Thursday, March 28, 2013

Aqumin Volatility Newsletter 03/28/2013 - $FB

No one likes Facebook juice

The remarkable thing about FB as a name is it is barely in the news anymore. The lock ups are going away and the stock has become, well, very boring. It is as if the initial hype was so big that the investment bankers just want it to slowly go away until the magic number comes back into view. That number is the IPO price which the name was approaching in early part of the year 2013. The 100 billion dollar valuation is a ways away right now and it won’t be hitting it anytime soon. That does not mean it won’t be an interesting trade between now and whenever it gets back to the IPO price of $38.

Yesterday FB was one of the few bigger cap tech names showing some real strength. The stock has been on a recent slide from $31 and change and started changing course yesterday. The momentum view below shows FB trading stronger than the other big cap (those are big blocks) names in the tech sector in AlphaVision™ for Bloomberg. You just connect AlphaVision™ to the Excel API in Bloomberg.

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Yesterday FB looked like it wanted to run. But today looking at the options all of the action has cooled somewhat. I have the near term volatility dying in April as you can see below in the OptionVision™ landscape. The move we had yesterday is slowly drifting away, and with it the implied volatility in the options.

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If you note the height of the buildings above, the implied volatility is much higher in the earnings cycle coming at the end of April. The Apr option implied volatility is getting to near 52 week lows and is the best way to play a little rally back to earnings. We saw a little smoke yesterday as FB rebounded and here is a chance to grab some options for better prices.

AlphaVision™ data from Bloomberg

OptionVision™ – data from ORATS

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Friday, March 22, 2013

Aqumin Volatility Newsletter 03/22/2013 - $EGO

EGO is looking at a bottom

As I sit around this Friday waiting for some news to come out of Europe to move my volatility positions, I can’t help but think how many people even know where Cyprus is? A country with less than 1 million people in the middle of Mediterranean Sea can move the US Treasury market. That is the state of our global economy. It is the latest in the saga of European Debt soap opera now entering its 4th season. So when the broader market picture gets murky I like looking at other names that have something going on in them. Here is an OptionVision™ snapshot of EGO.

Eldorado Gold Corp. looks a lot like most of the miners lately. Namely they are trading at 52 week lows. EGO makes some cash, but all of these names seem like they are in the way of an exodus of money from gold mining stocks. This might be due to the fact that the expected inflation from the Fed’s bond buying program has not materialized yet and gold has gone nowhere. The goldbugs are in hibernation for now. One thing that has materialized in EGO is a buyer of calls. And like I noticed last week the fact that customers are buying options is telling.

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A customer is buying 10s of thousands of EGO Jul 10 calls. The fact they are buying these options in and of itself is important because capital is being spent on a sustained upswing. Like the index calls I saw last week the paper is thinking rally between here and the summer. I am seeing more and more of this kind of activity even into the weakness generated by the Cyprus issues. Paper is looking past the current problems into the golden future beyond. I have to agree with them. Just buying a July ATM call spread in here should work.

OptionVision™ – data from ORATS

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Friday, March 15, 2013

Aqumin Volatility Newsletter 03/15/2013 - $SPY

The volatility is showing the way today…

Well after a record setting week, I am reminded of a period in the early 90’s. Not so much the “irrational exuberance” of Mr. Greenspan but more of 1993-1994. We raised taxes and got serious about addressing the budget which is starting to feel like 2013. The hot stocks at the time were biotechs and right now we have 3D printing companies and social media. Old Tech is limping along. Banks and Oil and Gas are doing fine thanks to the closing of the financial crisis and the domestic production boom. And just like 1994, there was little participation by the public because 1987 was still stuck in everyone’s head. I am not saying the public will miss the rally but the public is missing the rally now. In short there is plenty of room for stocks if the trajectory of the budget continues to come into focus, namely lower deficits and sustainable spending. How does the market view the records and near records this week? Lower implied volatility is the answer.

