Tuesday, February 28, 2012

Aqumin Volatility Newsletter 02/28/2012 - $WFC

Don’t declare the patient dead just yet….

It is funny how money finds its way to certain stocks. After 6 months of chaos in the Financials one just has to look over the last 3 months or so to see a group rising from the dust. This blog has been pretty consistent on the return on the Financials since mid-December and for the most part it has worked out. Really the crush in implied volatility of the group showed the way after Jefferies Co. (JEF) survived the last scare. The question now is if there is more room?

The simple view below is the AlphaVision™ for Bloomberg Market Monitor. I track all listed equities, ETF’s and Indexes with traded options. The landscape just follows Percentage Price Change and Market Cap. The names move up and down and change color in real time depending on what is going on. It is as easy to mind 1000 stocks as 20. What caught my eye here on a listless day yesterday was which Big Cap names were moving. The largest percentage up moves (Green and Fat) for Big Cap stocks were for the Banks. When was the last time the market saw that? The banks that were down in lock step (Red and Fat) were all related to China as they start to implement reforms. Normally the big up moves in the Financials would be lost, but when seen in context they stand out quite a bit more.

2-28-2012 9-04-03 AM

Contrary to what the Occupy Movement (remember those moaks?) thinks, finance will lead things higher. The fact that money poured into the Big Names on a slow day is just another sign that we go higher, albeit slowly. As reported in Bloomberg Data, WFC has the largest Market Cap of any financial stock and is trading around 10x trailing earnings in what could only be described as a horrible environment. Maybe that’s why the Great Buffet upped his stake. The implied volatility is too cheap to sell options so I would go with deeper calls with longer expiration dates. It is just a question of leverage (which you get with calls) over dividends (which you don’t). Wow- maybe WFC can trade at 11x trailing earnings?

Friday, February 24, 2012

Aqumin Volatility Newsletter 2/24/2012 - $HA

The Week’s Casualties

Setting up for next week is always a little iffy around the weekend. While I think the “Weekend Risk” factor of the last 6 months is subsiding a bit it is still there. What I do like to use the AlphaVision™ for Bloomberg Landscape for is to set up possible ideas for the following weeks. If there is any activity that looks interesting I mark it for action.

This time though I just want to see a shot of 1 Week Total Return. I have the landscape sorted by average 1 Week Total Return so the worst performing names will be at the top of the Landscape Horizon. I also got very granular with the BICS Industry Subgroups so I can pick through them. The simple one going into the weekend was the group smack in the Airlines. It is most likely related to oil prices. The group just to the right is the Solar Chip makers, but over capacity there looks to be a long term problem. I am using the IV30 over HV60 view here to see if the juice got bid up a bit. Besides HA (Hawaiian Air) which does not move much, the options did not respond considerably to the down move as most of the volatility colors are not showing any big moves. I think the Airlines snap back fast with lower oil prices, but you will have to be patient on this one.

2-24-2012 8-59-53 AM

Tuesday, February 21, 2012

Aqumin Volatility Newsletter 02/21/2012 - $CRM, $LRCX, $FSLR

Time Spreads for Tech

As the market settles into the new era of latent Greek issues we find ourselves looking at more banal topics like earnings, growth and the fundamental stuff. What happens is that translates to plumped up implied volatilities around earnings. The normal hum of paper betting on earnings comes back into the fold as investors start to focus on the single stock issues.

Generally higher short term volatilities means the market is expecting some kind of move. How to tell that? Simply compare the front month to the next month implied volatilities. The Aqumin Landscape construct makes that very easy to do. Take a look at the Aqumin Volatility Landscape below. This helps measure IV10 (10 Day interpolated implied volatility) and the IV30 (30 Day interpolated implied volatility). The interpolated part means the data vendor (in this case Bloomberg) is assigning a value for the smooth volatility surface. Instead of a value per strike a “volatility percentage” is produced for that many days out in the future.

2-21-2012 9-17-01 AM

What I noticeable here are lots of dark green buildings in the front corners. These are stocks with very steep front month to back month term structures. I picked up on the IT group because there are so many. Note most of the market has a flatter (read white) term structure. CRM has a 10 Day IV clocking in at 55pts over the 30 Day. That is number 1 for any IT stock as of the close Friday. CRM, like most of these green stocks, has earnings this week and it looks like the market is expecting a move. Betting on earnings is dicey at best but long term holders are getting fatter premiums for sure as the market is pricing for action. That is too much of a risk for me. Look at names that have some decent IV10-IV30 spreads that are off earnings cycle like LRCX or FSLR. The modified time spread construct (buying the 30 day and selling the 10 day) might work well in these as some of the recent movement cools.

Tuesday, February 7, 2012

Aqumin Volatility Newsletter 02/06/2012 - $GMCR, $JPM, $BK, $C, $MS

Something is Brewing

Welcome to the world of nonchalance. The Greeks are having issues with debt and they cut 15,000 employees. That is bad? I guess those Greek passport officials will only get 2 months of paid vacation per year. Perish the thought! Either way, as I have articulated here in the Aqumin Newsletter, Euro issues have subsided as a main catalyst for market activity. They are there but more like a cold sore now and not a big infection. Look at the dispersion of activity today.

I have below the IV30-HV60 AlphaVision™ Volatility Landscape. The building height is 1 week total return. This gives a view of trend. Trade generation is usually about identifying trend which is why I like 1 week change activity. The skinny, tall building you see in GMCR. A positive earnings report no doubt generated a big short covering rally (GMCR has about 21% of Float short) so maybe a few hedge funds are starting to get nervous. The red color indicates that IV30 (30 Day Implied Volatility) is trading at a 10 pt.+ discount to HV30 (30 Day Historical Volatility). GMCR is trading at a 72 pt. discount. That is a little skewed from the big move up but this name still has some oomph in it.

2-7-2012 9-21-29 AM

Also note the group of Money Center banks enjoying the same implied volatility discounts. JPM, C, MS and BK all are trading at levels like the financial crisis is receding. To me that is just a reason to buy juice. For GMCR, a former darling of the momentum set, history can repeat as they drive this name higher. Combined with the large short interest I would not stand in the way. With the public just barely in the market, the old go go growth names can really start to do some damage on the upside if John Q gets back in the action. GMCR is a name to watch for any kind of long gamma position out to March. Safer money is buying premium (basically just calls) in the big banks. Either way market volatility is starting to look attractive because stocks are moving up as fast as they were moving down. Look at all this action without any public participation. Imagine what happens when the folks get that quarterly statement from their T-bills. The shorts, as they say, could feel the squeeze. Watch the big momentum names as the damn will generally burst there first.