Aqumin Volatility Newsletter 12-20-16 $NUGT

Making Gold

The equity market moves since Nov 8^th 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.

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Aqumin Volatility Newsletter 10/31/2016 $UVXY

It aint over until it’s over

Election shocks and surprises

The old saying “It ain’t over til it’s over” was never more true than last Friday.  A small change in the election game set volatility on fire again.  Generally what I like to see is standout volatility up or down for a ride in the volatility products.  Usually the vol products just decay but every once in a while there is a cause for an out of category volatility.  Even with the market clocking in single digit realized volatility UVXY found a way to jump off of the 3D map again.

UVXY is a levered product, but when the levered product gets way above all else it is noteworthy.  The dark red color in the AlphaVision® Landscape below, shows the lively 60 day realized volatility, with NUGT in the front of the group.  Height is what we want since that is the 10 day realized. UVXY is back out in front in the top 10% of 1 day relative moves which is how each decile of ETF’s is sorted.  The election will keep UVXY moving.

I expect UVXY and the volatility products to stay lively through the election with a binary move post- election.  There is now too much uncertainty to let volatility tank prior the Nov 8^th a la The Brexit. I like long vol plays (call spreads in UVXY) in the shorter duration, but expiry after the Nov 8^th, and a short vol play just farther out in the post-election run up.  The short vol can wait at least until the 7^th.

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Aqumin Volatility Newsletter 10-18-2016 $CHK

Someone CHK the Gas

There are finally some decent earnings to cheer about today.  Both GS and NFLX are up big on beating estimates.  For stocks that are at near all-time highs, great earnings are necessary to propel us higher.  Oil and Gas are doing better than ok this year to help Technology keep things moving.  The Energy group has been the big winner in 2016 with outstanding performance after a dismal start.  Energy lead by CHK has turned in the best relative performance so far this year (AlphaVision®Landscape group on the lower left) in the S&P 500.

CHK is a story from a famous ex-CEO to over production just in time for the crash in Nat Gas prices.  The $40 company is now a $6 company.  At some point they will be an asset play for someone with a very long view.  The Trend Reversal Landscape is showing a lot of red lately in the Energy group.  The poor 5 day relative performance is probably the group taking a pause after the big move to $50 in oil.  CHK clearly is not resting since 3 month performance (tallest building) is the best in the group and it is still rallying short term (green color).

On top of the recent performance there is a lot of call buying activity in CHK.  The near term volatility is bid sky high with the terms expiring prior to earnings.  Long ratio call spreads could work in here in the short term (buying 2 and selling 1).  Maybe the long winter for Nat Gas is over if the producers keep picking up a bid.

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Aqumin Volatility Newsletter 10-10-16 $WMT $TSN

WMT the high volatility leader

The market is having a hard time discounting the future.  By that I mean that the Fed and their multiple announcements and opinions by various Fed Governor’s have put a fork in market volatility.  The big sea change is that G7 Central Banks are holding so much paper that players are having a hard time looking forward.  Not that it ever was easy in the modern era, but now it seems different. As a volatility watcher I will ignore the squishy middle for now and look at some outliers.  WMT fits for this week.

We have the rolling volatility landscape that looks at 4 realized vol measurements at once.  60 day through 10 day realized vol is depicted as a sequence of buildings with “up buildins that are green showing sequential jumps in from 60 day to 30 day to 20 day to 10 day realized.  Usually that means some equity is in some kind of trouble short term.  In this case WMT got the double whammy of lower earnings expectations and a non-settlement with the DOJ.  Both of those sent the stock down to 6 month lows on gaping moves for WMT.

The AlphaVision® Vol Changes landscape shows color as the 10 and 20 day IV ratio so greener buildings mean more volatility now.  TSN is also high on the list for the S&P 500.  This reminds of December when WMT went through some initiatives that knocked down the price to the high 50s.  I don’t think it gets there but some put time spreads just OTM might work to sell the shorter term volatility.  WMT did get a little worse before it got better.

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Aqumin Volatility Newsletter 9-30-16 $XOM, $DB

Who cares about DB when we have XOM?

