Friday, July 26, 2013

Aqumin Volatility Newsletter 07/26/2013 $FB $FDML

Two big movers

Today we have another sleepy day moving into the weekend. As I write this VIX Is up about .18 to 13.15 but probably will not be there for long with the volatility futures hovering just up for the day. As catalysts go, the consumer confidence number hit a 6 year high and that did not do much to push the market into higher territory. My closet theory is the US budget talk is coming again and there has been a solid two year history now of how destabilizing that patter can be. The current back and forth is not what I would call a bullish conversation. The market in 2013 has weathered the payroll tax hike and spending cuts in, well, record fashion. That should make the Keynesians go back to their drawing boards. The broad market stuff just does not look that interesting right now. Fun will be had in the individual names for the balance of the summer, and a couple of moves were really off the charts.

The funny thing is that they could not be in more different industries. Facebook (FB) and Federal Mogul (FDML) both had the biggest upside gaps this week in the consumer discretionary sector. Facebook is rolling in some bucks from a fast shift to mobile devices and FDML is selling lots of stuff for cars. The 20% up moves are a bit of a surprise as none of that was priced into the option before earnings.

7-26-2013 2-06-01 PM

From an option trading point of view there is not much to FDML. The markets really are too wide to get anything done but the earnings power is a good sign for the automobile industry as a whole. FB is a bit of a different animal. The big issue was always if FB could keep subscribers and monetized the 1 billion users. This is the 3rd report in a row where the actual is starting to match the hype. You can use the upside skew to get long for small dollars. I like a wide strike butterfly like the Sep 34/39/44 for just over $1 or adjust to a slightly ITM fly with very wide strikes. If one of the oldest industries and newest industry can report blowout numbers, things are probably not that bad.

OptionVision™ – data from ORATS

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Friday, July 19, 2013

Aqumin Volatility Newsletter 07/19/2013 $SPY

Wither the VIX

The market for volatility seems to be giving up its final breaths today. If underwhelming earnings in GOOG and MSFT cannot push things lower I am running out of things to think of. The Fed has backtracked sufficiently enough and the world seems resigned to the fact that Europe will be a socialist basket case for a while during the public/private sector reshuffle with Portugal the latest problem. Detroit files for bankruptcy here maybe pushing up the Treasuries a bit. The net result this afternoon is a market down fractionally and the VIX down into the 12 handle at 12.91. What gives?

The OptionVision™ screen shows the total crush in the upside options. With the market shaking off pretty much all the bad news today the Weekend Effect is kicking in. That means upside options in the big indexes can be had on the cheap.

7-19-2013 2-43-55 PM

As things get cheaper, my inclination is to buy. My inclination is also that nothing seems to stop this market, but being a lifelong skeptic means I want an out just in case. For a midterm trade in the Aug cycle I would look at ratio call spreads (long more options than short) in the Aug cycle that reduce decay but give a nice pop if the market moves either way. If bad earnings make us flat this week what might good earnings do next week?


OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Thursday, July 11, 2013

Aqumin Volatility Newsletter 07/11/2013 $MTL

Cold Steel

The Fed minutes gave one message yesterday and then Big Ben seems to deliver another one after the close. The message is that easy money will be around and that the QE portion could end. Even with the market rallying today I don’t see how those messages were all that different from several weeks ago. Interpretation is in the eye of the beholder. A trader uses OptionVision™ to interpret the available data and it is a little easier than deciphering Fed speak.

When I look at activity it is mostly there to generate trade ideas. Basically, what is trading and does it look interesting to put on a position? Looking at relative volume numbers just shows when options are trading out of the ordinary. Below is a case in point in a Russian steel maker, MTL. The spike shows there was huge volume on declining volatility in the MTL Jan 2014 3 calls. That usually means paper is selling some options and in this case 15,000+ contracts. The trade was probably a buy write.

7-11-2013 10-30-52 AM

But from a trade point of view the yield on the buy write looks pretty good. The options traded 45 versus stock around 2.75 and represent a decent return on risk. The steel industry is in the basement so the call writer is adding a layer of protection at relatively high volatility levels. As a way to play a recovery in the emerging markets, this is not a bad way to start.


OptionVision™ – data from ORATS

Read more from Andrew at Option Pit