put spread

Market can't get past it's worries

Stocks sniffed all-time highs again and pulled back from the brink.  The simple answer is there is no reason to be running at all-time highs.  That was enough to push stocks back off of their shiny new plateau.  Since we are a volatility shop, let’s look at the underlying currents.  The first stop is SDEX, it's still at nosebleed levels.

Charts by google finance

Next, if you look at the 3D skew ATM IV is coming in but the further one moves OTM, the rate of decline seems to taper.  That would be the highlighted row moving right to left.  What that means is there is a lack of willing sellers of downside puts.

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Looking at a VirnetX buy write

LiveVol just released some new goodies for scanning activity and I thought it would be instructive to walk through one of the simpler scans.  With the market at all-time highs and volatility drifting lower, there is not much to note there.  We have liked the market this year and there is not much to change that.  So in a rising market is a buy write a good strategy?

Selling a BA Put Spread

Our COO was on Bloomberg TV discussing BA option trading ahead of an upcoming NTSB decision on the 787 Battery.  You can watch the video here:

 

Boeing continues to rally ahead of an important NTSB decision on the safety of its battery system within its new 787 Dreamliner, but why? Considering BA is nearing an all-time high, it seems likely the market has already “baked in” the idea that the NTSB will eventually approve the system. 

SPX IV is Higher, Points Toward...a Rally?

Last night in my webinar for RCM I discussed how I will use the VIX as a multi day indicator for trading.  One of my key points, is that if the SPX is higher over several days, and IV is also higher, or not falling over several days, then IV is pointing toward a possible sell off.  If we look at what has happened over the last few days, we can clearly see that IV is not really dropping and SPX is rallying.

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Is AAPL still AAPL?

As I watch the market today most of the volatility is coming from AAPL.   Traders still cannot get past the fact that AAPL has changed into a slightly different stock lately.   This is something that I call a change in a stocks “personality”.  Specifically is the realized volatility the same as it has always been or has it become something else?  AAPL does not normally stay at this level of realized volatility for this long.  It is usually a gap and then pretty much mid to low 20’s in realized volatility.

Special Telegram

The market got a bit of a relief rally today. The hurricane was manageable and the employment picture was a bit brighter according to ADP so we had a very pleasant rally.  Today was the first real smack down in volatility since the day before GOOG reported underwhelming numbers a couple of weeks ago.  Anytime the VIX drops near 2 points it is a big readjustment in the volatility perception.  Even with the election looming it won’t make much difference for the market if today’s IV markdown was any indication. 

A stock that acts like a bank and a utility all rolled into one…

I won’t go through the VIX play by play today,because it was pretty straight forward.  The VIX November (and sometime December) future spent a good part of the day underwater, in doing so, showing that the VIX futures were slightly backward.  What does that mean?  Move movement in the short term as 200 point moves in the down start to ignite the realized volatility in the market.  My closet theory is that implied volatility will not drop until after AAPL announces.  I have no real proof for that, but this whole scene feels like last spring when the market was sitting on the big news.  It looks like we are waiting for Friday morning for any meaningful drop in volatility (or another pop), but right now, there is enough movement to support what is going on.&nb

This Is What a Hedged Market Looks Like

I have been commenting for some time on why I do not see a sell off on the horizon.  I see a fully hedged market place right now.  But what does a fully hedged market look like?  It looks like this:

Take a look at realized volatility on 10 and 20 day historical volatility.

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Livevol (R) www.livevol.com

HV is currently at 7.9%; this is in the toilet low.  In fact, when the VIX was near 14,  HV was actually higher than it currently is now.  The VIX is trading between 15 and 16, double the value of realized volatility.

The VIX down and the market did what…..

One of the most interesting things about market sentiment is how strange it is.  After nearly a year of hanging on the hopes and aspirations of the Greek peninsula the market has forgotten what to do with good old fashioned news.  The Beige Book was on the whole positive.  Earnings reports on balance for some retailers were a little better than expected.  The market looked at the news and went south.  Good news can’t get us to rally so things are back to normal.  Hmm…. So what is up?

AAPL IV Now Higher than Earnings and Product Launch

Many of my option mentoring students LOVE AAPL.  AAPL might be heading for some real problems here in the near term.  If not problems, at least some serious volatility.  How can I tell?  While some traders will point toward the stock breaking its 50 day and 100 day moving averages,  I would point toward something else,  volatility.  Since AAPL stopped whipping around in the spring and bottoming out in May, the stock has had two major characteristics:

1.  The stock has almost moved in a straight line higher

2.  The Option Volatility has been relatively low

Today,  the Option IV officially broke the high since AAPL took off in mid May:

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