Wednesday, December 31, 2014

Aqumin Volatility Newsletter 12/31/2014 $SPY

Crazy Volatility Rally!

With stocks ringing up another banner year the most unloved asset is making a move into the close. No I do not mean oil. That asset is volatility. VIX is up 1.60 to 17.52 as I write this, as players are getting very nervous moving into 2015. The relative volume landscape tells a more enlightening story.

Note how the IV is up on just about every strike in the SPY. That is the green color on the relative volume landscape in OptionVision™. The spikiness is for relative volume. Note the most active series outside of closing Quarterlies is the Jan 2 weekly ATM puts. Volume there is 1.8 x average and almost everything else is trading way below that. In short we are having a volatility spike on small volume. Welcome to holiday trading.

12-31-2014 1-16-25 PM

The volume, if there is any, is concentrated in the Jan ordinary cycle. Well before the Greek elections and smack in the middle of earnings season. The fact that the activity is there is driving up prices in other terms. This looks like a good opportunity to sell more OTM put spreads, maybe in a delta neutral Iron Condor catching the Jan Ordinary cycle. That will expire long before the Greek elections come to pass.

Happy New Year!

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Thursday, December 18, 2014

Aqumin Volatility Newsletter 12/17/2014 $XHB

Happy Housing

The stock market got a gift from the FOMC minutes release today by leaving the status quo largely unchanged.  I guess there is enough jazz in the mix with oil prices, Russian solvency and high yield debt for the Fed to chew on for a while.  There has been plenty of volatility to go around with VIX trading just over 23 today on a  run down to the 19s.

On my OptionVision realized volatility landscape, I have rearranged things so the most volatile names on average are in the front of the 3D vol map.  The surprise is the Homebuilders are showing the most volatility over the last 10 days relative to the last 20.  You would think Energy and Oil, but those names have already been volatile so relatively speaking they were just moving like they were in the slide.

12-17-2014 4-30-01 PM

I read this as homebuilders got caught up in the recent market vol. and got tossed a bit more than others on average because they were so stable earlier.  Now that the rate picture is clear these should do ok.  I think a long OTM call time spread in XHB (Home Builders ETF) would work ok, or selling some OTM puts spread in a farther term cycle.  Maybe both together if you are feeling frisky.  Cheaper gas means it will be cheaper to build houses too, just saying. 

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, December 5, 2014

Aqumin Volatility Newsletter 12/05/2014 $GDP $VIX

The Parking Lot

Ahead of the NFP number stocks have made a quiet rally this week to all-time highs. VIX is back in the 12 handle and the ECB seems to have had its fill stimulus. Really the most interesting news is the slide in oil prices and the destruction of all the E&P companies as the USA is upsetting the world apple cart for oil.

If you look at the IV/HV OptionVision™ landscape below, note that the Oil and Gas, Energy and Mining names have been taken to the woodshed. The price of oil and the future price of oil have cut some of the stocks in half and many speculative names by more than that. Look at GDP which is now trading below book value, although I assume that book value will get re-evaluated at $65 a barrel oil. While the stock is in the tank in GDP the IV is sky high (green downward spike).

12-5-2014 8-49-02 AM

I think for some of the spec stocks like GDP, a combination of short volatility in the individual name and short position in oil could make some sense. The pricing is starting to get compelling. The formation on the landscape is what we call a “Parking Lot” meaning the whole sector is for sale. Normally these are opportunities but traders need to be patient.

Buy midterm put spreads in USO and sell OTM or ATM puts in a GDP type name to pay for it if oil keeps tanking. The short juice in GDP should pay for the short oil position if the skid stops and should allow a couple of sales in the name stock.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Wednesday, November 26, 2014

Aqumin Volatility Newsletter 11/26/2014 $EGO $GDX $GDXJ

Gold might glitter again

Stocks are still managing to stay near their all-time highs as we wait for OPEC to deliberate on production cuts. So far there is not much in the way of news on that except for some snippets from oil ministers that they are not cutting. The price of oil remains in flux to put it mildly. Another commodity making some moves lately is gold.

With the raft of easing going on between Japan and the ECB, it is a wonder that gold does not take off. What gold has done for most of the year is fall apart. Most of the gold miner indexes are near the lows. When you view that in the OptionVision™ realized volatility landscape, the miners are actually starting to bounce. On average the Metals and Mining group has the best average 1 week total return (bottom left hand sector).

11-26-2014 12-49-51 PM

Also note that the realized volatility is declining for most of the sector, keeping with the overall pattern of realized volatility decline in the market. I selected EGO as sample miner with rising prices and declining realized volatility. This is what you want to see for a group on the mend after getting smoked for most of the year.

With easing likely to continue, gold miners are making their way out. A good way to play this would be selling OTM puts in the GDX or GDXJ. As long as you can stomach the ETF’s down here this is not a bad way to play the record equity prices.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Thursday, November 20, 2014

Aqumin Volatility Newsletter 11/20/2014 $TGT $WMT $SSI

On Target

The FOMC did not announce a whole lot in the way of surprises yesterday. Chairman Yellen is not too concerned about the global tumult and probably with good reason. The USA is starting to get back to normal without Fed help. There are big bills to pay but it is doable. The Fed’s paid back WWII debt and they can do it again with reasonable policy. The future looks ok and lower gas prices are not hurting. Confident consumers will take those bucks and go spend.

