Tuesday, December 20, 2016

Aqumin Volatility Newsletter 12-20-16 $NUGT

Making Gold

The equity market moves since Nov 8th have been nothing short of spectacular.  Essentially what many thought would happen did not, and the run into 2017 became a new ballgame.  Financials and commodities jumped, tech made a slight move and interest rate products tanked.  Not least of which was the inflation hedge gold.

On a pure snap of volatility using  AlphaVision, NUGT stands out as the most volatile name for its market cap. 3x levered products almost always lead for realized vol, so it is just a matter of which one.  NUGT has some of the largest 60 day vol (red) and 10 day vol (building height).  Which makes sense considering the free fall in gold and that makes it the vol leader of a volatile group.

That also brings me to the fun of the landscape. Outlying names only stay there for so long and gold is trading like inflation is dead.  Short term gold is ugly but longer term should rise.  Use the realized volatility for a short term short direction play, say a put time spread below the money in the Dec/Jan cycle for GLD and buy some longer term calls in NUGT for a pop.  If the realized vol holds the put time spreads should pay and maybe pay for all the NUGT calls.  Then ride the NUGT calls.

Read more from Andrew at Option Pit