Friday, December 20, 2013

Aqumin Volatility Newsletter 12/20/2013 $AAPL $GLD

AAPL skew is on the move

The fact that we are off to the race again today does not surprise me too much. The good GDP number is being accepted by the market as a good thing. That means the Fed bond buying exercise is getting removed from the equation. Good news is good news again as the Fed starts to exit. I would not be surprised to see higher numbers for stocks in 2014 as global growth starts to pick up.

AAPL was up today. After a nice run, the name pulled back a bit yesterday but toward the close I snapped a shot of the upside curve in volatility using OptionVision™. Note the upslope in IV. The paper and liquidity providers started to bend the curve up as AAPL headed down. Was this the sign of a bounce? It was today. Also, note how the downside volatility sagged yesterday. There was never any conviction to yesterday’s selloff.

12-20-2013 2-26-25 PM

AAPL as a big name stock will fit in a money manager’s portfolio better than GLD at the end of the year. Do not be surprised if AAPL finishes very strong near the high for the year. On a pullback, I like the upside butterflies into the parabolic skew.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Thursday, December 12, 2013

Aqumin Volatility Newsletter 12/12/2013 $SPY $VIX

The Texas Two-Step

The market took another look over the edge today and decided to walk back from the brink. Whatever the uncertainty of the Taper brings, the reality that the Fed is peeling back because the economy is getting better. And as President Clinton, said “It is the economy, stupid.” Recall that early in the week the bid for the downside was perking up. This was the snap on Monday.

12-12-2013 3-31-21 PM

At this point we posted in our blog on Monday that the small bid in skew should lead to higher volatility. With VIX ringing in over 16% today, it certainly did. By using OptionVision™ traders can glimpse into the pit just like a floor trader. The problem with the VIX is that it does not give the whole story and traders should have a granular look at IV. See below, the other end of the curve is starting to move.

12-12-2013 3-35-16 PM

Note the bid in the upside skew now as the market came off of its bottom. Much like after the Shutdown the market finds its legs again. I think the result will be similar, but the next few days (until Wednesday at 2pm EDT) will be rocky. The upside broken wing butterflies for even or better should work well. Place the long strike at the near term highs.

Positions in SPY, VIX and its equivalents

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, December 9, 2013

Aqumin Volatility Newsletter 12/09/2013 $VIX, $SPY

This could be the big one

Overall today is a quiet day after the big NFP report on Friday. Stocks are still moving in a positive direction with the SPY just .40 or so from an all-time high. That begs the question if it is time for the FOMC to take the punch bowl away from the party?

There is never a good time to say the gig is up to a dependent party, but the Fed has to at some point. If Congress can get a deal done like normal folks, that would go a long way to softening the blow. VIX is up just fractionally today, about .07 which is normal on a Monday with the Weekend Effect.

As you look at the 3D OptionVision™ landscape below, the bid is starting to rise in the downside puts for the SPY. Paper is just starting to nibble again at the thought of the Taper happening in December. This is shaping up for the 1st bond buying pullback by the Fed. If the downside curve continues to expand, that is a sign money is getting more nervous. Note how the downside strikes are just picking up a bit more bid than the ATM strikes below.

12-9-2013 2-49-59 PM

Even with the higher market, the VIX is not making new lows. That is usually a sign IV will not retreat in the very short term at a minimum. If that is the case long volatility positions will work out, at least until Dec 17th, the day before VIX expiration.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit