Aqumin Volatility Newsletter 1/31/2014 $SPY

Anatomy of a rally

Stocks rallied yesterday on a dose of good earnings and brisk GDP growth coming despite the slowdown in government spending. It is good news that the US economy continues to grow. As in 2011 and 2012, issues overseas can easily take front and center as they are this morning. The distribution of option volume in the SPY yesterday was not looking great for our rally.

The OptionVision™ Landscape shows volume (spike) and implied volatility change yesterday. The deep red upside shows that paper overall was selling upside calls essentially fading the rally. Note along the downside puts where the IV rose through to the end of the day. I have the SPY FEB 168 put highlighted as the curve jumped up yesterday in the big indexes. The calls sellers and the put buyers were out which is why the VIX closed about unchanged.

For today, look to see if the put sellers come back and pound down the skew taking profits. Essentially, this 3D picture will flip flop where the downside puts turn red and the upside calls start to turn green. The VIX itself feels fairly priced. Stocks are gapping up or down around 1% with regularity now, so a 17 VIX sounds right and it could go higher.

The SPY skew is a great place to watch short term sentiment. Right now the sentiment is looking bad as even the good EM currencies sell off. With the higher downside skew, setting up OTM broken wing butterflies would be the safest way to play a bounce. Wait till the put sellers come in to take profits. If you have no directional bias, a short time spread ATM in the SPY with a mid-term duration should work out ok

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 01/22/2014 $XRT $GME

Sector Rotation

Stocks are off to a muted start this year as the record highs and so-so earnings reports are at loggerheads. For all the Iron Condor traders the market is finally being nice to them and that could be the position for 2014. If the first 3 weeks are any indication, trade will be of the slow and steady variety with a good catalyst needed to really get things going one way or the other.

What has already started off badly in 2014 is the retail sector. I have organized the OptionVision™ Landscape by the average 1 week performance. The retail group is the second worst performing sector after the homebuilders as the market flirts with records. After some disappointing Christmas results many of the brick and mortar retailers got killed.

When the herd starts to not like something, they tend to do it for a while and then the herd mentality stops. The retail sector is looking like that now and the only question is how long it is going to keep dropping back. Note how large the drops were in the affected stocks. Those kinds of drops cannot go on forever but can weigh on the group for a while.

Instead of focusing on one stock, an idea would be to trade the retail ETF, XRT. The implied volatility is very low in there even as many of the names are imploding. Buying a skewed strangle where you own the ATM put and OTM call in a longer time frame will give run on the downside until the market decides that retailers will be around for a while. The put should finance the call.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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Aqumin Volatility Newsletter 01/17/2014- $SPY

Money for nothing

After making record highs earlier in the week the market is taking a breather. So-so earnings from INTC and slew of earnings next week is giving folks a slight case of the jitters going into next week. The market for volatility is as soft as the market right now. The MLK holiday is putting the last smack on it.

I have ATM volatility recording 8.01 with a week to go in the SPY Jan 24 cycle. The straddle is pricing less than a 1% hold for a week. I think that is too cheap. Normally the liquidity providers take out the weekend and they have not wasted any time this cycle. I am trying to remember the last time the market moved less than 1% over a 7 day span lately, and I cannot think of one.

The idea would be to buy an ATM SPY Jan 24 Weekly 184 straddle. The 1^st day will almost literally be free from decay and that is how you get money for nothing.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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