Aqumin Volatility Newsletter 11-11-14 $SPX, $VIX

The Vol walls are coming down

This may be the 3^rd or 4^th recent record for the S&P 500 as I cannot remember because we have had so many.  Stocks are seeing renewed buying interest after the election and for now the wind is at the market’s back.  There is not much wind in option premiums.  All the bears got their time in mid-October and for now that is all they have to hold onto.  The bump from the BOJ and ECB has put the kibosh on the bear’s hopes for now.

That brings us to the crush in IV yesterday.  Traders crushed it on Friday and they crushed it Monday.  Even another dustup in Ukraine was not enough to make folks worry.  Note the upside selling in the OptionVision™ 3D volatility chart below.  The scale is inverted so the tall red spikes are more selling.

Traders are discounting the big rally now.  We can still rally but the crazy QE induced stuff should be out of the way.  Old fashioned economic stuff will have to drive stocks and there is not much of that until after Thanksgiving.  I don’t think there is more than 1 point in the VIX to drop over the next two weeks, if it drops that much, after today.

An idea would be Double Calendars in the SPX (50 points wide) since there is some backwardation and liquidity providers have discounted Thanksgiving options already.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 10/21/2014 - $SPX $VIX

Upside Call IV Destruction

I was trying to find a good word to describe what happened with the implied volatility today but the best thing I can think of was the phrase “burning down the house”. Note the deep red destruction of the upside implied volatility in the SPY on my OptionVision™ landscape.

Each building represents a call series with the change in implied volatility and it is mostly down and really down for the upside calls. This is the market saying whatever rally we have is not going to be the big Fed induced love fests of the past. Like in the Smith Barney commercials of old, the market will have to make money the old fashioned way; it will have to earn it.

That brings us to the trade idea now. IV is still at nice levels and we had a lower closing VIX for the first time in ages. The best trade would be a delta balance iron condor, maybe a little closer to the money than normal. The upside destruction of the call skew is letting us know it is ok. Think the bigger indexes like SPX.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 10/14/2014 - $EXAS, $XLV, $XLF, $XLU

Stocks are in shock

Equities are rolling into the close trying desperately to hold onto the gains they made earlier in the day. Those higher prices are not there but the intraday movement still is. The fact is that realized volatility is at a very high price. Note the OptionVision™ realized volatility landscape set up below.

Roughly 85% of stocks are showing increasing realized volatility. All the green stocks mean that the 10 day realized volatility is higher than the 20 day realized volatility. It is does not happen that often when stocks do this. Red stocks are showing reduced volatility. Usually something big is afoot when there is all this movement. The strange thing about this current selloff is the lack of really bad news. Notice most of the landscape graph is blank meaning those stocks are down for the week. Financials, Utilities and Healthcare are still active just not getting hit like everything else. Oil and Gas explorers are getting it the worst.

This is what stocks look like when the Fed exits. The only thing I can pin a time on is the Fed not raising rates any time soon, scaring the growth story. There will be no more QE even if Europe slows down. Oil prices dropping on supply is hitting a big chunk of the growth in stocks this year and OPEC is staying quiet. That should be good for the consumer. Toss in some bad headline news and there are several factors contributing to the slide but not terribly so. It is best to stay with what is doing ok and not make a big call on the areas that are getting stung.

A trade I like, is take the ETFs that are doing better like XLF, XLV or XLU and look at some upside butterflies in a slightly longer cycle. To dabble in the sector ETFs that are getting hit buy some OTM put time spreads (plus the flies) just in case to generate some decay and more vega if they keep imploding.

EXAS is bucking the entire market trend and might make an interesting long play.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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