Wednesday, July 25, 2012

Aqumin Volatility Newsletter 07/25/2012 - $FXE

Euro Mess

All of the give and take in the current Euro Zone bailout discussions is really putting a damper on the US markets. While we have our own politicians to deal with (not much happening there until mid-November), the never ending crisis in the Euro is becoming a real global drag. England reported shrinking GDP although most of the reason is a reduction in government spending. It is the never ending game of kick the can that hurts global sentiment. I think the Asian governments did a much better job of dealing with the borrowing issues quickly in 1998. These problems will continue to plague our markets until a permanent solution (fiscal compact, that is) is in place.

How to see this? Even on an up day in the Euro (from near term lows), the implied volatility in the FXE is still climbing. Not as much as in the past couple of days - but still climbing. As you can see in the volatility landscape below using OptionVision from Aqumin and ORATS, the green option series means the Implied Volatility is going up. The spikes shown are the strikes that are exhibiting larger than average volume. While the volume was relatively light this morning (when this was snapped) the implied volatility is still going up.

7-25-2012 2-14-54 PMThere is a little more activity in the downside puts in September and some extra call buying in August. The volatility trend is up in the currently fragile currency. The 130 line in the sand for the Dollar to Euro was May 1st and the 125 Dollar to Euro was July 1st. Until some substantial action in the Euro Zone takes place, a more volatile Euro is sure to follow. Last fall’s FXE IV high was in the 17% range versus just 11% today. With Greece unable to keep commitments, Spain not finding buyers of their debt, and no fiscal compact in sight, this volatility is only going higher.

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Friday, July 20, 2012

Aqumin Volatility Newsletter 07/20/2011 $EDU

Chinese Takeout (or takedown as the case maybe)

The market might be entering the new post-Euro muddle phase. News today of some Spanish Bank help and bondholder haircuts hit as the markets were just starting to enjoy a lift from better than expected earnings this week. Having bond holders take some pain is the best path to recovery since markets have to stop going down before they go up again. The US housing market is showing the way there. It was painful but necessary. Mostly the markets are going to oscillate between so-so good news and bad news until the elections when the volatility will pick up again. It is time to look at some outlier movement.

Below is the one week momentum landscape I use to look for trending movement in AlphaVision™ for Bloomberg. This landscape shows 1 week total return against the difference between 10 Day Historical Volatility and 30 Day Historical volatility. The clear loser for the week in its group was EDU.

7-20-2012 10-48-00 AM

Several, if not many, US listed Chinese companies have had accounting issues. It might be the Wild West over there when it comes to accounting or maybe the Wild East. Either way with an SEC investigation the shares plummeted and the implied volatility hit the roof, which should put a lid on a share bounce. No doubt there will be a cloud over the company for a while. It looks like a butterfly set up to sell the volatility is not a bad idea while things shake out.

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Friday, July 13, 2012

Aqumin Volatility Newsletter 07/13/2012 - $CORN

Head High CORN?

For the most part the market seems kind of listless looking for a direction, even maybe finding one today with the volatility indexes coming in. The Europeans have succeeded in extending their problems for the foreseeable future and the US is waiting for earnings to start coming out. Either way it is a recipe for not much to do as we move into next week. What was moving this week?

As I look at the AlphaVision™ for Bloomberg Landscape I see the stand out activity by monitoring 1 week total returns (how tall the buildings are) and for rising volatility I organize color so the dark green buildings show 30 Day Implied Volatility running over the 60 Day Realized Volatility. The idea being a big move accompanied by a run up in volatility should say something. Most of the health care stocks in the foreground (read biotech and drugs) show these kinds of moves. It gets a bit more interesting when the ETF’s do. Take a look at CORN.

7-13-2012 3-20-12 PM

CORN, when I snapped this on the close, was one of the biggest rallying ETF’s with a large premium in IV30 this week. Usually that means the market, and paper, is piling in. What I thought more interesting is after the crop report CORN (the Teucrium Commodity Trust for Corn) bounced and rallied today. Maybe it has more to go. ATM call spreads in August should do the trick.

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Friday, July 6, 2012

Aqumin Volatility Newsletter - 07/06/2012 $NFLX

NFLX streaming to a home near you…

The market is entering into a PTSD (Post Traumatic Stress Disorder) period as it recovers from the near loss of the Euro. It is not over yet, because the politicians love to talk, but the boogie man seems to be back in his cave for a while. Not that all the other news is really great as we wait for the job picture. I do think the good housing news is key. That has been an industry in decline since late 2007 and it might be picking up some jobs finally. Now roughly 5 years later and with qualified buyers at 3.5% mortgages it sure smells like the low. But as traders dip into housing stocks after being burned for 3 years or so, they now jump into another roach motel (“traders check in but they don’t check out”, to paraphrase an ad jingle), NFLX.

But is NFLX going to be the next big roach motel? The way it comes up on my radar is the AlphaVision™ Gap Screen for Bloomberg. I use a difference of 10 Day Historical Volatility and 30 Day Historical Volatility to see which stocks are moving lately. The move in NFLX, as you can see below, was very large relative to the other names in its space and showed very high velocity. The “tallness” means it was up most for the week which rounds out my midterm momentum trends.

7-6-2012 9-18-11 AM

I like to see standout momentum. If NFLX is, like the CEO says, the biggest distributor of online content that is a big deal. The stock was dead in the low 60’s in the fall and now is trading around $81 and change. The run-up before earnings is an ideal time to sell some out of the money put spreads in the July cycle. The name should keep this upward to even flow until they report on July 24, 2012. Usually the off-earnings cycle month experiences some volatility compression which should help the put spreads.

Read more from Andrew at Option Pit