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

No comments:

Post a Comment