It looks like they are spending them at Target (TGT). While it is not the exact demographic as Wal-Mart (WMT), TGT shoppers go there for nice products at good prices. If you look at the OptionVision™ realized volatility landscape, TGT was the best performing big retailer on the back of surprisingly good earnings. Stage Stores, Inc. (SSI) was the other performer but not a blue chip. TGT was up sharply and running ahead of most of the industry with some momentum.

11-20-2014 9-02-50 AM

TGT has some catching up to do since it has spent most of the headline news on data issues and turnover at the upper levels. The stock just turned positive for the year last week. As petrol dollars flow back into the US, that should only get better. Selling Jan OTM puts to pick up the stock for unchanged on the year is probably a good do.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Tuesday, November 11, 2014

Aqumin Volatility Newsletter 11-11-14 $SPX, $VIX

The Vol walls are coming down

This may be the 3rd or 4th recent record for the S&P 500 as I cannot remember because we have had so many.  Stocks are seeing renewed buying interest after the election and for now the wind is at the market’s back.  There is not much wind in option premiums.  All the bears got their time in mid-October and for now that is all they have to hold onto.  The bump from the BOJ and ECB has put the kibosh on the bear’s hopes for now.

That brings us to the crush in IV yesterday.  Traders crushed it on Friday and they crushed it Monday.  Even another dustup in Ukraine was not enough to make folks worry.  Note the upside selling in the OptionVision™ 3D volatility chart below.  The scale is inverted so the tall red spikes are more selling.

11-11-2014 9-58-22 AM

Traders are discounting the big rally now.  We can still rally but the crazy QE induced stuff should be out of the way.  Old fashioned economic stuff will have to drive stocks and there is not much of that until after Thanksgiving.  I don’t think there is more than 1 point in the VIX to drop over the next two weeks, if it drops that much, after today.

An idea would be Double Calendars in the SPX (50 points wide) since there is some backwardation and liquidity providers have discounted Thanksgiving options already.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Tuesday, October 21, 2014

Aqumin Volatility Newsletter 10/21/2014 - $SPX $VIX

Upside Call IV Destruction

I was trying to find a good word to describe what happened with the implied volatility today but the best thing I can think of was the phrase “burning down the house”. Note the deep red destruction of the upside implied volatility in the SPY on my OptionVision™ landscape.

Each building represents a call series with the change in implied volatility and it is mostly down and really down for the upside calls. This is the market saying whatever rally we have is not going to be the big Fed induced love fests of the past. Like in the Smith Barney commercials of old, the market will have to make money the old fashioned way; it will have to earn it.

10-21-2014 8-54-53 AM

That brings us to the trade idea now. IV is still at nice levels and we had a lower closing VIX for the first time in ages. The best trade would be a delta balance iron condor, maybe a little closer to the money than normal. The upside destruction of the call skew is letting us know it is ok. Think the bigger indexes like SPX.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Tuesday, October 14, 2014

Aqumin Volatility Newsletter 10/14/2014 - $EXAS, $XLV, $XLF, $XLU

Stocks are in shock

Equities are rolling into the close trying desperately to hold onto the gains they made earlier in the day. Those higher prices are not there but the intraday movement still is. The fact is that realized volatility is at a very high price. Note the OptionVision™ realized volatility landscape set up below.

10-14-2014 3-14-55 PM

Roughly 85% of stocks are showing increasing realized volatility. All the green stocks mean that the 10 day realized volatility is higher than the 20 day realized volatility. It is does not happen that often when stocks do this. Red stocks are showing reduced volatility. Usually something big is afoot when there is all this movement. The strange thing about this current selloff is the lack of really bad news. Notice most of the landscape graph is blank meaning those stocks are down for the week. Financials, Utilities and Healthcare are still active just not getting hit like everything else. Oil and Gas explorers are getting it the worst.

This is what stocks look like when the Fed exits. The only thing I can pin a time on is the Fed not raising rates any time soon, scaring the growth story. There will be no more QE even if Europe slows down. Oil prices dropping on supply is hitting a big chunk of the growth in stocks this year and OPEC is staying quiet. That should be good for the consumer. Toss in some bad headline news and there are several factors contributing to the slide but not terribly so. It is best to stay with what is doing ok and not make a big call on the areas that are getting stung.

A trade I like, is take the ETFs that are doing better like XLF, XLV or XLU and look at some upside butterflies in a slightly longer cycle. To dabble in the sector ETFs that are getting hit buy some OTM put time spreads (plus the flies) just in case to generate some decay and more vega if they keep imploding.

EXAS is bucking the entire market trend and might make an interesting long play.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, September 29, 2014

Aqumin Volatility Newsletter 09/29/2014 $SPY

Vol buyers looking toward NFP

It is possible we are back to the days when the NFP numbers mean something. Stocks are more edgy lately as the intraday volatility picks up. The 16 VIX right now is justified on the touchy moves over the last 4 or 5 sessions. The bid for volatility today belies something else.

Note on my snap from OptionVision™ today the way IV is up in the SPY. There is some weekend effect in the options from the day reset but note how smooth the change in IV was. Volatility did not jump too much in the OTM option relative to the ATM options. What this says is that traders think IV should be higher all up and down the curve.

9-29-2014 3-03-02 PM

IV is telling us the market is going to move. The VIX futures kept up a healthy gain today and are following the change in the VIX cash closely. Normally if the spike in IV is viewed as short lived, the futures will lag the cash VIX by a substantial amount. That is not the case today. The even move in IV all up and down the curve is telling us that.

