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How do you like them AAPLs?

The equity market had a pretty stunning reversal this afternoon.  Essentially it rallied 1% from the lows of the day and the VIX took it on the chin to drop .67 to 16.45. Maybe a combination of the ADP report not being so bad and less silly rhetoric out of Washington got everyone into the holiday spirit.  One place it did not help was AAPL.

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Playing VIX Term Structure

Over the years, I have made the argument repeatedly that I think SPX puts do a better job of hedging than VIX calls, especially in low VIX environments.  However, like all trades and hedges, that is not a rule but a generality.  There is something strange going on in VIX that is making going long call spreads in VIX very favorable.  Take a look at VIX term structure:

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www.vixcentral.com

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Will AAPL Be the Next to Declare a Div?

Today, for The Street, I wrote an article pointing out the list of companies I think could be next in line for a special dividend.  On that list was ORCL, who just announced after the bell that theirs could be a special dividend.  The companies I looked for were super stable, high market cap, low PE, and loaded with cash.  Naturally, at the top of my list: AAPL

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FB unlikes ZNGA

If you are tired like I am of hearing about the weekly saga of what passes for government on Capitol Hill there is always headline financial news to come back to.  The volatility market is locked in a day trade of who says what and when with regards to the debt and deficit so that pretty much kills any trending volatility trade.  One stock that has been on a tear recently is Facebook (FB) and the opposite trajectory is Zynga ( ZNGA).

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Unusual Activity in RIMM

Besides a slight scare from the Speaker of the House today, the market rallied in fine style.  It could not break out over 1422 on the SPX but most of the market did well.  Volatility did come down a touch too as the short end of the market started to catch up with what the longer end of the volatility market has been doing.  It looks like we are setting up for a rally to the end of the year as long as some sort of something comes out of Washington.  We would have a nice Hollywood moment if the politicians got it together before Christmas.  Wishful thinking anyway and I won’t bet too heavil

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Long Term Risk Coming In?

This morning we had another continuation of the Cliff Dwellers saga.  This is where the market participants watch and see what the Executive Branch and Congress are going to say and then hit the sell button.  It played out it in great fashion this morning on the leftovers from the hardening position talk on both sides in our esteemed government.  Note the brisk selloff in the SPY this am.  The SPY touched 139 and then proceeded to rally 1.7%+ to close 141.54.  What happened?

 

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Not Buying the SPX, Look at a Calendar

At Option Pit, our goal is to teach our option mentoring students not just the strategy, but the theory behind why one would execute a strategy.  We want our option traders to learn how to construct their own trades, not just regurgitate others' trades.  Learn more about how we teach here.   Here is an example:

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Facebook Volatility is Still Cheap

I had to blink recently, because I thought FB was just a $20 stock.  Nothing makes momentum traders happier than an upgrade of a whole bunch of technology stocks at once.  FB, AAPL and YHOO all got the nod today from influential analysts and banks.  We have had a small short put spread position in YHOO in our Strategy Letter for a while now, so I agree with the bullishness.  One thing about the rally in FB is that it was accompanied by a rise in volatility.  That I think is interesting.

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XLF, Payment Processor IV Cheap, Trade?

As we head into the fiscal cliff and a potential European solution/crisis, one thing strikes me is risk not being priced into financial assets.  Yes, the VIX is somewhat low today, trading at 15% or so.  The VIX futures, though, and the VXV are both pricing in a little more volatility after the December cycle.  We are not seeing the same thing priced into XLF and/or any of the major financial companies.  Take a look at the price and IV chart for XLF.  The Red is the 30 day vol; the yellow is the 60 day vol.

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WishNeedWantHope

Sometimes the holiday period brings a surprise of action.  Last year with iteration 5 or 6 of the Euro Crisis ending we caught a huge rally and volatility compression right through Thanksgiving.  It feels like we got that early, on Monday really, this year.  That leaves us with the gap between the holidays and the news about Congress and the White House hunkering down to earn their pay checks and perks.  I am hopeful but students at Option Pit know that hope for a trader is a 4 letter word.  It goes on the list with need, wish and want.  If you find yourself in a trade and the only thing go

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