Friday, September 9, 2016

Aqumin Volatility Newsletter 9-9-16 $UVXY, $VIX

The Parking Lot
I am feeling that stocks don’t like the end of QE.  While the Fed might talk up another rate walk back or policy shift, at least today stocks did not like what they heard out of the ECB.  No more bond buying, rates could start to go positive and a whole lot of folks are stuck with low yielding paper.  US Gov should jump on the low rates now.
The reality is that equities could not break out.  $2200 SPX was the line in the sand and without any real news or monetary catalyst stocks were stuck.  It looks like the monetary catalyst is about over or at least the beginning of the end.  Since I am mostly a vol trader I am looking for signals wherever I can find them.  Using a list of liquid ETF’s as a real time landscape gives me a show on a direction for volatility.  Today I see what is known at Aqumin as a “Parking Lot” Landscape.  Everything is down below the horizon leaving the list of 300 or so names looking like a parking lot.

The largest performer was the UVXY which is a 2x long volatility product.  The fact that it is the largest up move is not too surprising but the margin gap over the other juiced ETFs is.  That is usually not a good thing for the longs.  Vol begets vol and at this point the volatility products should stay very active.  Expect more movement in VIX.  I like the idea of very short term strangles in the vol products when they move like this.  Generally for the call side a very wide call spread will work and just a put to complete a strangle.  Similar to the post last week, when things start an outsize move they are generally telling you to get out of the way.

Disclosure- I oversee multiple volatility positions in VIX for the Vol Fund I manage risk for, Karman Line Capital, LLC.

Read more from Andrew at Option Pit

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