This payroll number will come and go but will the volatility remain? Stay tuned for Friday afternoon but I think the bid for IV does not last past Friday. I like the idea of flat delta iron condor in SPX or RUT. If worried about a sustained selloff after the NFP, hedge with cheap 4-5 point wide butterflies in the VIX Oct cycle with the Iron Condors.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Wednesday, September 17, 2014

Aqumin Volatility Newsletter 09/17/2014 $SPY $VIX $RUT

Where the volatility is

So the Fed is leaning toward 2015 to start raising rates? There is not much different in that announcement as the Fed watchers look to parse all of the twists and turns in the FOMC meeting minutes. I think that after this long in our plodding recovery, market players would be happy to see the Fed exiting. That means things should be getting better, but that is just me.

Slightly strange then today as the usual drop in VIX had more juice come out of the ATM options. Granted the news was more status quo so the ATM IV should drop, but I thought it would take more of the OTM IV as well. The drop in the curve would be more uniform. That is not the case as you can see from the OptionVision™ Inverse Volatility Landscape. IV ATM came in a bunch (tall red buildings are the most) but the skew heavy downside did not come in much at all. There is one more issue on the horizon.

9-17-2014 2-49-04 PM

I think the skew is staying bid because of the Scottish referendum. The Euro Zone (or near it) does not need another bird leaving the nest and the dose of instability it will cause is enough to unnerve traders. 2011 is still fresh in everyone’s mind.

At this stage I will go with the exit polls and say Scotland stays in. William Wallace might be rolling over in his grave but he did not have free healthcare and Cool Britannia. The trades that make sense are Iron Condors in the big indexes. RUT or SPX is probably best as the last of the skew should die by Friday. Stay away from the ATM in case William Wallace gets his revenge.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Tuesday, August 26, 2014

Aqumin Volatility Newsletter 08/26/2014 - $PCG

Lots of energy

$200 close on the SPY and an almost close of $2000 on the SPX on Monday makes $1500 a long way back in the rear view mirror. Time is slowly erasing the financial crisis as asset prices start to really take off again. The problem of course with a market at all-time highs is finding a bargain in the first place. I think that is where the US equity market finds itself today.

If we look at the out of the ordinary option trades, the tenor of a few of them is a bit odd. I was looking at my Relative Volume screen in OptionVision™ and a large buyer of the PCG Oct 46 calls showed up. Note the green spike has a jump in IV so the big volume was mostly buying.

8-26-2014 9-06-50 AM

The curious item is why buy an ATM call in a stock, a utility, that is going to go ex-Dividend during the cycle of the call. Paying $1 for the call means the holder will miss the dividend if the call is still just ATM. Unless of course the call buyers think PCG is going to jump big out of the gate and missing the potential dividend won’t matter too much. Still, PCG has to make a big move up for this to happen. Maybe the volume thinks PCG is in play. You can accomplish a stock capture play by just selling the Oct 45 put and take the stock at the $44.20 just in case PCG does not make the monster move the trader keeps the credit. All-time highs lead investors to do curious things.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, August 8, 2014

Aqumin Volatility Newsletter 08/08/2014 $SPY

Kicking the rascals out

I started trading options as a floor trader in 1991 right about the same time as Gulf War 1. The run up to the war was characterized by gloom, volatility and really weak stock prices. I think the Dow was 2300 or so. Not much has changed in the 24 years since then (17000 Dow!) through several other political crises and GW2. The one constant has been after the USA goes in and starts shooting, stocks rally and the VIX cracks. Until today that is, or maybe.

We are getting a 1% rally but only a small sell off in the VIX. This time there are a few more bad apples with both ISIS and Russia so the USAF is just the start. I think this skirmish will be more protracted but I am confident we will prevail. Stocks were a little hesitant this morning after the big overnight moves in VIX futures.

8-8-2014 2-43-13 PM

As you can see from the OptionVision™ 3D volatility chart most of the volatility crush has been to the upside. We might rally but it won’t be fast and I agree with that. We also have a ways to go for the volatility to come in so operating OTM might work best. It is good that we went in to kick some ISIS fanny but the game is not over yet. The Russian’s ending their “exercises” on the border has to be helping the rally too. Let’s see how that plays out by Monday.

The simple trade is an unbalanced Iron Condor in the SPY. Sell more put spreads than call spreads so the trade is not short delta.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Wednesday, July 23, 2014

Aqumin Volatility Newsletter 07/23/2014 $SPY

Someone wants the upside

This kind of reminds me of the anticipation before walking on a trading floor some mornings. Something is going to happen but you just don’t know what. The first instinct is to raise the bid in the options a little bit and do some price discovery. The corporate earnings news and economic data has been pretty good lately so the heebie jeebies are not there.

Then there is the Ukraine and Gaza that is setting a sad back drop for a mostly rosy market picture today. The rule I learned early is the market hates uncertainty, and there seems to be something behind door number 1 or number 2 but no one really knows what it is.

7-23-2014 3-24-00 PM

Note in the OptionVision™ landscape above, where the skew is catching a bid today that is mostly on the upside. The SDEX which measures downside skew is down on the day as the ATM options are catching a bid and the downside volatility is fading. This feels a bit like price discovery to me. The upside is lurking as it has so many times this year when traders least expect it. That is what the feeling is like right now, if we can get past the issues on the other side of the Atlantic.

