Gamma is Cheap(er)

With the market making new yearly hi's (SPY chart below), the price of front month options in the SPY is priced considerably lower than its back month comrades. As depicted in the skew charts below, 2011 illustrated a common skew that we often see - front month options being most expensive based Implied Volatility, or IV, relative to the other series. As you can see in the final skew chart, front month options are pricing in very little movement for the coming weeks. This is not really surprising given the general outlook on the VIX and the market action seen earlier this week in the VIX options, where vol reeled some 6 pts lower in a single day. With the vol of the vol so to speak seemingly headed lower, gamma is currently cheap and maybe will be cheaper still. Nevertheless, it provides some intriguing possibilities and opportunities, not the least of which is a reversion to the mean trades (read short calendars - warning:could take a while) or outright long gamma positions to speculate or hedge against near term portfolio events. Happy trading.

http://seaofopportunity.blogspot.com/ 

Kyle Bass on The Global Economy & Finance Situation

Options Flow Recap Oct 11

Macro / Thematic

EEM – 76,000 of the October 36 / 39 put spread was sold at $1.11. The put spread was sold to close and likely closes a position opened approximately one month ago for a $0.55 debit.

SPY – 30,000 of the January 110 puts were bought for $4.44. 40,000 of the January 105 puts were bought for $3.29. 20,000 of the January 85 puts were bought for $0.92. 50,000 of the January 100 puts were sold at $2.43 and 40,000 of the January 90 puts were sold at $1.28. The trade was done as a package.

VIX – 18,000 of the January 25 puts were bought for $1.075.

XLF – 17,000 of the January 12 puts were sold at $0.98.

Michael Jordan: Mind of a Champion

Options Flow Recap Oct 10

Macro / Thematic

iShares MSCI EAFE Index Fund EFA - 2200 of the November 52 calls were sold at $1.66.
iShares MSCI Japan Index EWJ - 30,000 of the December / March 10 call spreads were bought for $0.20. Likely a roll of a bullish position out to March.
SPDR Gold Trust GLD - 6000 of the November 163 / 171 1x2 call ratio spread was sold at $0.10. The investor bought one 162 call and sold two 171 calls.
Direxion Small Cap Bear 3X Shares TZA - 10,000 of the November 45 / 50 call spread was bought for $3.00. The calls spread appears to be bought to open. (I could see the argument that TZA is at support but risk 3 to make 2? There are better ways to play this)
PowerShares DB US Dollar Index Bullish UUP - 46,300 of the December 22 calls were sold at $0.38.  ($ bounce might be over... traders taking profits)

Option Flow Recap Oct 3rd

Macro / Thematic

IWM – 43,000 x 49,000 of the October 63 / 69 ratio put spread was sold at $3.87 (as if 1 to 1). The trade appears to be a roll down from the October 69 puts to the October 63s.

IYR – 20,000 of the December 60 puts were bought for $10.10. The puts appear to be bought to open.

SPY – 13,000 of the November 100 / October 115 put spread was sold at $3.55. The trade appears to be roll from the October 115 puts down to the November 100 puts.

UNG – 28,000 of the January 10 calls were bought for $0.35 tied to $8.95 stock.

XOP – 10,000 of the December 49 / 43 put spread was sold at $3.65 to buy 20,000 x 30,000 of
the December 40 / 30 ratio put spread for $0.13 (as if 1 to 1) and sold 20,000 of the December 52 calls at $1.12. The ratio put spread collar was an opening transaction.

Morning Note Oct 3rd

October 3, 2011


US equity futures are off the worst levels of the morning following Asia and Europe lower as continuing concerns over the banking sector and slowing global growth are once again highlighted after Greece admitted over the weekend it would miss it's Fiscal targets. With no resolution in sight to the EU debt crisis, anxiety continues to weigh on markets.

GS: State of the Markets

Hat tip to Zero hedge for posting this:




"A few days ago the WSJ made waves by disclosing that Goldman was in the process of recreating another "Abacus", by pitching to clients a global "pain trade" presentation created by Goldman's Alan Brazil, which, among others, speculated that funding needs for European banks would be far, far greater than the IMF-proposed $200 billion, and would in fact be closer to $1 trillion. It of course also did the usual Goldman thing, which is to allow select clients to piggyback with its prop, pardon flow, desk, in recreating the same fiasco for which it already had to pay a half a billion settlement to the SEC last year. Yet to date, nobody had actually seen a public version of this report....That is, nobody, until now - presenting Goldman's top secret "State of the Markets - Long and Short Risk Strategies""

GS_StateOf the Markets


http://seaofopportunity.blogspot.com/ *Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow! No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

US options trading volumes double

This article originally appeared here: US options trading volumes double - FT.com:




Options trading volumes in the US nearly doubled in August from the same month last
year, surpassing half-a-billion contracts for the first time as extreme volatility sent traders
to the derivatives markets to hedge their positions.


