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.

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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

Read more from Andrew at Option Pit

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.

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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

Read more from Andrew at Option Pit

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.

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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

Read more from Andrew at Option Pit