Aqumin Volatility Newsletter 1/18/2012 - $AA, $VZ

Is the end finally in sight?

The 2^nd half of 2011 saw tremendous changes in implied volatility as the market digested the fallout for possible European sovereign debt default. While that issue is not really solved, the Euro Banks have a reprieve by tapping the ECB facility to exchange their bonds for Euros in the short term. At last that will keep the system from freezing up which it was on course to do. Looking at the market in short term implied volatility is helpful in determining how successful the ECB’s actions are.

Take a look at the Aqumin Time Series Landscapes below. The Dow Jones Industrial Average (Dow) stocks are arranged by 10 Day Implied Volatility (IV10). The most recent day is on the right and just prior to the 2008 Financial Crisis is on the left. The 30 rows listed are the closing print of 10 Day Implied Volatility for each day which is denoted by the height and color. Note all of the red buildings just prior to the 8/19/2011 mark. That is showing IV10 closer to 15% (which is the dark red limit). Short term implied volatility did a bad job of predicting the crisis as the subsequent volatility spikes show.

If you look a little farther back on this Time Series Landscape you notice that as volatility comes down it tends to stay that way for a bit. The short term IV10 does a better job of predicting recent lulls than potential pops. That makes sense since paper sells shorter term options when there is no real trouble on the immediate horizon. Look at where I selected VZ and note that IV10 is starting to point way down again. There is some level now where the market is accepting the Euro situation. That is playing out and translates to lower short term volatilities. Looks like there might be a little room to run.

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Aqumin Volatility Newsletter 01/13/2012 - $AGO, $MBI, $JEF, $JASO

S&P Downgrades France - Market Doesn’t Care

A couple of posts ago I commented on the resiliency and new found life of some of the financial stocks. What I think is interesting now about the S&P downgrade of France is that it seems a bit late. The market reaction today to the news was a big flop as I see the S&P 500 up a few ticks since it came out. France, with all of the EU dithering is now getting downgraded? Wow, talk about timing. The EU is a mess and somehow I think the USA is propping it up which is helping our markets overall. Either way the risk outlook, from a historical volatility view has declined a bit in some Financials so let’s take a look in AlphaVision™. S&P prescience on upgrades and downgrades notwithstanding.

My favorite activity view for intraday snapshots (see below) is the HV10 less HV30 view in AlphaVision™ for Bloomberg. Building height here is 1 week total return to give me an impression of where a stock is and the velocity of how it got there. Red stocks have declining short term underlying volatility and green stocks rising short term volatility. Note in the Financial Sector on the left, there is only one dark green stock, MBI. That means the near term movement has been sharp but overall the name is only up 3.6% for the week. Sort of like a tempest in a teapot and coming off of news. Two names registering very steep (dark red) declines in underlying volatility are JEF and AGO. JEF is the brokerage that supposedly was ready to go under a la MF Global but instead became one of the better performers this week. AGO was almost out of business a couple years ago but has since put on a nice recovery.

The story for me looking at the landscape in Financials is that the part of the industry that was near death and very volatile has settled down considerably and continues to do so. Note the green spikes on the far right in the technology sector. That is the dead cat bounce for most of the Chinese Solar plays trading in the low single digits and an area I would still avoid. I like to see that the AGO’s, JEF’S have declining historical volatility and steady movement from the bottom. Makes me think that S&P is running with a Euro story that has already been in the newspaper for a few months and is quite stale where the more interesting evolving story in the US financial stocks is finally starting to get brighter. When S&P starts upgrading US financials it is probably time to trim the positions. Until then tossing in some longer dated calls in these names is not such a bad idea.

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Aqumin Volatility Newsletter 01/03/2011 - $CHK, $EDO, $FCX, $VALE

GoGo Metals

Well it was off to the races in 2012. Euro Debt? Who cares? US Treasury debt? That is a non-factor. Economic slowdown? Not with our Fed Chairman holding on to the wheel. Wall Street threw a party today but it was interesting to see really how stocks reacted. No doubt there was some money going back to work after 2011 closed its books. I will use an active AlphaVision™ view to break down the market action.

The view here was created by Aqumin’s VP of Solutions, Jason Javarone. Essentially it turns all 3000 names into a giant real time VWAP (value weighted average price) view. What this view conveys is momentum. If a stock is sticking up it is trading above its current, daily VWAP and if it is green it is up on the day. This way it is easy to tell where a stock is relative to its own movement at any point in time and relative to other stocks in the sector and broader market in general.

I chose this view because I thought the end of the day action looked interesting. The dark green stocks are up over 5% for the day. In the first view above I highlighted a gold stock with heavy activity, EGO (El Dorado Gold Corp.). Note how solidly bid all the Gold stocks were near the end of the day.

In the view above, I panned out to look at the broader market. Materials, Steel, Gold, Silver and Oil and Gas all finished the day very big. These are the stocks of global recovery and since most of them are down 50-60% from their highs in 2011 a little bottom fishing is going on. VALE, FCX and CHK all caught a pretty solid bid today, and with implied volatilities mostly lower these might be good candidates for call purchases in February and beyond. If we don’t actually implode via the EU, the market is already placing bets on what will lead equities back out on the first trading day of 2012. I think it is worth hopping a ride on this train.

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