Use the skew and buy upside Broken Wing Butterflies in the indexes for credits 2 weeks out. Set them for max benefit on a $200 SPY. If the geopolitical stuff gets ugly, keep the credit.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, July 7, 2014

Aqumin Volatility Newsletter 07/07/2014 $SPY

Who killed the volatility?

That is the question I am asking myself. I show IV now in the 6 handle for OTM calls in the SPY. This is on top of the SP 500 moving into record territory again. We are moving into the realm where the upside is so cheap no one wants to sell it anymore. Fund managers looking for extra yield are going to start selling calls in stocks if they cannot get the dollars they want in indexes.

7-7-2014 8-37-37 AM

That might set up an interesting trade going forward. We will see very high skew for the foreseeable future. Cheap calls and relatively expensive puts might bring buying upside options into the realm of possibility again. One of the great things about bull markets is that traders can buy calls or upside skewed long premium and actually make money. The calls are just very cheap. We might see this for some time.

I think index double calendars are going to work well. Look for at least flat term structure and skew flat to long. The trade should work into the July earning cycle.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, June 27, 2014

Aqumin Volatility Newsletter 6/27/2014 $AVP $COTY $VIX

The Avon lady is calling

A dead day is a dead day. And today the market is living up to its low volatility number by putting in a .14% drop. That is hardly enough to register on the VIX-o-meter. Any little blip in activity stands out more on a day like today.

Note the activity in the AVP Aug 13 puts on the OptionVision™ landscape below. Paper bought a big block of puts and most likely this was tied to stock. As we move forward earnings are usually on the 1 day of August in AVP. This is pretty early in the earnings cycle to buy a big chunk of juice.

6-27-2014 1-51-51 PM

AVP has not done much lately. A couple years ago they were the object of desire for COTY in a buyout attempt. The level of the buyout was much higher than AVP is now. I don’t think AVP makes a bad buy write here on the Aug 8 Weekly 14.5 calls. It should yield around 5% and it puts you into AVP near the lows of the year. Of course if COTY comes around again you don’t get the big dough for the takeout.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, June 20, 2014

Aqumin Volatility Newsletter 06/20/2014 $GLD $VIX

Still some shine on this gold dogs coat?

The big action yesterday was in the price of gold. Stocks managed to eke out a new high but gold was really the kicker. Maybe the threat of inflation is back in the game, but gold for sure was up around 3.5% today. We had looked at gold volatility in the Option Pit Chat this week and we thought it looked cheap. The 10 day straddles were pricing a 2.10 move and the move today was 4.27. So much for the implied volatility being correct.

Now we sit with skew levels near their peaks. They should be with ATM volatility trading near 7.2%. That is right 7.2% ATM with the VIX trading 10.62. All of the premium is in the out of the money options as the ATM options are showing levels we have not seen in a very long time. That is not the case for gold as it came out of its shell with the IV jumping all over the map. I think the shorts got spooked in a big way over the FOMC take on inflation. That pushed the near term IV up huge.

6-20-2014 11-19-37 AM

3D Skew from OptionVision

Stocks are pricing no chance for any move what so ever. The pricing could be right but just looking at the gold move today shows that IV can price things horribly wrong. Gold IV at the money is almost double the price of the S&P 500. Note how the skew really picked up in gold today. The bid for the downside was very heavy.

Downside time spreads in GLD with the big jump are probably the ticket. Buy a cheap OTM call to hedge just in case the inflation freak out continues.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, June 16, 2014

Aqumin Volatility Newsletter 6/13/2014 $USO

No gas in this oil rally

As we move into the end of the day on Friday, the week was punctuated by a real bout of weekend risk. Namely what will happen in the sands north of Baghdad as bad guys once again try take over a country? The Middle East has had their share of crises over the last decade but this one will be noteworthy for the lack of follow through on the part of the volatility markets.

Sure the VIX jumped from 7 year lows, but the response from the volatility markets have been less than overwhelming. Take the options in USO. There is still a pop today going into the weekend in the back month options but the Jun cycle declined today. That is tepid compared to the Syrian issues we had in the fall of 2013 and the oil issue was much less at risk.

6-16-2014 8-55-40 AM

As far as the oil markets are concerned, this jump up might be a one trick pony unless there is a severe disruption over the weekend. The jump in IV is so small that put time spreads out of the money should work if all of this noise comes to nothing. Give yourself plenty of time as the Syria issue dragged on a bit more than expected. This will probably be the same.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, June 2, 2014

Aqumin Volatility Newsletter 6/2/2014 - $BLOX

What happened to BLOX?

Stocks moved sideways again yet found a way to make a new all-time high in the SPX. Not every stock was so lucky. Take Infoblox Inc (BLOX) for instance. BLOX came up on a volume screen and spent a good part of the day in the basement. For a stock that traded near $50 this year the fall was humbling.

6-2-2014 7-55-38 AM

3D charts by OptionVision and ORATS

From a trade point of view BLOX is much more interesting down here than at $50. The earnings were a big disappointment and some of the front month IV got smoked as usual. Normally after a drubbing like this a stock sits around for a while as the market figures out what the real worth of the company is.

There is a decent amount of short-term, term structure left in BLOX in the Jun and Jul cycle. A trade could be made there as the players sort out the next move.

