Aqumin Volatility Newsletter 02/28/2014 $PLUG

Power UP

The market is making fresh all-time highs as the economic data is not too bad, and most of the early bad data is relegated to the nasty weather. The new Fed Chairman was nonplused by the data and saw no real reason to discontinue current Fed policies which means they are continuing to exit, helping the economy with monetary stimulus. For whatever reason, that gives the market a reason to rally as opposed to last spring when we sold off. The paces of the rallies are slowing a bit from last year’s 1-2% jumps.

A stock I follow is PLUG. The pace of the rally in this name is starting to subside as well except the jumps in here are on an order of magnitude higher. Note the realized volatility landscape here as PLUG was one of the few stocks up on the week (30%) but the realized volatility actually dropped recently. This means the stock is slowing down but still climbing.

The PLUG story is fuel cells that they now sell to WMT and FDX. Now that the company has technology they can sell, the upside potential can be pretty big. If the company can start breaking even, which is possible, they will be ahead of the green curve. That fact that WMT will write an 8 figure check is worth noting. I think the continued rise, albeit slower means the bull case is sticking.

With this type of name selling OTM puts to finance a long call is a decent trade 2-4 months out, or a ratio call spread (by 2 and sell 1) of similar duration. There is a fair amount of speculation here but I think the blue chip customers will beget others jumping on the Green Train.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 02/21/2014 $SPY

Market moves sideways but the nervousness remains

Stocks are still within daily striking distance of all-time highs. Normally with so much euphoria over equity prices traders would expect volatility levels to get back below the teens. This is not so lately. The market continues to rally despite record sovereign debt loads in the G7, economic and political unrest in several emerging market economies, and tepid numbers in the US after the cold winter.

What this brew creates is sharp realized volatility in the equity markets. 2014 has been volatile and the intraday swings in the SPX are near 1% a couple of days a week at least. The curve has been constantly adjusting for this in the SPY. On the close the spy Mar 7 Weekly 177.5 puts were trading 16.25%.

By midday today the same puts had jumped up to 16.45%. Not a big jump, but this is on a day where the ATM IV is getting whacked from the weekend effect. Net-net the curve is making a bid move up on the downside. Note how the drop in IV ATM has accelerated from yesterday.

From a trade point of view the market seems to be stuck with no great reason to rally, but not a compelling reason to sell off. The trade here could be selling short term Iron Condors closer to the ATM of short duration in the big indexes. Try to look for spreads where the skew is the most bid and leave them on for a few days only.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 02/14/2014 $GLD

Where are the gold bugs?

Aside from stocks starting to tip back to all-time highs, the other surprise long trade for 2014 is gold. With tax selling and every big name fund giving up on hyperinflation, gold had a rough 2013. For 2014 the metal is making a big move after trading under $1200 just into the last week of 2013. Gold is busting through $1300 and for now there seems no stopping it.

Normally a good jump in gold prices gets some interest flowing from the retail community. Not so for right now. The OptionVision™ Relative Volume scale is showing volume but on declining (red is a drop in IV) volatility. Note how the call volume is not driving up the IV. Paper does not look like they are buying into the jump in gold prices for now but writing calls against long underlying positions.

I think that sets up an opportunity for a mid-term option trade. With gold moving steadily over the last two months and with no real let up, the options are cheap enough to buy. The gold bugs should get excited again as the metal notches new highs for 2014.

A decent trade idea would be to buy a ratio call spread (buying 2 and selling 1) for even money. That way if the rally does not continue, the losses will be next to nothing.

OptionVision™ – data from ORATS

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