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.

Read more from Andrew at Option Pit

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