If you look at the mid-morning snapshot of IV in the SPY using OptionVision™ note the gentle contango starting to take shape. The near term gamma intensive options are starting to fade in IV and the longer term volatilities are starting to perk up just a bit. Note the downside of the near term Weeklys in the SPY. Those options are finally starting to break down. Much of the weekend decay came out yesterday in option prices, so the IV really looks to be fading here into the weekend.

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Stocks tend to like the contango in option volatility. That makes everyone feel normal. At least for the end of this week the market looks like it will head to higher prices at a slower pace. No doubt that will give investors a chance to jump in before it is too late.

OptionVision™ – data from ORATS

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Friday, March 8, 2013

Aqumin Volatility Newsletter 03/07/2013 - $XLF

Volatility begets Volatility

I don’t quite know what happened between last Monday and today but someone with a big bottle of happy pills was doling them out like candy from a Pez dispenser. The Sequester is no problem, Italy has no choice but to follow the path, Draghi won’t lower rates and Uncle Ben won’t raise them and just like that the Dow is at an all-time high. I am of the mind that the equity markets have had mostly lower valuations for a while based on the fact that the economy cannot grow. There were 0 returns in 2011 and a nice return for 2012 but averaged out it was not that much. 2013 is giving things a kick but stocks are at nothing like crazy valuations. The big question is can growth happen, and if history serves it can if the governments can get out of the way. Somewhere between last Monday and today that point started to crystalize.

I have a snap of XLF in the morning on my Unusual Activity screen and there was a size trade going up in the XLF Mar28 Weekly 18.50 calls. Note the green hue means the volatility is going up in the strike. On the day about 100,000 calls went up and almost all were buyers.

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By late in the day more buyers jumped in and the big volume was all on the call side. For the first time I can remember in a long while buyers are lifting the offers in size and buying calls in, drum roll, the bank stock ETF known as the XLF. Hard to believe and the funny thing is banks are still relatively cheap although not as cheap as they were last year when the XLF was roughly 13. Call buyers driving up the volatility, so pinch me is it 1998 again?

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Beside the flip tone my early lesson in trading volatility is vol begets vol. Buyers of options can generate a head of steam and with stress tests coming out most likely loosening up bank balance sheets for the first time in half a decade a sleepy name like XLF can take off. The buyers of the 18.50 flattened the upside so I bought some Mar28 Weekly 18/18.5 call spreads for ok prices so it was not a total buy the rumor trade. I will most likely hold them long after the test results are announced today.

Option Pit will be giving a free webinar March 13 on how to use OptionVision™ to help spot order flow and build positions accordingly. Click this link to register: Option Pit "Using orderflow to trade options"

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, March 1, 2013

Aqumin Volatility Newsletter – 3/1/2013 $FB

The Facebook Curve

The market had a bit of a reversal on Thursday for what reason I cannot quite figure out. Maybe politics, but the economic news all week has been ok. One name that took off on the close was Facebook (FB). FB spent most of it day in the mid-26 level only to ignite on the close to close 27.25. It was like all the sellers went home. What it left at the end of the day was a really flat term structure.

If you look in the OptionVision™ Landscape there is not a lot of variation in the implied volatility in the first 5 Weekly expiration cycles. There is almost no contango at all. Contango is just the effect of lower implied volatilities in the front month than in the back month. Normally when a stock is not doing much the IV exhibits this pattern. With the nice pop on the close, the term structure in FB is a bit different. It is dead flat until you get to the earnings cycle a bit farther out. I find this in a popular name like FB to be a bit strange. This allows a trader to buy time spreads for pretty good prices since they don’t have to sell the front month options down. The fact that there is not much contango there means an investor can use the front options to help pay for the back month options at favorable prices.

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I think take the term structure at what it is and buy OTM call time spreads in the big Social Network on the cycle prior to earnings. You will end up liking that you did.

I have FB positions.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit