing the USA markets, go home and the sellers leave lifting the broader indexes here. Take a look at the landscape below.

5-9-2012 12-17-25 PM

This is the AV for Bloomberg VWAP Landscape. Buildings that are up on the day are trading ahead of WVAP. When they are red (still down on the day) or green (up on the day) that tells the traders the relative position. The muted white color is very near even so as of this afternoon things look a bit mixed to weak, but not as bad as this morning. The fact that most of the S&P 500 was trading much higher midday than in the morning means the pattern is keeping up. (This landscape was all below the horizon at around 10am ET this morning.)

Some of the bigger names in Health Care and Consumer Staples did not bounce back. I have AVP (Avon Products) highlighted because the deal seems to be back on. The dark green color means that the name is trading strongly near the highs of the day. If Coty is raising money maybe a higher bid is in the works. An option trade that may work is something like a short time spread in the just OTM puts. If you can collect a nice enough premium before the cash buyout you can buy some new lipstick or man cologne for that special someone.

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Thursday, May 3, 2012

Aqumin Volatility Newsletter 05/03/2012 - $NFLX, $HRB


Where I was pretty bullish about 6 weeks ago, my ardor for the upside swing has cooled a bit. On balance I think we go higher but the pace will most likely be subdued. For every good ISM report we have a riot in Spain because people can’t stay on the dole forever. I guess our time is coming too but that news still dampens the market in a hurry. It does appear that private capital is back to buying PIIGS debt, so most of what I look at has seen a cooling of the volatilities across the board even if we are not back to the lows in IV. Essentially we have an up and down market where ¾ of the world is growing and Europe is stuck. So I turn my attention to activity that pops up in individual names and to less broad market activity.

Below I have a Wednesday snap of very active names in the S&P 500. The tall dark green spikes are basically names that have dropped quickly (I have the landscape inverted) which I read as HV10 (10 Day and 30 day realized volatility) running over HV30. The short term realized volatility is much faster than the mid-term volatility. I selected NFLX yesterday afternoon (HRB was next to it on the bigger spike but not much interesting trading) and below was day 2 as things opened this morning.

5-3-2012 11-09-03 AM

5-3-2012 11-10-57 AM

Essentially, NFLX was leading the pack in underperformance after earnings, and the downward momentum is keeping the name near the top of the bottom of the heap. When stocks die they tend to die slowly after a poorly received report and NFLX is not an exception. The reality is competition creeping into their business even though I think they have a great delivery system. As May expiration approaches its leading weakness will probably persist. Short out of the money call spreads that are contract neutral (or net long contracts) might do the trick in the May or June cycle. Use any bounce to initiate. Usually when the market loses love the relationship is over for a month or two at least. The funky sentiment is not helping either.

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