Friday, September 28, 2012

Aqumin Volatility Newsletter 09/28/2012 - $AAPL, $GOOG

When the leaders don’t lead - look at the volatility

My catchy title does not mean our illustrious politicians of course (although the Euro lot seems to be getting a bit more on the ball) but watching the market trade intraday. The market had a decent reversal by the announcement of the Spanish stress tests, but as of this writing on the close not much more has materialized at this quarter end.

If you note the real time VWAP landscape in AlphaVision™ for Bloomberg, the big cap market leaders in technology (GOOG and AAPL) suffered all day to find a bid. The fact that they are red in the landscape means the stock is down on the day. The names under the horizon are trading below their value weighted average price for the day. Buildings that are red and pointing down mean stocks with a very low relative strength on the day. Not even a quarter end mark up could help.

9-28-2012 3-35-51 PM

As this season ends, the big rally the market had went out with a whimper. The sell off today was mostly the big names running out of gas but generated a nice little rally in the volatility. Monday (three days from now) will end up being the volatility sale for the week as the market looks for some new traction and continues sideways now that more Euro news is out (again, it was not awful). Make sure to close the short volatility positions ahead of NFP just in case.

AlphaVision™ – data from Bloomberg

Read more from Andrew at Option Pit

Tuesday, September 18, 2012

Aqumin Volatility Newsletter 09/18/2012 $NUGT

Golden Times Ahead

This week is already feeling like zip is going to happen. No real volume, no real announcements and just a general lack of enthusiasm. Back in late June, I remarked on how listless gold had become (see the post from June 26th). And in fact the product I referred to, NUGT, hung around the 10 handle for the next two months. Things are a little different lately.

As you can see from the AlphaVision™ for Bloomberg realized volatility landscape below, NUGT was the equity ETF standout over the last week. As a matter of fact, most stocks did pretty well except for the volatility products. In this realized volatility landscape, the green stocks have short term realized volatility increasing over the last 30 days. It is not a surprise since the market has had pretty good sized up days in the last 10. Note how most of the market had much higher short term realized volatilities (all the green shown) NUGT by its short term nature is riding the gold miners to some near term highs for the name.

9-18-2012 12-43-30 PM

As in the early summer, most of these levered ETF’s have a hard time maintaining momentum once they race this far up (or down) ahead of everything. I would not be surprised If NUGT lost a little momentum going forward (although I have a hard time fading the gold rally). Maybe a name like NUGT would be best served with an upside trade that is still long but takes in some premium like an ATM butterfly. That should get us to mid-October when the ECB weighs in with yet another decision.

AlphaVision™ – data from Bloomberg

Read more from Andrew at Option Pit

Friday, September 14, 2012

Aqumin Volatility Newsletter 09/14/2012 $NBG, $SPY

Beware Greeks bearing risks

I am watching the rallies of the last few days and all I can think of is Batman. Yes, Batman. I want to say “Holy hat racks Batman this is a big rally!” I like to think of them as melt ups. The markets have been crashing up every time there is a snippet of good news. Clearly Bernanke’s 3rd bond buying escape sent big dough into the markets as we went to year high’s if not multiyear highs. Has there been a shift in risk appetite?

Just creating a realized volatility landscape for the market usually gives me a lot of information. Most of that information (on a macro level) tends to be from what names are showing up. Not even looking for anything and out pops the National Bank of Greece (NBG) on a Total Return basis for the last week and realized volatility basis. NBG was near the top in realized volatility (strength of the move) and tops in percentage gains. While there was heavy short interest in it, the signs that the shorts might be giving up is usually risk subsiding. The only thing holding up index volatility is the violence of the up moves.

9-14-2012 1-06-31 PM

At this point it will pay to be long in the market until the end of the year. Why? Because perception of risk all down the curve is starting to drop. NBG is just one more symbol of a market driven less by fear (now of course it is Fed generated liquidity). Of course the politicians need to step in and do something (cut spending). But I think the Euro collapse fear is down hugely and having shorts cover NBG is just another sign.

A nice trade might be going long index products (like the SPY) and hedge with a ratio put spread in the Oct month (buy 2 out of the money puts and sell one at the money put) for a credit. The reduction of risk makes protection cheaper, and it is better to buy it now when you don’t need it.

AlphaVision™ – data from Bloomberg

Read more from Andrew at Option Pit

Friday, September 7, 2012

Aqumin Volatility Newsletter 09/07/2012 $UXVY $DUST


Are we living in bizarro world?

The plan presented Thursday by Mario Draghi put the market into orbit. 2%+ rallies are great but this one was more a result of short covering than anything else. The ECB will print and the Euro goes up-must be short covering. The NFP data is not so good and the 2% rally of yesterday gets a boost- must be short covering. At least gold was not buying the non-inflation thing as metal rallied to near term highs. What asset is performing the worst this year?

The answer is volatility. See below in the AlphaVision™ for Bloomberg landscape, the UVXY (ProShares Ultra 2x short term VIX futures) was the worst performing (inverse scale) actively traded ETF this last week (10-1 reverse split not withstanding). UVXY made year lows today too. Also the name was showing higher relative (dark green building) 10 day volatility to its own 30 day volatility. The collapse in UVXY has serious velocity, which screams paper wanted out. The only name close was DUST (levered Bearish gold product from Direxion). The market, at least from a volatility standpoint, is calling the Euro crisis over and it just might be.

9-7-2012 2-52-32 PM

My sense of this is that the volatility collapsed after Thursday’s Spanish Bond auction when Draghi basically told the world the ECB is ready to print to save the Euro. I think all the market really cares about is that the Euro holds together, at least in this algo driven age. Stocks are living on a dose of news snippets and yesterday’s was the doozy. I think most of this year’s rally was just the addition of last year’s non performance. After all the 14% the broader market is up is just 7% for last year (basically flat) plus the 7% for this year so this level is reasonable. Without any Euro nonsense, which is mostly freezing up liquidity, we could easily go higher.

Speaking of news, the German High Court will rule on September 12th whether the ECB bond buying scheme is legal. If it is, I think the market is off to the races for the rest of the year as most of the money has been collecting dust in cash, T-bonds and mattresses. Ask the question if you really want to sell volatility into bottom coming into yet another Euro announcement? Maybe buying some volatility of volatility on September 11th (that is a sad coincidence) will help ride out any surprise decision from a Supreme Court. After all, Supreme Court’s are predictable, right?

AlphaVision™ – data from Bloomberg

Read more from Andrew at Option Pit