Aqumin Volatility Newsletter 12/12/2013 $SPY $VIX

The Texas Two-Step

The market took another look over the edge today and decided to walk back from the brink. Whatever the uncertainty of the Taper brings, the reality that the Fed is peeling back because the economy is getting better. And as President Clinton, said “It is the economy, stupid.” Recall that early in the week the bid for the downside was perking up. This was the snap on Monday.

At this point we posted in our blog on Monday that the small bid in skew should lead to higher volatility. With VIX ringing in over 16% today, it certainly did. By using OptionVision™ traders can glimpse into the pit just like a floor trader. The problem with the VIX is that it does not give the whole story and traders should have a granular look at IV. See below, the other end of the curve is starting to move.

Note the bid in the upside skew now as the market came off of its bottom. Much like after the Shutdown the market finds its legs again. I think the result will be similar, but the next few days (until Wednesday at 2pm EDT) will be rocky. The upside broken wing butterflies for even or better should work well. Place the long strike at the near term highs.

Positions in SPY, VIX and its equivalents

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 12/09/2013 $VIX, $SPY

This could be the big one

Overall today is a quiet day after the big NFP report on Friday. Stocks are still moving in a positive direction with the SPY just .40 or so from an all-time high. That begs the question if it is time for the FOMC to take the punch bowl away from the party?

There is never a good time to say the gig is up to a dependent party, but the Fed has to at some point. If Congress can get a deal done like normal folks, that would go a long way to softening the blow. VIX is up just fractionally today, about .07 which is normal on a Monday with the Weekend Effect.

As you look at the 3D OptionVision™ landscape below, the bid is starting to rise in the downside puts for the SPY. Paper is just starting to nibble again at the thought of the Taper happening in December. This is shaping up for the 1^st bond buying pullback by the Fed. If the downside curve continues to expand, that is a sign money is getting more nervous. Note how the downside strikes are just picking up a bit more bid than the ATM strikes below.

Even with the higher market, the VIX is not making new lows. That is usually a sign IV will not retreat in the very short term at a minimum. If that is the case long volatility positions will work out, at least until Dec 17^th, the day before VIX expiration.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 11/22/2013 $VIX $DXM $SPX

Barking Dogs

So the big new is that the Dow screamed past 16000 yesterday. Screamed may be a bit too aggressive of a word but that is a new number. I believe the SP 500 will hit 1800 in short order to complete the twofer. In the meantime look at how that has changed the realized volatility in the OptionVision™ landscape below.

Note that most of the stocks have 10 Day HV’s below the 20 Day HV’s. Those would be red to white colored names below on the left side of the black lines I drew. The market for stocks over the last week has been mixed to mostly positive as well. The recent rally has sent the near term realized volatility lower, and that is why we are seeing very low numbers for VIX and other implied volatility indicators.

Cheap volatility also brings opportunities. Look at a name like DXM. It was a social media marketing darling at one point this year, trading in the 20’s before dropping to the 4 handle. Bull markets tend to give individual names a bit more gas when some good news comes out. To trade a name like DXM, I would look to buy a ratio call spread (sell 1 call and buy 2 OTM) in a farther out cycle for even or better. There should be lots of dogs barking again come the spring. The ratio spread protects in case the dog goes quiet.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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