The BLOX 15 straddle swaps in the Jun/ Jul cycle look ok. The stock is probably a little over sold and if you hate it move to the 12.5 swaps.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Friday, May 23, 2014

Aqumin Volatility Newsletter 5/23/14 $POWR $SPX

Is POWR ready to come back?

As we roll into the Memorial Day weekend when most traders are taking a break, we should have a little less activity than usual. Stocks are just about at all-time highs for the SPX and the smattering of decent economic news is keeping a floor under stocks for now. Not all stocks are like that.

Taking a look at PowerSecure Intl. (POWR) in the OptionVision Landscape, the stock was the most volatile (dark green) over a 10 day period relative to the 20 day historical volatility. Over the last week the stock was up around 7%. That move in and of itself did not generate the volatility. It was the over 50% drop on earnings that most premium sellers fear that drove up the HV. The biggest jump in price on the tallest spike is a Russian payment processer, QIWI.

5-23-2014 8-53-55 AM

The business for POWR was pretty good until the last quarter. They have a client base of utilities looking for systems to save energy for customers. The Green thing has been a pretty good ride and the future should be better after some management missteps recently. The reported book value for POWR is around $7. For a speculative portfolio selling some OTM puts that get in below book value at the higher IV’s might be a good way to own some of this stock at lower prices. A short term jump is probably not in the cards.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Tuesday, May 13, 2014

Aqumin Volatility Newsletter 05/13/2014 $HSH

Time to Pork up?

The SPX managed to close at an all-time high yesterday. That makes investors happy with the 401k’s jumping to show some rosy balances. The news that brought us here was nothing special. Maybe the impetus was no bad news. Stocks are in new territory and the drop in volatility seems to confirm the rally.

That story will get plenty of ink today. Another story that is getting some ink is the Pinnacle Foods takeover by Hillshire Brands. Jimmy Dean is going shopping and spending a few billion on new brand names. For many companies it is easier to buy than build so adding more to the Hillshire stable makes some sense.

5-13-2014 9-26-07 AM

The market did not like the news and it sent HSH down to the low $34 range. By the end of the day HSH was trading just a shade under $36. If you look at the unusual activity view there were big buyers of the HSH Oct 38 calls at one point during the day. There were mostly buyers all day long in many of the just OTM strikes.

A month or so ago FB traded up on a 19 billion dollar acquisition of a modestly profitable messaging service which was not the case with HSH. The intensity of the call buying in HSH means the selloff was probably overcooked. Buying ITM call spreads at least out to the Jun cycle, like the 35/38, would be a nice way to trade the bounce.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, May 5, 2014

Aqumin Volatility Newsletter 05/05/2014 $TLT

Bonds flying high

So the NFP is out and we finally have a number that is creating a few more jobs. That should push up rates, right? Nope. Without the push on wages, bonds are once again outperforming stocks for the day in 2014. What I think is curious is how hard the IV went down today post NFP.

I expect IV to contract in the TLT and other FI after the NFP but today’s was a smoking. The TLT had a near 2% round trip today and the volatility is now trading well into the 9 handle in the near term. Those are options totally ignoring the breadth of the move. The TLT is continuing to roll in the face of all the anecdotal evidence it should be moving the other way.

5-5-2014 9-12-17 AM

That gives us a couple of alternatives:

1. There is not enough ownership of fixed income

2. Too many funds are leveraged short Treasuries in some way

It is probably a combination of those things but the very cheap volatility makes gamma of the TLT options enticing at this point. I think you buy 1 month or older strangles but lean them a little long. I don’t think the squeeze in T-bonds is over yet. The cheaper volatility strangle should help if the shorts get done covering and TLT melts away.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Thursday, April 24, 2014

Aqumin Volatility Newsletter 4/24/2014 $AAPL $FB

Russia Wrecks AAPL’s Party

AAPL pulled every trick in the book with good earnings, a stock split and a buy back. Toss in a dividend boost too for the long suffering shareholders who paid $700. That was enough to send AAPL up $40 today. With good news from AAPL and FB, the SPY was up.40! Not a rousing vote by the rest of the market and it had nothing to do with AAPL.

The Russians came back to foil everything. Just when I thought they signed an “agreement” they are back in Ukraine making a mess. A shooting war on Europe’s boarders has not happened in quite a long time and this was is a bit closer to Europe’s natural gas supplies. The potential for mess is very large.

4-24-2014 3-32-38 PM

The market is noting this now by pumping up the ATM IV. Skew is already a bit high but the ATM vol really is not. We are getting the first taste of the weekend staying in the options as the situation gets more tense. Most likely it will be nothing, but you cannot be too sure.

I think we will have a free day of decay on Friday which will pump up short term options artificially. That is, there will be no decay at all unless there is resolution. That might set up a nice double calendar in the index like the SPY/SPX. The idea would be to hold for a week since these Ukrainian Crises usually do nothing. Make sure there is enough room in the double calendar in case the mess gets hotter.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Monday, April 7, 2014

Aqumin Volatility Newsletter 04/07/2014 $SPX, $VIX, $SPY

The volatility drop that wasn’t

The stock market looks like it has had enough of tepid jobs reports. There were big hopes of 275k jobs or so but all of those hopes were dashed today. The happy number was private payrolls are back up to the pre 2008 crash highs. I guess that means government payrolls are not, but somehow we are spending a whole lot more money than we were back then. Either way stocks were a bit grumpy about it.

As I sit now the SPX is down around 21 points but 30 points from the run it made for 1900 when it stopped short at 1897.28. That is almost a 2% move but the VIX is only up a whopping .83 right now to 14.82. After spending the open in the 12 handle, VIX pretty much drifted up for the rest of the day. The curious thing is that IV ATM is barely moving. While the VIX is meant to increase on a drop in the market, it does need a jump in IV to really make it hop.

4-7-2014 10-42-13 AM

As you can see from the OptionVision™ Landscape there was a jump in the skew, barely, but hardly a whiff of IV jump At the Money (ATM). I don’t think the market players are taking this jump very seriously. This is probably a good chance to sell a 30 day or less broken wing butterfly on the downside in the SPY or large index. The non-vol. response is telling on a day when IV should be jumping.

OptionVision™ – data from ORATS

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Friday, March 28, 2014

Aqumin Volatility Newsletter 03/28/2014 $SPY

The Weekend won’t go away

Stocks made a little rally today on the good economic news in the morning. Much of the early gains went away as the day wore on. For what seems like the 5th time this week the VIX cannot hold the lows of the day into the close. As I write this with 30 minutes to go today, the sub-14 VIX came and went with the slow deterioration of sentiment.

Where did it come from? To keep with the story of the last couple weeks the OTM puts continue to attract the attention of premium buyers. Maybe the Russian’s massing on the boarder has something to do with it but there is still a bid for OTM IV going into the weekend.

3-28-2014 3-06-38 PM

The one thing about buying juice on a Friday without a mark down is that it is near certain to suffer two days of decay. That might not mean much if the Russians decide to bite off a bigger chunk of Eastern Ukraine. Even so, market for volatility is giving it some respect. It is not a bad idea.

I think a decent weekend trade would be a VIX strangle. Buy a 16/21 call spread and a 15 put in the Apr cycle. Try to get the package for $1.30 or so. If nothing happens and the Russians go away, 13 VIX will be possible as the skew melts away leaving the Strangle nicely in the money. If they march in, the call spread will be an easy close to finance the whole thing plus some.

OptionVision™ – data from ORATS

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Monday, March 24, 2014

Aqumin Volatility Newsletter 03/24/2014 $QQQ

Market is still worried

Stocks sniffed all-time highs again and pulled back from the brink. The simple answer is there is no reason to be running at all-time highs. That was enough to push stocks back off of their shiny new plateau. Since we are a volatility newsletter, let’s look at the underlying currents.

First off, the skew is not coming in from the panic levels we set earlier this week. If you look at the OptionVision™ Landscape, ATM IV is coming in but the further one moves OTM the rate of decline seems to taper. That would be the highlighted row moving right to left. What that means is there is a lack of willing sellers of downside puts.

3-24-2014 9-02-40 AM

As we going into the weekend there seems more to worry about than be happy about. The Fed broached the possibility of raising rates which means there is a bit more economic activity than they are letting on. The 90s went along quite well with rates that would be considered usurious right now. Those masses of capital out there sitting around are definitely not selling puts.

My simple advice then is to avoid buying the OTM options. I still like the QQQ as much of that index is in tech heavy, relatively low multiple names. The best trades would be to go out 6 months, buy an ATM call and near OTM put spread and sit and wait. If the skew buyers are right and they start to dump their puts, it would be a good time to lighten up on the spread in this strangle. If they give up earlier and you start to see deep red in the OV landscape on the downside puts, we might be in for new highs.

OptionVision™ – data from ORATS

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Friday, March 7, 2014

Aqumin Volatility Newsletter 03/07/2014 $SPY

Where the Vol is

The NFP number is out and it was much better than expected. The US economy is stronger than anyone gives it credit for. After all we were a business before we were a country. Memories take a while to shake off and with early activity showing the SPX up around $9 the memories of the Great Recession, Greek Crisis, Euro Collapse, Fiscal Cliff and Government Shutdown are starting to fade.

That almost sounds comical as most of these issues were caused by politicians, and too loose credit getting levered up in the financial markets. Place the blame where you will. For now, the easy credit will tighten. The market likes it but they are hedging.

We have had several days of rally after the Russian mini-invasion of Ukraine and the VIX has not really dropped a whole lot. That could be from the fact the Russians are still there or it could be that paper is still buying options. It is probably the later more than the former. Note the heavy activity in the options on Thursday, March 6th. Buying downside puts and upside calls with IV slightly up in most of the strikes.

3-7-2014 9-28-41 AM

Options love bull markets and the call buyers think we can get to higher levels pushing the IV up with it. Even an absence of call sellers can keep IV higher. The trades that look best are broken wing butterflies away from the ATM in the SPY/SPX that sell some of the higher skew and let the market float up (or down) to them. If the market runs out of gas or keeps gassing, keep the credit.

OptionVision™ – data from ORATS

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Friday, February 28, 2014

Aqumin Volatility Newsletter 02/28/2014 $PLUG

Power UP

The market is making fresh all-time highs as the economic data is not too bad, and most of the early bad data is relegated to the nasty weather. The new Fed Chairman was nonplused by the data and saw no real reason to discontinue current Fed policies which means they are continuing to exit, helping the economy with monetary stimulus. For whatever reason, that gives the market a reason to rally as opposed to last spring when we sold off. The paces of the rallies are slowing a bit from last year’s 1-2% jumps.

