Aqumin Volatility Newsletter 02/06/2012 - $GMCR, $JPM, $BK, $C, $MS

Something is Brewing

Welcome to the world of nonchalance. The Greeks are having issues with debt and they cut 15,000 employees. That is bad? I guess those Greek passport officials will only get 2 months of paid vacation per year. Perish the thought! Either way, as I have articulated here in the Aqumin Newsletter, Euro issues have subsided as a main catalyst for market activity. They are there but more like a cold sore now and not a big infection. Look at the dispersion of activity today.

I have below the IV30-HV60 AlphaVision™ Volatility Landscape. The building height is 1 week total return. This gives a view of trend. Trade generation is usually about identifying trend which is why I like 1 week change activity. The skinny, tall building you see in GMCR. A positive earnings report no doubt generated a big short covering rally (GMCR has about 21% of Float short) so maybe a few hedge funds are starting to get nervous. The red color indicates that IV30 (30 Day Implied Volatility) is trading at a 10 pt.+ discount to HV30 (30 Day Historical Volatility). GMCR is trading at a 72 pt. discount. That is a little skewed from the big move up but this name still has some oomph in it.

Also note the group of Money Center banks enjoying the same implied volatility discounts. JPM, C, MS and BK all are trading at levels like the financial crisis is receding. To me that is just a reason to buy juice. For GMCR, a former darling of the momentum set, history can repeat as they drive this name higher. Combined with the large short interest I would not stand in the way. With the public just barely in the market, the old go go growth names can really start to do some damage on the upside if John Q gets back in the action. GMCR is a name to watch for any kind of long gamma position out to March. Safer money is buying premium (basically just calls) in the big banks. Either way market volatility is starting to look attractive because stocks are moving up as fast as they were moving down. Look at all this action without any public participation. Imagine what happens when the folks get that quarterly statement from their T-bills. The shorts, as they say, could feel the squeeze. Watch the big momentum names as the damn will generally burst there first.

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Aqumin Volatility Newsletter 01/31/2012 - $NBG, $SPY, $XLF

Is Greece done with its slide?

For 2012 the US equity market is up a little over 4.6% as measured by the SPY (S&P 500 ETF). After 2011 maybe the market should just stop here, call it a winner, and move on. But that is not the way it works. A quiet mover (besides AAPL of course) is the Financials. The XLF (Financial Select SPDR ETF) is up over 7% this year. Any serious market watcher knows how heavy the Financials weigh in the big indexes. For the SPY to really break out, the Financials need to help and they are finally pulling their weight. Take a look at this AlphaVision™ for Bloomberg landscape below.

I am using the IV30 less HV60 Landscape here. Building height is 1 Week Total Return. Imagine my surprise when the #1 Financial stock for the week in Total Return was….National Bank of Greece (NBG)! Also note the red color which has the forward 30 Day Implied Volatility (IV30) trading below the trailing 60 Day Historical Volatility (HV60). Readers of this newsletter would have seen this Landscape very different in mid-October; it was basically all green as the implied volatilities were bid way up due to looming Greek default. That was the landscape of impending doom (see from my Volatility Fatigue post of 10/05/2011 and the 2^nd landscape below). The market outlook this morning in this landscape looks more balanced (normal) now.

Today’s more balanced IV30-HV60 Landscape.

All green IV30-HV60 Landscape of Impending Doom- Very High Implied Volatilities in early October.

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Aqumin Volatility Newsletter 01/24/2012 $SHLD

Putting up a SHLD against the shorts

Shorting stocks is as old as stocks themselves. I even think the US had an SEC commissioner who shorted stocks during the 1929 Crash and then outlawed hitting downticks after the Crash. The problem for short sellers is not that stocks go up (which is bad for them for sure) but that the stock is called away at inopportune times as they are forced to “cover” the position. That action causes some disruption as forced buying ensues and pushes up the market price of the stock. As a whole, keeping a theme from last week, the market continues to move sideways as the implied volatilities start to wither away in the front month. When a heavily shorted stock has a sudden burst it draws attention.

The screen shot below is my active AlphaVision™ for Bloomberg landscape measuring 1 week total return and short term historical and implied volatilities. A spike in the name means the 1 week total return is near the top for that sector. A red color means the short term realized volatility (HV10) is blowing through the short term implied volatility (IV10). SHLD (Sears Holding Inc) stands out as one of the stocks that display market behavior nearly opposite of most of the other active names that trade.

A little further look into SHLD has the name coming off of a recent $30 low. The huge run up to near $50 in a short time outstripping the implied volatility makes the name a bit more interesting. The Sears story is about a decline in the ability of the company to grow sales (the problem is really declining sales) from its huge base and the shorts piled in. Because of the short interest in the name the recent run-up looks like some shorts were “squeezed” to cover positions. No doubt when the “squeeze” starts to cool the implied volatilities will come down with the stock price. Keep an eye out for another pop or small drift lower as the current rise might be temporary and some short calls spreads might work rather nicely.

Author Note: Stocks with high short interest are very volatile and pose great risks. Seek advice from a registered investment professional before initiating any transactions.

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