Thursday, September 26, 2013

Aqumin Volatility Newsletter 09/26/2013 $VIX $SPY

Shifting Sands

Just ahead of the continuing resolution the market is doing a little flim-flam. Basically traders are trying to handicap the budget process and starting to place bets accordingly. In a big index ETF like the SPY that starts to shift the skew around while liquidity providers deal with the different market forces.

If you look at the OptionVision™ Landscape, the real action is in the downside puts expiring Oct 4th. Note that the implied volatility is kicking up a bit more there. The Sep 27 term (far left) shows higher IV since it is expiring tomorrow and that is normal. The Sep 30 Quarterlies show some downside curve expansion since they expire on Monday. The ITM puts you ignore for market width (those are the tall green buildings up front) variation that gums up the Implied Volatility calculation.

9-26-2013 10-41-56 AM

That leaves the two nearest October terms. Paper looks like it is running for protection but just a bit so far. That makes sense given the fluidity of the budget talks. Watch to see if the expansion in skew continues pushing up the VIX today. At least from current pricing VIX is not really moving from ATM as much OTM.

The trade would be to buy some ATM options in the SPY and finance with more OTM puts in the nearer Oct cycle. Keep the trade contract neutral. I would wait until the last minute on Friday.

OptionVision™ – data from ORATS

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Friday, September 20, 2013

Aqumin Volatility Newsletter 9/20/2013 - $SPY

Will this upside skew ever die?

It is kind of a quiet day as we wind toward the end of the week and my thoughts are wandering to what will happen next. The Fed is pumping again so my question is do we go higher or lower? The stock market is not giving back too much today. The only thing really getting slammed is the front term IV in the indexes, especially at the money.

The OptionVision™ 3D chart here is very helpful for that. Note the large wasteland in the middle yesterday. That is implied volatility imploding ATM. The more interesting thing is where it is not imploding. Look at the upside call skew. That is still bid just a bit. That is a sign the upside skew is getting closer to the ATM implied volatility.

9-20-2013 11-36-36 AM

This is usually a sign that the market is expecting to go up since there is an absence of call sellers. They simple have not come back in yet. The curve has looked like this for at least two weeks and so far has been right. Through Syria, the FOMC and whatever else is going on the market is still looking at upside.

Hard to believe but that is what the skew says for now.

Look at upside ratio call spreads in the SPY for even or small credits on shorter duration like in the Oct 4 Weekly cycle. I expect we go higher just not as fast as the last two weeks.


OptionVision™ – data from ORATS

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Friday, September 13, 2013

Aqumin Volatility Newsletter 09/13/2013 $VIX

Vol of Vol getting whacked

The market is continuing its rally this week into the FOMC meeting on Wednesday. What I find odd is there is no solution in Syria, no confirmation on QE and Congress is about to get into Cage Match III with the POTUS on the next round of budget talks. And we continue to rally. That is confidence.

The bond market is lingering near the bottom with not a lot of movement today. The only real movement is in the VVIX, or volatility of the VIX. I have VVIX down 1.54 today but a good picture is in my OptionVision™ landscape. Paper is pounding the Sep 15 puts on pretty heavy volume. The big spike is just heavy volume on lower IV.

9-13-2013 2-09-15 PM

What does that mean? Well the market thinks the VIX is not going to drop a lot going into expiration on Wednesday morning. Considering there is still $.60 of premium in the VIX futures paper is betting IV catches a bid into Wednesday. I think that is perfectly reasonable since the weekend is still in the options.

The market is expecting higher IV so we might as well wait for it. You could buy a nearer term ATM straddle in the SPY on Monday morning or buy a VIX Oct 15 level put on Tuesday before the close. From there see where the prices take either trade. There is a lot of confidence out there in stocks but I bet we see some higher IV in the very short term.

OptionVision™ – data from ORATS

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Friday, September 6, 2013

Aqumin Volatility Newsletter 09/06/2013 $VIX $SPY


Market still a bit jittery over Syria

The relatively predictable drop in VIX after the NFP today did not catch too many people by surprise. The real surprise was that it started to happen yesterday.

Note the change in implied volatility on the close Thursday in the OptionVision™ Landscape below. Pretty much all down the curve IV drifted lower. For the last several NFP reports that have been “taper sensitive” IV continued to stay bid well into the announcement. Not so this time, and the market might finally began seeing the writing on the wall going forward.

9-6-2013 1-57-45 PM

Note the action by midday. The second piece of overhanging news is still the situation in Syria. Usually when there is a cloud hanging over the market things move to a standstill. The market hates uncertainty and the little snippet that Putin was going to continue deliveries to his old pal Assad sent the market into a tail spin. The statement was later clarified but it gave the market a 1% in about 5 minutes.

9-6-2013 2-00-45 PM

This screen shot (above) is showing a little jump in downside skew for the SPY. As one piece of news comes out the market is still extremely sensitive to what goes on in Syria and we might not see any real movement until that resolves.

The IV should stay elevated until there is a resolution. A way to trade that would be a diagonal call spread OTM in the big indexes. The SPY is probably best since it is the most “stuck”. The market is going to sit around for a while but there will probably be one more panic in the meantime.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit