Aqumin Volatility Newsletter 12-20-16 $NUGT

Making Gold

The equity market moves since Nov 8^th have been nothing short of spectacular.  Essentially what many thought would happen did not, and the run into 2017 became a new ballgame.  Financials and commodities jumped, tech made a slight move and interest rate products tanked.  Not least of which was the inflation hedge gold.

On a pure snap of volatility using  AlphaVision, NUGT stands out as the most volatile name for its market cap. 3x levered products almost always lead for realized vol, so it is just a matter of which one.  NUGT has some of the largest 60 day vol (red) and 10 day vol (building height).  Which makes sense considering the free fall in gold and that makes it the vol leader of a volatile group.

That also brings me to the fun of the landscape. Outlying names only stay there for so long and gold is trading like inflation is dead.  Short term gold is ugly but longer term should rise.  Use the realized volatility for a short term short direction play, say a put time spread below the money in the Dec/Jan cycle for GLD and buy some longer term calls in NUGT for a pop.  If the realized vol holds the put time spreads should pay and maybe pay for all the NUGT calls.  Then ride the NUGT calls.

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Aqumin Volatility Newsletter 10/31/2016 $UVXY

It aint over until it’s over

Election shocks and surprises

The old saying “It ain’t over til it’s over” was never more true than last Friday.  A small change in the election game set volatility on fire again.  Generally what I like to see is standout volatility up or down for a ride in the volatility products.  Usually the vol products just decay but every once in a while there is a cause for an out of category volatility.  Even with the market clocking in single digit realized volatility UVXY found a way to jump off of the 3D map again.

UVXY is a levered product, but when the levered product gets way above all else it is noteworthy.  The dark red color in the AlphaVision® Landscape below, shows the lively 60 day realized volatility, with NUGT in the front of the group.  Height is what we want since that is the 10 day realized. UVXY is back out in front in the top 10% of 1 day relative moves which is how each decile of ETF’s is sorted.  The election will keep UVXY moving.

I expect UVXY and the volatility products to stay lively through the election with a binary move post- election.  There is now too much uncertainty to let volatility tank prior the Nov 8^th a la The Brexit. I like long vol plays (call spreads in UVXY) in the shorter duration, but expiry after the Nov 8^th, and a short vol play just farther out in the post-election run up.  The short vol can wait at least until the 7^th.

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Aqumin Volatility Newsletter 10-18-2016 $CHK

Someone CHK the Gas

There are finally some decent earnings to cheer about today.  Both GS and NFLX are up big on beating estimates.  For stocks that are at near all-time highs, great earnings are necessary to propel us higher.  Oil and Gas are doing better than ok this year to help Technology keep things moving.  The Energy group has been the big winner in 2016 with outstanding performance after a dismal start.  Energy lead by CHK has turned in the best relative performance so far this year (AlphaVision®Landscape group on the lower left) in the S&P 500.

CHK is a story from a famous ex-CEO to over production just in time for the crash in Nat Gas prices.  The $40 company is now a $6 company.  At some point they will be an asset play for someone with a very long view.  The Trend Reversal Landscape is showing a lot of red lately in the Energy group.  The poor 5 day relative performance is probably the group taking a pause after the big move to $50 in oil.  CHK clearly is not resting since 3 month performance (tallest building) is the best in the group and it is still rallying short term (green color).

On top of the recent performance there is a lot of call buying activity in CHK.  The near term volatility is bid sky high with the terms expiring prior to earnings.  Long ratio call spreads could work in here in the short term (buying 2 and selling 1).  Maybe the long winter for Nat Gas is over if the producers keep picking up a bid.

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Aqumin Volatility Newsletter 10-10-16 $WMT $TSN

WMT the high volatility leader

The market is having a hard time discounting the future.  By that I mean that the Fed and their multiple announcements and opinions by various Fed Governor’s have put a fork in market volatility.  The big sea change is that G7 Central Banks are holding so much paper that players are having a hard time looking forward.  Not that it ever was easy in the modern era, but now it seems different. As a volatility watcher I will ignore the squishy middle for now and look at some outliers.  WMT fits for this week.

We have the rolling volatility landscape that looks at 4 realized vol measurements at once.  60 day through 10 day realized vol is depicted as a sequence of buildings with “up buildins that are green showing sequential jumps in from 60 day to 30 day to 20 day to 10 day realized.  Usually that means some equity is in some kind of trouble short term.  In this case WMT got the double whammy of lower earnings expectations and a non-settlement with the DOJ.  Both of those sent the stock down to 6 month lows on gaping moves for WMT.

The AlphaVision® Vol Changes landscape shows color as the 10 and 20 day IV ratio so greener buildings mean more volatility now.  TSN is also high on the list for the S&P 500.  This reminds of December when WMT went through some initiatives that knocked down the price to the high 50s.  I don’t think it gets there but some put time spreads just OTM might work to sell the shorter term volatility.  WMT did get a little worse before it got better.

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Aqumin Volatility Newsletter 9-30-16 $XOM, $DB

Who cares about DB when we have XOM?

DB stole the headlines this week with what might have been a Lehman moment.  As this blog was written there are rumors of a reduced settlement or at least the availability of credit for DB.  The short gasp of volatility we had on Thursday looks like just that, a short gasp.  The volatility is still with us in Energy.

In what used to be a relatively unexciting part of the market, Energy stocks are ripping up with every OPEC headline.  Currently for the S&P 500 (AlphaVision Landscape below) they are most volatile (red and tall) groups for both the short (10d) and longer (60d) terms.  The oil price swings and the near death experience for the group is still very close.  This movement is also generating better than average premiums in the options.

