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The Never Ending Land of Negative Rates and Monetary Flimminy Flammery

Stocks got a nasty jolt this morning when the ECB took a step into the unknown with a continued push for negative interest rates in the EU.  6 years ago when things needed a jolt I can see the Monetary Priming have a material affect that was so lacking in the 1930’s.  Now that we are in round 6 or 7 the diminishing returns are in.  Volatility got a massive bid up.

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Like the SPX? Buy Calls, Hate it? Buy Puts

On Friday's I host a podcast called Volatility Views with the great Don Schlesinger.  He has many great sayings, but perhaps his best is:  "There are options that should be sold, and options that should not be sold."  Right now, I think Don would clearly say now is not the time to sell options.  The SPX is right near its all time high, not fundamentally important.  But what is important is where IV's and HV's are currently trading.

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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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Mideast Kerfuffle

My first option trade was in 1990 on a crude oil contract leading up to Gulf War I.  I was convinced oil prices would rise and I was right.  I don’t remember how high crude went at the time, maybe $40 or $50 a barrel, but it was a nice win.  That was my start trading options and I was a market maker a couple months later as the coalition forces invaded.  That is another story.  As exciting as the pop in oil prices was at the time the more amazing thing is what happened once the allies invaded.  Oil dropped by a huge amount per barrel in one day.  It was 22 years ago and the exact number is

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Breaking Down a CHK trade from Bloomberg's Lunch Money

Our COO was on Bloomberg's Lunch Money  today discussing trading and options order flow on Chesapeake Energy.  You can watch the Video:

 

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GOOG Earnings Over Reaction

Google taught my options mentoring students a nice lesson on getting long premium into earnings; it usually pays to play the day before earnings, not the day of.  Because the ATM straddle that was purchased on Wednesday was a huge winner, while the ATM straddle purchased yesterday was a loser.  Thankfully, most students actually had on the long calendar we looked at during the pit report, so they all came out ahead.

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Clear Example of Oversold an VIX

One of the problems my option mentoring students have understanding is the concept of relative premium price and 'cheap' options.  But, if one wants to get a good options education, it is really key to understand the concept.  To help you option traders, over the last few days, we have discussed how relative to risk, premium can become oversold.  This happens when premium sellers go overboard risk assets get 'cheap' in the near term.  I also stated that, around 11:00 or so EST, I thought we might see a bottom in premium selling.

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AAPL IV Getting Cheap Again

Since we left the trading floor and entered the options education busines,s we have learned a few important things:

1.   Retail traders really like to trade apple options

 2.  When VXAPL (the VIX of AAPL) gets below 30, it is not going much lower.  When it gets near 25, it’s the scoop of the year.

Take look at where VXAPL it is getting pretty cheap and is starting to look like a pretty decent buy. 

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SPX Strangle/Iron Condors Looking Interesting

At the end of the day today, the market sold off pretty big.  while some might lament that 'the bear is returning',  I look at it a different way.  With every move in volatility, a new opportunity presents itself.  I do not think the last week has been any different.  While, yes the market has given away a whopping 4% (that was typed sarcastically) and the VIX rallied for a record 8 consecutive days (off of a 14 VIX I would add), I think this is a good thing for option traders.

Take a look at where the VIX had been over the last few weeks prior to last week:

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