More than 550m options contracts changed hands last month, a 94 per cent increase from
August 2010’s 283m contracts, according to the Options Clearing Corporation, which
clears for all nine US options exchanges. On average, 24m options were traded in the US
each day in August, up from less than 13m a day in August 2010.

Start Small When Trading Options

Morning Note

(added some support/resistance levels on this note... let us know if its helpful or not)


August 8, 2011




US equity futures are trading sharply lower following S&P's historic US credit rating downgrade to 'AA+' from 'AAA' after the market closed on Friday. US futures did recover somewhat after the European Central Bank promised to intervene in the Eurozone Bond market, though have moved back down again.

New Options Exchange in.... Iran

this article originally appeared here: 

Tehran bourse moves towards options launch

Iran’s bourse plans to expand its fledgling derivatives market by launching options in the coming months despite the cold shoulder traders have given to single stock futures.

Could VIX move 5-10 in next few weeks?

Morning Note

July 27, 2011

Equity are trading mixed relative to fair value as ongoing debt gridlock continues to weigh on the markets. Banks in Europe are trading lower after Goldman Sachs in a strategy note downgraded the sector. Amazon (AMZN) is up ~6% in Germany after reporting Q2 yesterday after the close.

S&P statement on the rating of the United States; On July 14th, S&P placed the credit rating of the U.S. on CreditWatch Negative. In announcing the CreditWatch, S&P highlighted several factors that it will consider in determining whether to revise its 'AAA' rating on the U.S., including the need for lawmakers to agree on a plan to deal with the federal deficit and develop a credible solution to the country's debt burden. Standard & Poor's has chosen not to comment on the many and varying proposals that have arisen in the current debate.

Any statement to the contrary is inaccurate.

Morning Note

*I'll update this post as I get more info up to 10 minutes before the open.

July 22, 2011

Equity futures are trading above fair value, following Europe higher after Eurozone leaders agreed a further €159B aid package to Greece to which private lenders will contribute. Three of the four options offered to lenders to swap or relend existing debts would extend Greece's repayment terms by 30 years, while the fourth would do so by 15 years. All options offer a much lower interest rate thanGreece's current 15%-25% cost of borrowing.

BofA Needs to Build $50 Billion Cushion

This article originally appeared here.

"Bank of America Corp. (BAC) may have to build its capital cushion by $50 billion and renege again on Chief Executive Officer Brian T. Moynihan’s pledge to raise the firm’s dividend as mortgage losses drain funds.

Morning Note

July 18, 2011

Equity futures and European indices are trading lower as sovereign debt concerns boost the price of gold to above $1,600/ounce and as corporate earnings kick into a higher gear this week.

Aug WTI crude ($0.41) to $96.83

Natural gas ($0.002) to $4.544

Gold +$7.50 to $1600.69

10-year yield 2.8894%

30-year yield 4.2401%

Skills For Gaining Control

 This is a follow up post to "Getting to Know Your Intersections"


Skills for Gaining Control


When you're trading with a green light consistantly keep doing what you're doing or think about sizing up or trading more markets.  But I'm not writing about that now.  Today I want to focus on what to do when you're trading with a yellow light or even worse a red light.   When you've lost control or are about to lose control its imparitive to your wealth and mental capital you get back to your green light.  The following ideas I've taken from athletes like Michael Jordan, coaches like Phil Jackson, various articles I've read over the years on performing at a high level, and various traders I respect. 

Options Flow Recap July 12th

Macro / Thematic

SPY SPDR S&P 500 ETF – 10,000 of the July 130 / August 129 put spreads were bought for $1.43. 11,000 of the December 125 puts were bought for ~$4.39

 VIX saw 113% the normal volume with 340K calls and 119K puts traded.  Some larger pit trades:

·         Buyer 25,000 July 17p/22.5c risk/rev for .30
·         Buyer 10,000 Aug 25 calls vs 19.70, 30 delta for .925
·         Seller 10,000 July 25 calls at .15
·         Buyer 7,000 July 17 puts for .275 to sell 4,400 July 20 puts at 1.875
·         Buyer 5,000 July 19 puts vs 19.10, 26 delta for 1.175
·         Buyer 5,000 July 25 calls for .25
 

Morning Note

July 11, 2011

Equity futures are trading below fair value following last Friday's disappointing US jobs report and China's inflation report, which also impacted sentiment. European indices are trading lower on Greek and Italian debt worries. Senior European Union officials are meeting today at 12:00 CET for talks in Brussels ahead of a meeting of the 17 EuroZone finance ministers later on Monday. The talks were arranged over the weekend by European Council president Herman Van Rompuy; a spokesman denied that it was a crisis meeting.

Alcoa (AA) will be reporting Q2 earnings after the close.

OECD May leading indicator for OECD 102.5 vs 102.8 in April; OECD May leading indicator for G7 countries 103.0 vs 103.2 in April