Wednesday, June 27, 2012

Aqumin Volatility Newsletter 06/27/2012 - $NUGT

Muddling for Gold

As the volatility has calmed down some over the last few weeks (calmed, not gone away), it is interesting to note that stocks and gold have come off their recent highs. Seems like we are not hearing much about it but both are slowly losing the momentum we had coming out of the Greek elections. Since nothing was really solved, Spain now says they cannot finance at 7%, the market does not have much to look forward to since the fiscal issues and reforms are what’s needed to add some confidence. Right now that is not happening here or over there. When one of the best performing assets is the US Treasury Bond over the last 10 years, there have been some serious policy foul ups. I do like looking at the leveraged ETF for short term signals when they are a stand out. Look at NUGT below.

NUGT is the 3x Gold Miner Bull ETF. It was also the worst performing ETF over the last week as investors left gold in droves. The AlphaVision™ landscape below is inverted so not much good happened over the last week for long equities. The landscape color is showing increasing (green) and decreasing (red) realized volatility. NUGT as a proxy for gold is a pretty good indicator. The name is declining at a less volatile rate which is probably not good for keeping up the implied volatility. It feels like gold will muddle around here for a bit.

6-27-2012 10-33-08 AM

For now the Treasury bond seems to have replaced gold as the flight to quality instrument. And imminent inflation does not seem around the corner. Short, controlled positions like Iron Condors in the midterm out of the money options with 60/40 payouts might make sense in this one. If the realized volatility continues to fall the implied volatility should follow soon enough.

Authors Note: Leveraged ETF pose substantial risk. Keep any transaction contract neutral and consult your financial advisor before executing.

Read more from Andrew at Option Pit

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