A stock like XOM which just traded $83 is generating 2% to write the Oct ATM call.  That is not too bad on less than 1 month hold.  With some kind of deal in with OPEC, stable oil prices should make the Energy group a nice premium write given the current higher volatilities.

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Aqumin Volatility Newsletter 9-23-16 $WFC

Banks HIT the Brakes

This was not a good week for banks.  WFC’s CEO did the perp walk in front of the Senate and really had nothing to say. What could he?  Somehow 5000+ employees went off the reservation and did slightly naughty things opening up accounts.  For a bank that prides itself on risk control and sidestepped most of the financial crisis this was a big black eye.  It might also be a symptom of how hard banking has become in the face of new regulations and a low interest rate environment.  One would think that would be a recipe for volatility.  Not really.

Since we look at volatility in this blog, my AlphaVision® landscape shows WFC is a standout for more short term realized vol (up building) on the 10 day cycle and more 30 day volatility.  If you look at most of the Financials, realized volatility has steadily decreased (down pointing buildings) for the last two months.  Even the really bad news did not cause WFC to fall out of bed too badly.  While it is the most volatile big bank, BRK.B is in the lower left corner of the sector, it is not a scale wipe for WFC.  The bigger trend is the easing of movement overall in banks.  With the Fed telegraphing rate for the the end of 2016 and in 2017 things could get better and not worse for banks.  Not homeruns but just boring decent returns.  The way banks should be.  WFC is a scoop.

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Aqumin Volatility Newsletter - 9-16-16 $INTC

The chips heat up for INTC

This is yet another week where stocks just sit and wait for the Fed to say something about rates.  The only real anticipation is whether we have a Brexit like surprise or not.  A little CPI is going to nudge the Fed one way for sure.  The tit for tat fine on DB is roughly the same as the tax bill for AAPL.  Trade wars could take on a new meaning.  In short the powers that be did not add value to the broad market this week and the very wild volatility early in the week is dissipating into Sep 21^st.  A quick glance at my AlphaVision® landscape had sentiment telling a better story.

Tech is smoking hot.  While financials and oil (XOM is the big sad red building) hang out in the bargain bin, chip stocks are back.  Note that INTC (largest green building) is leading the news sentiment charge even over AAPL which in itself is noteworthy after the 10% run in AAPL the last week.  While there are growth rumors around INTC, maybe in an IPhone, the big semi appears to be selling more stuff.  The trend is looking very favorable.  A short put rolling routine in INTC yields about .66% per week at the 37 strike which is a bit above normal.  That would get you in before the good news.

Disclosure: Long INTC

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Aqumin Volatility Newsletter 9-9-16 $UVXY, $VIX

The Parking Lot

I am feeling that stocks don’t like the end of QE.  While the Fed might talk up another rate walk back or policy shift, at least today stocks did not like what they heard out of the ECB.  No more bond buying, rates could start to go positive and a whole lot of folks are stuck with low yielding paper.  US Gov should jump on the low rates now.

The reality is that equities could not break out.  $2200 SPX was the line in the sand and without any real news or monetary catalyst stocks were stuck.  It looks like the monetary catalyst is about over or at least the beginning of the end.  Since I am mostly a vol trader I am looking for signals wherever I can find them.  Using a list of liquid ETF’s as a real time landscape gives me a show on a direction for volatility.  Today I see what is known at Aqumin as a “Parking Lot” Landscape.  Everything is down below the horizon leaving the list of 300 or so names looking like a parking lot.

The largest performer was the UVXY which is a 2x long volatility product.  The fact that it is the largest up move is not too surprising but the margin gap over the other juiced ETFs is.  That is usually not a good thing for the longs.  Vol begets vol and at this point the volatility products should stay very active.  Expect more movement in VIX.  I like the idea of very short term strangles in the vol products when they move like this.  Generally for the call side a very wide call spread will work and just a put to complete a strangle.  Similar to the post last week, when things start an outsize move they are generally telling you to get out of the way.

Disclosure- I oversee multiple volatility positions in VIX for the Vol Fund I manage risk for, Karman Line Capital, LLC.

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Aqumin Volatility Newsletter 9-1-16 $DUST $VIX

Aqumin Volatility Newsletter 9-1-16 $DUST $VIX

Where will the DUST settle?

The historic lows in realized volatility are surprising this year given the crazy volatility we saw in the first 6 months.  If I told you in February that 10 Day Realized Volatility would be down in the single digits for 30+ days, you would have thought I was crazy.  Yet here we sit. Even with the NFP number, VIX can barely get above 13.5%.  Not all products are taking a rest right now.

Note the action yesterday in DUST.  DUST just reverse split after a one way trip to the dog house in 2016.  The product is the inverse Gold Miner (3x) ETF so good day for DUST is a bad day for the gold miners.  It is not a product I trade normally.  3x leverage has problems day to day, but the leveraged ETFs are a great signal for volatility in a sector in general.  The screenshot is just showing relative movement grouped by the most volatile, popular ETFs traded on the CBOE.  My snap was on the close yesterday.

DUST is continuing the climb this morning and could keep going.  I like long gamma (owning near term calls and puts) in the gold miners since for whatever reason, the miners care about the NFP number tomorrow.  The massive gain in the Gold Miners this year could get messy.

Positions in GDX and GDXJ

Data from the Bloomberg Terminal

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