DB stole the headlines this week with what might have been a Lehman moment.  As this blog was written there are rumors of a reduced settlement or at least the availability of credit for DB.  The short gasp of volatility we had on Thursday looks like just that, a short gasp.  The volatility is still with us in Energy.

In what used to be a relatively unexciting part of the market, Energy stocks are ripping up with every OPEC headline.  Currently for the S&P 500 (AlphaVision Landscape below) they are most volatile (red and tall) groups for both the short (10d) and longer (60d) terms.  The oil price swings and the near death experience for the group is still very close.  This movement is also generating better than average premiums in the options.

A stock like XOM which just traded $83 is generating 2% to write the Oct ATM call.  That is not too bad on less than 1 month hold.  With some kind of deal in with OPEC, stable oil prices should make the Energy group a nice premium write given the current higher volatilities.

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Aqumin Volatility Newsletter 9-23-16 $WFC

Banks HIT the Brakes

This was not a good week for banks.  WFC’s CEO did the perp walk in front of the Senate and really had nothing to say. What could he?  Somehow 5000+ employees went off the reservation and did slightly naughty things opening up accounts.  For a bank that prides itself on risk control and sidestepped most of the financial crisis this was a big black eye.  It might also be a symptom of how hard banking has become in the face of new regulations and a low interest rate environment.  One would think that would be a recipe for volatility.  Not really.

Since we look at volatility in this blog, my AlphaVision® landscape shows WFC is a standout for more short term realized vol (up building) on the 10 day cycle and more 30 day volatility.  If you look at most of the Financials, realized volatility has steadily decreased (down pointing buildings) for the last two months.  Even the really bad news did not cause WFC to fall out of bed too badly.  While it is the most volatile big bank, BRK.B is in the lower left corner of the sector, it is not a scale wipe for WFC.  The bigger trend is the easing of movement overall in banks.  With the Fed telegraphing rate for the the end of 2016 and in 2017 things could get better and not worse for banks.  Not homeruns but just boring decent returns.  The way banks should be.  WFC is a scoop.

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Aqumin Volatility Newsletter - 9-16-16 $INTC

The chips heat up for INTC

This is yet another week where stocks just sit and wait for the Fed to say something about rates.  The only real anticipation is whether we have a Brexit like surprise or not.  A little CPI is going to nudge the Fed one way for sure.  The tit for tat fine on DB is roughly the same as the tax bill for AAPL.  Trade wars could take on a new meaning.  In short the powers that be did not add value to the broad market this week and the very wild volatility early in the week is dissipating into Sep 21^st.  A quick glance at my AlphaVision® landscape had sentiment telling a better story.

Tech is smoking hot.  While financials and oil (XOM is the big sad red building) hang out in the bargain bin, chip stocks are back.  Note that INTC (largest green building) is leading the news sentiment charge even over AAPL which in itself is noteworthy after the 10% run in AAPL the last week.  While there are growth rumors around INTC, maybe in an IPhone, the big semi appears to be selling more stuff.  The trend is looking very favorable.  A short put rolling routine in INTC yields about .66% per week at the 37 strike which is a bit above normal.  That would get you in before the good news.

Disclosure: Long INTC

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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.

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Aqumin Volatility Newsletter 9-1-16 $DUST $VIX

Aqumin Volatility Newsletter 9-1-16 $DUST $VIX

Where will the DUST settle?

The historic lows in realized volatility are surprising this year given the crazy volatility we saw in the first 6 months.  If I told you in February that 10 Day Realized Volatility would be down in the single digits for 30+ days, you would have thought I was crazy.  Yet here we sit. Even with the NFP number, VIX can barely get above 13.5%.  Not all products are taking a rest right now.

Note the action yesterday in DUST.  DUST just reverse split after a one way trip to the dog house in 2016.  The product is the inverse Gold Miner (3x) ETF so good day for DUST is a bad day for the gold miners.  It is not a product I trade normally.  3x leverage has problems day to day, but the leveraged ETFs are a great signal for volatility in a sector in general.  The screenshot is just showing relative movement grouped by the most volatile, popular ETFs traded on the CBOE.  My snap was on the close yesterday.

