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

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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