A stock I follow is PLUG. The pace of the rally in this name is starting to subside as well except the jumps in here are on an order of magnitude higher. Note the realized volatility landscape here as PLUG was one of the few stocks up on the week (30%) but the realized volatility actually dropped recently. This means the stock is slowing down but still climbing.

2-28-2014 2-32-06 PM

The PLUG story is fuel cells that they now sell to WMT and FDX. Now that the company has technology they can sell, the upside potential can be pretty big. If the company can start breaking even, which is possible, they will be ahead of the green curve. That fact that WMT will write an 8 figure check is worth noting. I think the continued rise, albeit slower means the bull case is sticking.

With this type of name selling OTM puts to finance a long call is a decent trade 2-4 months out, or a ratio call spread (by 2 and sell 1) of similar duration. There is a fair amount of speculation here but I think the blue chip customers will beget others jumping on the Green Train.

OptionVision™ – data from ORATS

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Friday, February 21, 2014

Aqumin Volatility Newsletter 02/21/2014 $SPY

Market moves sideways but the nervousness remains

Stocks are still within daily striking distance of all-time highs. Normally with so much euphoria over equity prices traders would expect volatility levels to get back below the teens. This is not so lately. The market continues to rally despite record sovereign debt loads in the G7, economic and political unrest in several emerging market economies, and tepid numbers in the US after the cold winter.

What this brew creates is sharp realized volatility in the equity markets. 2014 has been volatile and the intraday swings in the SPX are near 1% a couple of days a week at least. The curve has been constantly adjusting for this in the SPY. On the close the spy Mar 7 Weekly 177.5 puts were trading 16.25%.

2-21-2014 2-28-35 PM

By midday today the same puts had jumped up to 16.45%. Not a big jump, but this is on a day where the ATM IV is getting whacked from the weekend effect. Net-net the curve is making a bid move up on the downside. Note how the drop in IV ATM has accelerated from yesterday.

2-21-2014 2-30-37 PM

From a trade point of view the market seems to be stuck with no great reason to rally, but not a compelling reason to sell off. The trade here could be selling short term Iron Condors closer to the ATM of short duration in the big indexes. Try to look for spreads where the skew is the most bid and leave them on for a few days only.

OptionVision™ – data from ORATS

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Friday, February 14, 2014

Aqumin Volatility Newsletter 02/14/2014 $GLD

Where are the gold bugs?

Aside from stocks starting to tip back to all-time highs, the other surprise long trade for 2014 is gold. With tax selling and every big name fund giving up on hyperinflation, gold had a rough 2013. For 2014 the metal is making a big move after trading under $1200 just into the last week of 2013. Gold is busting through $1300 and for now there seems no stopping it.

Normally a good jump in gold prices gets some interest flowing from the retail community. Not so for right now. The OptionVision™ Relative Volume scale is showing volume but on declining (red is a drop in IV) volatility. Note how the call volume is not driving up the IV. Paper does not look like they are buying into the jump in gold prices for now but writing calls against long underlying positions.

2-14-2014 11-28-46 AM

I think that sets up an opportunity for a mid-term option trade. With gold moving steadily over the last two months and with no real let up, the options are cheap enough to buy. The gold bugs should get excited again as the metal notches new highs for 2014.

A decent trade idea would be to buy a ratio call spread (buying 2 and selling 1) for even money. That way if the rally does not continue, the losses will be next to nothing.

OptionVision™ – data from ORATS

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Friday, February 7, 2014

Aqumin Volatility Newsletter 02/07/2014 $SPY

Volatility traders are smart, sometimes

There is little doubt that stocks are a different beast at the start of 2014. As we look at the VIX tank this morning the index is getting to the magic number of 16%. That is a 1% move per day for the big SPX index. For 2013 the 360 day average realized volatility, take a guess, was 11.6%. The 10 day HV right now is almost 20%. Stocks have been smoking, mostly in the down direction.

Yesterday we had a nice relief rally on the decent short term jobless claims. Most of the data will be skewed from NFP because of the weather. At least that is what the rally this morning seems to be saying. The hope that the Taper will be cut short I think is a dead issue, so any rally on that is short lived. However, IV did act violently yesterday and the volatility traders were right.

The volatility traders were right as VIX notched below 16% today. I think with the panic exit from the EM’s subsiding VIX could get to 14% easy in a week. The smart volatility traders were there already. I like buying March dated OTM put time spreads in the VXX to ride the IV down.

2-7-2014 11-08-05 AM

The inverted scale OptionVision™ landscape has IV down all across the curve in the SPY. This is what I call a fast shift down. Save for the very OTM puts on left the IV got torched yesterday as traders started looking past the NFP number today.

OptionVision™ – data from ORATS

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Friday, January 31, 2014

Aqumin Volatility Newsletter 1/31/2014 $SPY

Anatomy of a rally

Stocks rallied yesterday on a dose of good earnings and brisk GDP growth coming despite the slowdown in government spending. It is good news that the US economy continues to grow. As in 2011 and 2012, issues overseas can easily take front and center as they are this morning. The distribution of option volume in the SPY yesterday was not looking great for our rally.

The OptionVision™ Landscape shows volume (spike) and implied volatility change yesterday. The deep red upside shows that paper overall was selling upside calls essentially fading the rally. Note along the downside puts where the IV rose through to the end of the day. I have the SPY FEB 168 put highlighted as the curve jumped up yesterday in the big indexes. The calls sellers and the put buyers were out which is why the VIX closed about unchanged.