DUST is continuing the climb this morning and could keep going.  I like long gamma (owning near term calls and puts) in the gold miners since for whatever reason, the miners care about the NFP number tomorrow.  The massive gain in the Gold Miners this year could get messy.

Positions in GDX and GDXJ

Data from the Bloomberg Terminal

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Aqumin Volatility Newsletter 8-28-15 $SPX $BTU

Smoking Volatility

As Friday rolls to a close stocks have seen some near record levels of volatility. If the VIX could have opened early Monday morning we would have touched 80% on that crazy downward spike. Notice there is no Financial Crisis currently. The funny thing is that was almost cheap. Traders know that when things get out of hand the most valuable commodity is gamma. Having some would have helped a whole lot on Monday.

On a volatile week the Metals and Mining groups showed the highest IV. Note that in the OptionVision™ Implied Volatility (IV) landscape, Mtls and Mining show the highest average IV over the 60 day realized volatility. The meltdown in China basically left that segment in tatters and it only is just recovering or trying to. The IV still remains high as the future is totally murky. This sets up more potential movement than normal.

When IV is this much of a premium over realized volatility that usually means the market has imploded, yet we are back to the levels we were at on Friday for SPX. The ground is still very shaky. If anything at this point I would still buy Gamma near the money and sell some Vega out of the money, We could buy ratio call spreads (buy 2 sell 1) with the long calls near the money. Any positive ratio that brings a credit in the some of the Mtl/Miners seems reasonable. If the recovery continues they should pay. BTU has been in the news recently and would not make a bad candidate for this kind of move. Other miners look ok in the space and might do as well if Coal looks too scary,

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 07/24/2015 - $XME, $XOP, $XLE, $LNCO

Is inflation dead?

Equity prices are very near all-time highs with the help of financials and technology this week. What is conspicuous by its absence are the commodity names. Oil, natural gas, iron and anything remotely close to those industries are deteriorating at a rate we have not seen in a while.

Below I have arranged the OptionVision™ Landscape by realized volatility. The “parking lots” in the foreground are the big 3 sectors for commodities and the realized volatility is racing up with the names putting 1 week lows. Usually declining prices in rising volatility is a capitulation of sorts. I don’t know when this will end, but these names have been taken to the woodshed and then some with oil hovering in the $50s.

It is true that gold is putting in multi-year lows and all of this has the look of a stampede out of these names. Note that Treasuries have been rising even as the Fed talks up rates. Somebody thinks commodities are dead and leaving in a hurry. I don’t deny the price action, but when I see so much one -sided action in these landscapes it usually does not last forever. The best idea is to own calls and puts in bigger commodity ETFs (XLE, XOP, XME) and trade the deltas as they come.

Disclosure: positions in commodity ETFs.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter – 6-22-15 $SPY

Bidding up the Weekend

Greece once again takes center stage as the EU and ECB get fed up with non-compliance out of their Mediterranean neighbor. The huge rallies one day are replaced with the disappointment the next locally. For the first time in a while VIX is going up into the weekend. While Greece is a drop in the bucket in the global picture GDP-wise, it still has broader implications for the Euro and stability. The equity market hates political instability.

The reality is that IV is up only a bit. Every rally is met with a selloff until Jun 30^th when Greece defaults or not. Until then the best play has been to buy dips in volatility.

The best method for this would be buying just OTM put time spreads in the SPY that sell Jun 26 Weeklys. If history is any guide, we will move a bit but nothing will come of it until the following week.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 5-29-15 $SPY

Withering Volatility

Try as we might the volatility market cannot hold a real bid. Is there a volatility market you ask? Of course there is, it just depends on where you look. Today the VIX cash was up .63 to 13.92 as stocks sold off about .6 %. That is about normal as VIX will increase when the market falls. The question is there a demand for put options at this level?

If you look at a 3D snap of how volatility is moving the answer is mostly in the near term. We are getting some near term pops in IV per strike, but nothing on the longer end of the curve. Until I see the long end jump I am not going to worry too much.

Junky GDP numbers after the long winter are becoming a habit and this cycle was no exception. The second quarter will probably be better. With Greece the only real issue in the near term there is not much else to worry about. The Fed and ECB are still driving the boat and they have been known to crush the volatility.

