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.

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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.

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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.

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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