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.
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
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