It is not just the VIX, but how the IV moves that matters. Long term changes in IV are more important than short term changes. Using the short term pops in volatility to buy upside broken wing butterflies for credits has been very reliable this year. Keep the terms less than 2 weeks and create the short strike around new all-time highs in the SPX.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 05/01/15 - $SDEX $VIX

Rally With Morning Coffee

We have a mild rally this morning and it is not too surprising.  The selling this week was more like someone needed to sell.  Many of the big cap names were slammed, most likely to pay for bond positions that were blowing up.  The short Euro trade must be hurting a lot of folks.  Those folks should want some juice.

The thing is the skew did not get steeper. Note the volatility surface in OptionVision™. The big bulges in IV were closer to the money and the OTM puts did not rise as fast.

The SDEX is a fairly new skew product, but is a nice indicator for steepness of skew in the 30 day cycle for the 25 delta put.  The general range is 71 for a steep skew to 61 for a flat skew.  Today the SDEX tanked to 63.31 down 1.46.  What does this mean?  Put owners were taking profits and the ATM option got bid.  Traders are looking for a move from the money not a crash to the OTM. We are getting that move this morning.

The skew should steepen again as we rally if the ATM starts to decline (rally mode). Upside call butterflies in the big indexes will look good.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 4/7/2015 $VIX $SPY

ATM IV melts up

Market volatility took a bit of a ride yesterday as the pre-open smack led to, what else, a rally. We got some Fed Governor news on blaming the winter but I feel like the lame jobs report was set up on Wednesday’s ADP number. $50 per barrel oil is not creating any jobs in that sector either. The pre-open action lately has not been a very good indicator of what is going to happen during the trading day.

If you look at the OptionVision volatility landscape in the SPY, IV was up per strike today even with the VIX up only .07. I expect some weekend effect but the bulge in the ATM volatility is usually a little telling. Note the slope of the yellow lines sloping up to the ATM. The demand for OTM puts declined today relative to the nearer the money volatility. Market players are expecting some movement but not a ton, what I refer to as “orbiting”. This generates day to day realized volatility but we really go nowhere. It was almost as if this rally deflated the skew a bit which is not really normal.

That leads to some upside volatility and ratio spreading again looks good. The OTM call condor or broken wing call butterflies for credits in the bigger indexes seem like the right idea. Keep the duration shorter. Place the short strike above the recent all-time highs since the bulge in ATM IV tells us the orbiting market is not finished yet.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 3-16-15 $VIX $SPY $SDEX

Move in VIX lacked punch

The IEA came out and said the bounce in oil was only temporary. That caught a lot of the oil market by surprise as many producers and drillers found new lows today. Now we are dealing with a short term, could be long term, gut in oil supplies as OPEC puts the squeeze on competitors. That was enough to foil the bank rally Thursday. The sell-off was half-hearted at best from a volatility point of view.

Note how the IV in the SPY closed Friday. Much of the downside IV actually showed red today. That means that per strike volatility declined on a day when VIX was actually up. Another way to put it was that skew flattened on a down day in stocks.

If you look at SDEX, which is a volatility index that measures 30 day IV on the ATM and 25 delta put options, it had a drop of .56 to 61.04. The SDEX is running in the same directions as the per strike IV, which it should. The general trend, when skew gets pretty flat and with IV in a middle tier, we should see a rally in stocks at some point.  Usually that rally will give us a further drop in IV.

A decent idea would be to sell iron condors 60 days out into this. Stick with the bigger indexes and keep the delta flat since there is usually a bit of a lag.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 03/04/2015 $XOM $VIX

The Oil Rout Looks Like It Is Slowing Down

This was a strange day in the market when stocks really lacked a sense of direction. For the most part the tone was down and VIX was up slightly, but the volatility futures actually finished down on the day into the close. There was really a lack of interest more than anything else as the race to NASDAQ 5000 left everyone with an empty feeling.

The blighted oil patch seems to have hit a short term bottom. If it isn’t the bottom in prices it is the bottom in realized volatility. Note the OptionVision™ landscape set up where the Oil and Gas producers are in the foreground. Currently they lead the pack in the sector for the biggest average drop in HV10. Granted that was from a very high level, but volatility has to drop for a sector to stabilize, and we are starting to see that.

The sea of red is just 10 day realized volatility trading below the 20 day realized volatility. The oil and gas sector is leading that average decline in realized vol.

I think this group is ripe for selling put spreads and short vega type trades. Oil prices can stay low for a while so pick names that are less leveraged. I have XOM highlighted as a short volatility candidate, but any name in the XLE or XOP ETF’s would do. If you decide to sell a basket of put spreads, working 10% OTM in the individual names, a downside butterfly in the XLE or XOP should hedge.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 02-20-2015 $SPY

A Reversal of Risk

It looks like the Greek Drama happening overseas ended up being a comedy more than a tragedy. That is good for investors and good for the Greeks. We will revisit the issue in June but for now that looks like the only thing that was holding up implied volatility.

The OptionVision™ landscape shows an interesting pattern for change in the term structure in the SPY. Essentially the back month terms are dropping in response to the ECB/Greek news but the near term upside is catching a slight bit. This means market participants are looking for IV to drop in the long term but are still wary of a move to the upside in the short term.

I don’t blame them. Stocks have had the wind at their back since the low rate regime set in around 2009. The slowness in Europe gave the Fed a reason to wait on the rate hikes and stocks will love that. That is what the end of day term structure says today. Index Iron condors look like the rage again since most of the news is out. Go 60 days out to catch the last gasp of volatility in the market but keep the deltas flat.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 02/02/2015 - $SPY $SPX $VXX

Orbiting Volatility

Stocks ended the week in an ugly fashion with the SPX down about 1.25%. There was enough in the bad sentiment train with Greece, Euro Area deflation, poor GDP and Russia annexing another part of the Ukraine. Not the stuff of rising markets with earnings only tepid this season. So far most companies that are reporting are doing better than estimates. Not 80% to blow it out but just ok.

Note the OptionVision™ IV landscape from Friday. There is not a hint of skew shift anywhere in the picture. Implied volatility is up across the board but the skew curve in the SPX did not change much. To me that is more of a signal of higher “orbiting volatility” than outright crash time. If traders were worried about a crash they would be bidding up the skew. After Friday there is a bid for near, at and out of the money options.

The persistent realized volatility is coming from two places: most things happening in the USA are good and near everything in Europe is bad. That gives us the 1% rallies and the 1% selloffs. The Greek pullout means the selloffs will be a bit more frequent than the rallies until there is a settlement, whatever that might be.

The trade is buy the dips in IV using a product like VXX. Use near the money time spreads for the high positive theta and keep the long month in March since it will cover the Greek negotiations. I think any time spread that buys March will pay to some degree as long as you can manage the gamma.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 01/16/2015 $XHB $KBH

More Volatility for Homebuilders

We are finishing a volatile week for global markets and it most likely will stay that way until the ECB comes up with some announcement on Jan 22^nd and/or the Greeks decide to elect a new government by the end of the month. Earnings reports so far have been mediocre and without the promise of domestic QE, stocks have not been able to recover. Short term, things will stay choppy.

Once again I have Homebuilders leading the realized volatility averages (foreground). Oil and Gas Explorers and Producers are showing the largest relative decrease in realized volatility (back left corner). I don’t know if this is the end of the drop in oil prices but at least it is decelerating. The group even had a few stocks up on the week which is a nice showing relative to the S&P 500. The group is worth keeping an eye on now but I don’t expect any grand bounce.

Rates in the USA continue to tick down. Why? It seems we are the only one of the big 3 tradable economies in the West that are bothering to pay interest. Germany and Japan are at or near 0. That should be good for housing as current reports have huge numbers of home refinancings.

A trade that could work would be to take advantage of KB Home (KBH) crush and sell a just in the money put since this name has already led the Homebuilders down. Hedge with buying a put of same duration, but less money, in the Homebuilder ETF (XHB).

With volatility so high everywhere one needs to be careful. The last time we had Homebuilders leading in relative RV it made a power move up. Past performance does not guarantee future results, thus the slight hedge given our ugly market.

OptionVision™ – data from ORATS

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