Aqumin Volatility Newsletter 12/7/2012 - $XHB, $HOV

Leaving the Homebuilders Behind

One of the strange observations of this past week is how much the market has gone nowhere. We closed around 142 on the SPY last Friday and we most likely will close around 142 today. The recent unemployment report was ok but has some noise in it from Sandy. The casual market observer would think not much happened. However, there are some interesting things going on…

Look at the Big View landscape from OptionVision™. While there was a lot of scattered weekly activity the only real “parking lot” you see is in the homebuilder sector for 1 Week Total Return. I use the term parking lot to describe a landscape sector that has no buildings up for the week. The homebuilders did not participate in the scattered buying and were losing some momentum after their recent runup.

So, let’s flip over the landscape (below) and see what is there. HOV is a standout with the most pull back of the homebuilders. The landscape color is pretty evenly split between red and green although the green stocks are a little heavy. Color here is the IV30 trading a premium (green) to HV60. Right now IV is probably a little high over all but not too much based on current movement. I have seen this landscape 90% green before and 90% red before over the past year.

As far as the homebuilders, this is a group that most likely has some big profit taking into the end of the year as the group has performed very well this year. I expect the move up to restart as soon as everyone is done grabbing their cheapy capital gains rates for 2012. The XHB (SPDR Homebuilders Index) has seen $24 once in the last 3 months (it is up from 17.15 at the start of the year) and that is a pretty good level to sell a few puts. Eventually things might start to move again….

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter – November 30, 2012 – $FB, $ZNGA

Two Socialites Divorce

If you are tired like I am of hearing about the weekly saga of what passes for government on Capitol Hill, there is always headline financial news to come back to. The volatility market is locked in a day trade of who says what and when with regards to the debt and deficit so that pretty much kills any trending volatility trade. One stock that has been on a tear recently is Facebook (FB) and the opposite trajectory is Zynga (ZNGA).

FB, I think is, going to continue to run. The volatility is cheap in there and buying calls seems like the easy trade. ZNGA is getting interesting because it is trading for just a shade over its cash on hand. Also note the activity today, fresh on the news that ZNGA will be just like any other game at FB. Namely the two companies appear to be severing their special relationship. Maybe ZNGA will be free to pursue other options in the Social Network space. That news did cause things to shake a bit. Implied Volatility jumped about 15% ATM in both Jan and Mar on the news with options trading twice the 20 day average volume per strike.

This OptionVision™ View shows mostly active call buying meaning, while the stock might be down a .1 on the news, paper is buying calls betting on a ride up. Sometime a stock does not move much but the options move a lot. I think I would just sell the OTM puts down at this level. On this occasion I think divorce might be a good thing. At least the call buyers think so.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 11/21/2012 - $SKEW, $SPX, $SPY

When will the skew revert?

One of the most glaring, unremarked pricing events last week was how flat the SPX skew was on the ride down from 1400 on the index. I actually had the CBOE skew index (SKEW) down around the absolute lows of the year. Essentially the skew in an option product is the degree to which the implied volatility in the out of the money (OTM) options differ from the at the money (ATM) implied volatility. There have been books written and plenty of money spent on divining the moves in the index skew “curve”. If you trade volatility products it behooves you to understand how the curve works. Let’s take a new view from OptionVision™.

The first thing to note is the buildings are higher as the columns move farther away. That is the implied volatility increasing down to the OTM puts. The ITM calls are on the left and provide less reliable readings because the bid/ask spread is wider. The view is showing index skew rising (green) in December relative to the ATM. Most of the Dec put protection was sold out last week and the curve is climbing in its natural fashion. Note the later terms just after the Dec ordinaries, the skew is still declining a touch relative to the ATM. Darker red is a steeper decline. Some Jan downside put sellers are still active.

The reason the later months are still lower is that puts are still for sale. The news says progress and paper is unloading their puts. For the market that is a healthier sign for some higher prices short term. Having paper start to take profits in long put positions I think is slightly bullish. Now we need the politicians to tie up their ends.

OptionVision™ – data from ORATS

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