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

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