Friday, April 26, 2013

Aqumin Volatility Newsletter 04/26/2013 $SPY, $VIX

Is the market giving conflicting signals?

Looking at the rally Thursday, on what I would say is so-so news, I am reminded of the fact that over the last year most of the melting has been to the upside. The market has tended to take off like a shot with Fed easing and the BOJ declaring war on interest rates. The US market with a decent dividend yield is starting to look attractive all of a sudden. While I am still mild bullish, it pays to take a look at how the market is viewing volatility in the near term.

The 10 day volatility in the SPY is 18.5%. That takes into account the Boston bombing tragedy, but the market still had plenty of near 1% moves since then. What we have had is a market marching back up and the realized volatility has stayed firm. Note in the OptionVision™ Landscape below that most of the front month VIX options yesterday (when they opened) were slightly higher in the near term.

4-26-2013 11-14-51 AM

Implied volatility was increasing all across the board too, going into the close on Thursday. Those are the green option series below.

4-26-2013 11-16-03 AM

Normally I see this and then I think the open will be a bit weaker. This morning we opened down around .4% and it looks like we are treading water most of the day. The key is the action of Thursday. If the volatility gets bid into the close, that usually is a sign of a weaker tomorrow.

With the VIX still bid this afternoon this might be a good case of selling some premium into the weekend. Maybe an ATM time spread in the SPY in the first two weekly terms. I think the realized volatility holds up the back month and we should see the weekend wash out by Monday.

OptionVision™ – data from ORATS

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Thursday, April 18, 2013

Aqumin Volatility Newsletter 04/18/2013 - $SPY, $GOOG, $MSFT

Where is the Panic?

I am in Chicago this week and it has been raining cats and dogs since I got here. Rainy Chicago is kind of gloomy and that is an apt descriptor for the stock market this week. We started off with the Boston Bombing and the market has not been right since. The blog last week actually saw some upside skew flattening coming back into the market, but of course there was no way to predict what happened (although we did hedge a bit by picking a ratio spread and betting more on the gamma). The question now, is it just gloom or panic as we tick down to new lows for the week?

I have the OptionVision™ Relative Volume Landscape up and I have to say the action is underwhelming. Besides some of the IV leaking out in the near term from yesterday there is very little activity out of the ordinary. As a matter of fact we are downright inactive. The only activity that is slightly higher is in the May puts just out of the money (OTM). The volatility is only a hair up. That feels like more put sellers that own puts looking to exit. The IV is only up fractionally given we are down 1 (.7%) points in the SPY.

4-18-2013 3-05-53 PM

The market feels more gloomy than panicky and the volume seems to support that. A big part of the action could come to fruition after the earnings from GOOG and MSFT (web and desktop) tonight. I think this would be a better time to sell the recent pop in IV by moving away from the ATM. Think more like an Iron Condor. That way the trade is manageable on the off chance the gloom turns to panic.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, April 12, 2013

Aqumin Volatility Newsletter 04/11/2013 - $SPY

The Skew climbs the wall of worry

Thursday was another record for the SPY. If you listen to the folks on TV, each person on camera is trying to pick a top or look for another reason for the market to crack. That well may be as some kind of selloff is inevitable. This morning the market looks about down .5% so maybe the pundits will have their day. Looking at the trade on the close yesterday I saw a slight change in the SPY skew. That is telling a different story.

What we are looking at with OptionVision™ is a landscape of all the option chains in the SPY with the columns that are months. The curve for volatility is the height of each little building. Color is for implied volatility change (Green up/Red Down). Yesterday in what seems like a week of rallying, where were the changes in volatility located? The OTM call strikes are in the lower left of the landscape. The IV was climbing there. Note the red declines in IV on the downside puts in the outer months. This is the skew in the index giving way. The CBOE Skew index notched a recent low yesterday.

4-12-2013 8-46-32 AM

What I found more interesting was the lift (albeit small) of the OTM call implied volatility. This means one of two things:

1. Paper is not selling upside anymore and the liquidity providers are flattening the upside.

2. Paper is buying OTM calls.

I think it is a little of each. As an ex-SPX trader, flattening upside usually came with more of a rally as I wanted to get ahead of the buying. The problem with 9% call volatility is that there are less call sellers. If there is some on-balance upside buying that is a good sign our rally is going to keep going. At least short term we have a floor in the index implied volatility and might actually see it increase if we get more of the same action. With this potential I like the idea of ratio calls spreads (buy 2 sell 1) 6 weeks in duration or more using OTM calls with a 3 week hold maximum. If the pundits are right you keep the small credit and if this liquidity fueled rally keeps pumping the upside skew and the index the trade will do just fine.

To see the end of day skew change, surf over to the CBOE’s website below and check out the curve shift in the VIX, SPX, OEX and DJX.


The Options Institute at CBOE is partnering with Aqumin and ORATS to bring you CBOE 3D using OptionVision™ technology to display proprietary Option Data provided by ORATS. By offering you an end of day "snapshot" of the day's biggest index moves, you are "getting the whole picture on market activity at a glance. Using 3D visualization, you will get daily implied volatility reports by series and expiration on SPX, OEX, DJX and VIX with data provided by ORATS. All reports are available to you for download in a pdf format.

CBOE 3D Daily Volatility Activity Reports:


VIX Volatility Report

SPX Volatility Report

OEX Volatility Report

DJX Volatility Report

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Wednesday, April 3, 2013

Aqumin Volatility Newsletter 04/03/2013 - $ZNGA

Hold‘em with ZNGA

As I sit watching the market sell off a little bit I am reminded that stocks are just a game of numbers. We get good numbers and we rally and we get mediocre numbers and we tank. The jobs number was not great this morning and we tanked. Most of the jobs numbers have just been ok anyway so I guess it was time for a miss. The fact that we are getting closer to what the new health care bill has in store for employers is probably not helping. The number missed and we sold off. So when a stock does not sell off into a broad market decline I notice.

Take ZNGA today. The name has been a poster child for everything wrong with a public social media company. Yet it is still here. I have followed it for most of the year and got real interested in it when it started trading for the cash + property value of the company in mid-November. It got real interesting when some states started to allow certain forms of internet gambling and ZNGA already had a presence in the non-cash space. ZNGA started to take cash bets in Great Britain today. That could start moving to the USA relatively fast. The good thing for ZNGA is they are not tainted by the 15 years or so of offshore online gambling business. They come in clean with the latest technology.

Looking at how the volume is dispersed on my OptionVision™ landscape, most of the trade centered around the May 3.5 calls. The Apr cycle actually had some volatility go down. The May calls are the cycle that contains the earnings announcement and will have a little more room to run should the online gambling thesis keep working.

4-3-2013 3-52-24 PM

I think the volume is looking for more upside in this name and not just on the short pop we got this morning. ZNGA traded as high as $4 with just the potential of moving into cash gaming 3 weeks ago so I don’t think that is a stretch. It looks like a lot of paper sees it that way to. I like the idea of selling OTM put spreads in here in the May or Jun cycle. I don’t think the transformation will be over night and the higher IV is nice to collect while the company puts it all together.

I have a position in ZNGA.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit