Aqumin Volatility Newsletter 08/31/12 $VXX

End of the Dog Days of Summer

The Fed rose to the occasion again today and decided to be ready to act. I thought that was a fitting end to August as this month passed relatively quietly, unlike last year. The market got a little rally today along with gold and the Euro. Players are thinking it is better to go home long a little of everything than the other way around. The same can be said of the market implied volatility. For just about all financial assets, the volume is very light, so it’s really tough to gauge any path, but I will try below.

The Option Vision landscape below shows the VXX options. The little spikes are showing above average volume for the option class today. The VXX is trading right at average volume for most of the spikes except for September downside puts and upside calls. The Sep 15 calls are catching a small bid with the volatility up around 3 points. But the Sep 13 calls have the volatility down less than 1 point. The implied volatility in the Sep out of the money puts dropped as well (little red buildings) after the post-Bernanke volatility fire-sale did not really happen.

Really what we have is the near term movement driven by the European schedule over the next two weeks. The buying is in the upside volatility potential given some Euro surprise as most of the positive US news is swept under the carpet. I think players are just adding to their mix of assets and a little volatility won’t hurt. The calls they are leaning toward would need a big surprise downside move to generate any return. Ultimately though I think they are just hedging all of the other assets they own for the next couple of weeks. And like we have seen most of the last year, all the angst usually ends up being for nothing (with a couple of scary days in between).

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Terms of Use and Disclaimer

Aqumin Volatility Newsletter 08/24/2012 - $BIDU

Bada Bing, Bada BIDU

Most of the headline news this week was showing weaker growth in China. Since I am a believer in relative value, weaker growth in China is well, relative. Either way the Chinese equity markets have been kind of plonky this year. It is just kind of a slow drift down without much pop. When a Chinese stock does have a move, I take notice.

Here in the new Option Vision™ platform with ORATS you can see the strike by strike volatility activity this afternoon in BIDU, a popular Chinese internet stock. Note many of the big green spikes in BIDU per strike. This just shows the name is very active on high volume and slightly increasing volatility. No surprise as it had a $15 range yesterday.

One thing about the colors below is some red in the more out of the money put strikes in September. From yesterday to today some heat came out of the near term, downside options. After a short move down this a.m. with general market softness BIDU came back a bit. That small rally took some implied volatility out of the downside options.

This is probably a short term buying opportunity in BIDU. The best way to me would be to buy some out of the money call time spreads for low deltas and let the rest of September volatility melt away. With some news on the Greece restructuring coming out in Oct (November is the earning cycle month) the time spread is a smart play to play a bounce.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Terms of Use and Disclaimer

Aqumin Volatility Newsletter 08/17/2012 - $BAC

Unusual Activity

Today has been a relatively slow day. Quiet, and for the most part the market can’t get behind much except for AAPL which is making new highs. I think with most of the name volatility making year lows and the indexes getting close, it is best to look at what is drawing the market’s attention. The surprise of the day is in finance.

Look at the Relative Volume numbers for Bank of America (BAC) on the OptionVision™ landscape below. The tall buildings just give a graphical representation of how busy the options were relative to normal activity. I actually had this on my radar earlier in the week because the IV had gotten so cheap and the story on BAC is still pretty mixed. Large paper came into the name today and bought calls and sold puts. That was enough to light up some buying as BAC broke through $8 for the first time since July. BAC has yet to make it past $8.25 since the spring. It looks like some paper is betting big that it might happen again.

Buying October volatility in BAC looks very good to me.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

Terms of Use and Disclaimer

Aqumin Volatility Newsletter 08/10/2012 - $ADM

Fill up the tank or buy a Coke?

As we sit going into the Italian Bond auctions next week, the market is going nowhere fast. The reality of constant intervention promises and no real action is finally dawning on the equity markets. No action, no rally seems to be the sentiment. That does not mean there is nothing going on in other places. Take the drought we have seen this summer as an example.

I have the Option Vision™ screen from Aqumin and ORATS below showing the current Implied Volatilities relative to the ORATS Smooth Volatility Valve (SMV). This shows when a stock skew (relationship of out of the money calls and puts) is out of kilter from a historical norm. The close up below is for a stock I have been watching, ADM. The green buildings are showing higher IV to norms at the money.

If you zoom out you will notice how ADM stacks up to other names in the sector. Note MNST (the beverage maker) is getting a bit of a volatility squeeze too on the skew with a pending investigation.

I think the market is looking at ADM with a lot of corn going to ethanol and the other bunch going to corn syrup (think KO). The problem is that ADM is stuck in the middle of the $8 per bushel corn rise and is getting squeezed. As long as the options stay bid, I think more downside is in the cards for the big ag processor.

Note:  Alerts could indicate an option that has been traded and has moved away from the normal volatility relationships as defined by the smooth fit.  Alerts can also indicate groups of options that are trading off the curve for other market reasons.  For example, if the at-the-money options are trading lower than the smooth and the out-of-money are trading higher than the smooth this may indicate that the market is expecting lower volatility in the coming days but not in the longer term where the outs may give protection.

Read more from Andrew at Option Pit

Terms of Use and Disclaimer

Aqumin Volatility Newsletter 08/03/2012 - $VXX

Withering Volatility

Getting a feel for market volatility is not always easy. Take Thursday’s market activity as an example. The market had a roller coaster ride and ended down 1%. Super Mario basically said nothing in his policy statement that he had not already said before. That pretty much flushed the Euro, Spanish Equities and the US markets (T bond notwithstanding, of course). But getting a deeper read is necessary to see what the market is really thinking. Let’s read the new OptionVision Landscape.

The Landscape is just the VXX Volatility Landscape for yesterday. The dark red in August VXX means the implied volatility was down for most of the strikes in play. I took this snap when the market was actually close to the bottom. You will note the green spike in September (spikes are higher than normal volume). That was a buyer of OTM calls in the VXX in the panic, which was most likely part of a spread trade in the other two spikes surrounding it. Overall the volatility trend was down (note the red on most of the active strikes) and it was down when the market was not acting well.

If the volatility of a volatility product like the VXX is in the can today, expectations for greater volatility in the near term are pretty low. As a matter of fact I bet the implied volatilities go lower for the next week or so in this August cycle. Now that the market knows Super Mario is willing to step in and buy bonds (maybe) and Big Ben is going to wait for the politicians to get elected, most of the game is out. Welcome to the sideways markets. I bet the VXX trades $12 next week.

Read more from Andrew at Option Pit

Terms of Use and Disclaimer