1-31-2014 8-55-59 AM

For today, look to see if the put sellers come back and pound down the skew taking profits. Essentially, this 3D picture will flip flop where the downside puts turn red and the upside calls start to turn green. The VIX itself feels fairly priced. Stocks are gapping up or down around 1% with regularity now, so a 17 VIX sounds right and it could go higher.

The SPY skew is a great place to watch short term sentiment. Right now the sentiment is looking bad as even the good EM currencies sell off. With the higher downside skew, setting up OTM broken wing butterflies would be the safest way to play a bounce. Wait till the put sellers come in to take profits. If you have no directional bias, a short time spread ATM in the SPY with a mid-term duration should work out ok

OptionVision™ – data from ORATS

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Wednesday, January 22, 2014

Aqumin Volatility Newsletter 01/22/2014 $XRT $GME

Sector Rotation

Stocks are off to a muted start this year as the record highs and so-so earnings reports are at loggerheads. For all the Iron Condor traders the market is finally being nice to them and that could be the position for 2014. If the first 3 weeks are any indication, trade will be of the slow and steady variety with a good catalyst needed to really get things going one way or the other.

What has already started off badly in 2014 is the retail sector. I have organized the OptionVision™ Landscape by the average 1 week performance. The retail group is the second worst performing sector after the homebuilders as the market flirts with records. After some disappointing Christmas results many of the brick and mortar retailers got killed.

1-22-2014 10-25-21 AM

When the herd starts to not like something, they tend to do it for a while and then the herd mentality stops. The retail sector is looking like that now and the only question is how long it is going to keep dropping back. Note how large the drops were in the affected stocks. Those kinds of drops cannot go on forever but can weigh on the group for a while.

Instead of focusing on one stock, an idea would be to trade the retail ETF, XRT. The implied volatility is very low in there even as many of the names are imploding. Buying a skewed strangle where you own the ATM put and OTM call in a longer time frame will give run on the downside until the market decides that retailers will be around for a while. The put should finance the call.

OptionVision™ – data from ORATS

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Friday, January 17, 2014

Aqumin Volatility Newsletter 01/17/2014- $SPY

Money for nothing

After making record highs earlier in the week the market is taking a breather. So-so earnings from INTC and slew of earnings next week is giving folks a slight case of the jitters going into next week. The market for volatility is as soft as the market right now. The MLK holiday is putting the last smack on it.

I have ATM volatility recording 8.01 with a week to go in the SPY Jan 24 cycle. The straddle is pricing less than a 1% hold for a week. I think that is too cheap. Normally the liquidity providers take out the weekend and they have not wasted any time this cycle. I am trying to remember the last time the market moved less than 1% over a 7 day span lately, and I cannot think of one.

1-17-2014 2-33-41 PM

The idea would be to buy an ATM SPY Jan 24 Weekly 184 straddle. The 1st day will almost literally be free from decay and that is how you get money for nothing.

OptionVision™ – data from ORATS

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Friday, January 10, 2014

Aqumin Volatility Newsletter 01/10/2014 $SPY

Withering Numbers

As we got an underwhelming number out of NFP, the market does not know what to do with itself. Stocks have traded lower for most of the day and volatility ATM has done nothing but go down. The takeaway of that is twofold- The Taper is on track with lower unemployment numbers and job creation is still spotty. That is enough to leave the status quo as is in a ball of confusion.

1-10-2014 1-49-40 PM

Note in my OptionVision™ landscape above that IV declined mostly ATM in the near term, but declined less as the puts got more out of the money. That is the skew responding to the decline and not quite giving up the ghost for volatility.

What I find most interesting is that the next two terms in the SPY are now trading below 10% ATM. That is not a lot of action going into earnings. It’s as if the market wrote off the current numbers in NFP and is content to do the same through the earnings cycle. We could be surprised of course, but IV almost always declines through earnings.

A smart trade would be to sell short term Iron Condors into what the market believes is limited movement. Keep at least 1 Standard Deviation from the ATM.

OptionVision™ – data from ORATS

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Friday, January 3, 2014

Aqumin Volatility Newsletter 01/03/2014 $SPY $VIX

The no-Conviction Sell-Off

Happy New Year!

2014 started off with big thud. I do a radio podcast on The Options Insider Radio Network on Thursdays and there was some speculation that the selloff was from longs needing to raise money to pay taxes. All the big names got smacked a bit after posting very good 2013’s. Conversely, gold is launching probably from an end to tax loss selling. The government is still in the market….

Normally in a sell-off the VIX goes up and yesterday was no exception. The volatility index is designed to climb when the market sells off. What was interesting midday is that implied volatility per strike in the SPY was going down. Below is an inverse view of the implied volatility in OptionVision™ for SPY. Note how the just out-of-the-money implied volatility declined the most.

1-3-2014 8-41-49 AM

In short, the most movement sensitive options were losing IV just as they should be gaining IV due to market uncertainty. I think this was a sign the sell-off had no real legs to it. I write this as we open only slightly higher Friday morning, but it would not surprise me if we get back a good chunk of the selloff over the next couple of days. That should tank the very near term IV.

A just OTM call time spread in the SPY owning the Jan 24 Weekly Cycle and selling the Jan 10 Weekly cycle should work right as we go into earnings.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit