Daily Options Report

Timing is Sort of Everything

2009-07-05T22:29:00.000-04:00

The best time of year to own options is right about.........now.

Seriously, by one measure I used for my book. I compared median/mean IV's for each cycle to typical realized volatility in the SPX for that same cycle.

I don't want to be specific because I'd rather you first buy my book and then be underwhelmed by my methodology. But if you've survived the July cycle volatility melt, you now are at a point where options come closest to fair pricing for the stock volatility about to come. Options always overprice relative to stock volatility, but the 2nd half of the July cycle is the lowest overpricing of the year.

Now that doesn't mean go buy everything. I must add some caveats. Earnings season has moved back a bit. Whereaas 5-10 years ago, a bevy of companies reported before July expiration, now many have moved to the 1st or 2nd week of the August cycle. So if you buy, stick to August options. And keep in mind that they're only worth owning into next week as the next "event" is expiration and options of the next cycle out start caving right before the previous expiration.

So to sum up, I'd say options volatility should hold steady to stronger over the next 1-2 two weeks as stock volatility likely picks up/

Moneybrawl?

2009-07-05T10:07:00.000-04:00

So the he said/she said/he said saga behind why Moneyball:The Movie got scrubbed continues. This, from Deadspin.

The Sony Pictures executive who pulled the plug on Moneyball says that Steven Soderbergh changed the original script because he didn't want anything in the movie that didn't actually happen. So Billy Beane isn't a sweaty, foul-mouthed, Hooters waitress slayer?
Everyone loved Steven Zallian's version (he's an Oscar-winner, you know!), because it had jokes and snappy dialogue and actually made sabermetrics non-mind numbing. But Soderbergh wanted realism so much, he was determined to only film events that took place in real life. He also scrapped the conceit of having Bill James as the "Greek chorus", bookending the film with his anecdotes with and wise old man stories. The verdict:

Part of the realism? Lenny Dykstra as himself. Seriously.

But whatever the reason, I had this thought. The idea of this as a movie never made any sense. Stats geekery is boring. And it's debatable the A's ever accomplished much to begin with. We're not talking Hoosiers here. They basically finished first or second in the smallest division in baseball for a few years, never actually beating the Yankees or Red Sox at anything. Then the Angels, doing all that saber-heads disdain, got permanently good and the A's never win any more.

The story about the making/not making Moneyball however is interesting. Make a movie about that. It's Entourage without the sex. So just .......turn Brad Pitt into a Vinnie Chase sort of character. The guy has the whole Jen and Angelina thing going on, how tough a stretch is this?

This sounds like a joke, but I'm totally serious. How different are the twists and turns of making Moneyball from making Escobar?

History's About To Change......

2009-07-04T10:21:00.000-04:00

Looks like TheStreet has not missed a beat since giving Lenny the heave ho. Enter Ron Insana, fresh off his wildly successful stint as a fund of funds maven. This, from Michael Commeau.

I’ve always viewed Ron as a pretty thoughtful and even-handed guy, so I was pretty baffled at what I found in his Market Movers newsletter. Let’s dig in!

Here are two key excerpts from the disclaimer section of the inaugural issue of the newsletter published on Monday, June 29th:

The service consists of, among other things, a portfolio of securities chosen and actively traded by Mr. Insana, initially capitalized on March 13, 2009 with $200,000 of Mr. Isana’s personal funds.

and:

Mr. Insana manages investment portfolios separate from his portfolio in TheStreet.com Market Movers.

Now take a look at Ron’s performance since March 13th, which is a bit better than the S&P 500 over the same time period:

Well, you have to click thru to see it. But Michael find one small issue.

The problem is that Market Movers is taking credit for investments made BEFORE IT EVEN LAUNCHED. Sorry Ron, but that’s just not how investment newsletters work. Your subscribers did not receive the recommendations (since the newsletter didn’t even exist) that drove your alleged performance, so you have no basis for claiming this return.

So let me get this straight. On July 1st he announces he magically started a newsletter very close to the market bottom. AND he outperformed since the bottom? Where can I sign up? And slap some money on the 2008 Cards to make the Super Bowl?

First In Business......

2009-07-03T16:33:00.001-04:00

So now we know CNBC's formula for success. Dennis Kneale's comic stylings at night, followed by Amanda Drury's Australian Open blouse in the morning.

And to think, you have all convinced me not to watch any more Bubblevision. Apparently she was on loan from CNBC Asia all week. As she was this time last year.

Anyway, back to Kneale. I suspected that his ratings where somewhere in the John McEnroe-Daniel Simpson Day 0.0 level. But apparently I was wrong. On June 29th he got about 232,000 viewers at 8 PM. It doesn't sound right. Mad Money got 162,000. Squawk Box also got 162,000. I find it hard to believe that they got the same exact numbers, and were bested by like 50% by DK? Doesn't really make sense. All the other news channels get big bumps in that time slot, so perhaps general viewership just takes off then and there? I mean could you throw on "Pauly Shore's Investment Tips" and get 200,000 viewers too?

Or maybe DK is way more popular than I think, and CNBC is pure genius giving him a prime time slot.

Wake Me Up When September......Starts

2009-07-02T14:08:00.003-04:00

It's not quite as interesting as the ViX bikini here, but just a whole bevy of interest in OTM VIX calls lately.

CBOE Volatility Index (.VIX) is up 2.09 to 28.31 and the July - Sep 45 call spread trades 30000X for 85 cents. One player bought this spread (against a position in VIX Sep futures. Delta = 30), according to a floor contact. It is a possibly a roll from July to September, but seems to reflect the view that VIX will stay below 45 through this month’s expiration (19 days), but substantial move higher is possible by mid-September.

.....If you are interested in more info like this, check out WhatsTrading.com

Cape (Not) Fear

2009-07-02T10:15:00.000-04:00

That recent VIX weakness in the face of a blah market? Not a good sign according to Dr. Brett.

VIX has been making 20-day lows, but SPY has not been making 20-day highs. In other words, volatility is coming out of option pricing, but it is perhaps more due to stocks topping out and trading in a range than trending higher. One might think that such a pattern would have bearish implications going forward.

Looking back to 2000, we find that when VIX is making 20-day lows, but SPY is not making 20-day highs, the next 20 days in SPY average a loss of -.72% (76 up, 100 down). For the remainder of the sample, the average 20-day return in SPY has been -.16% (1215 up, 957 down). Indeed, when volatility comes out of the market and it's not due to price strength, intermediate-term returns have been subnormal.

As we've mentioned many times, there is some seasonality going on here. But don't get carried away with that as VXV (VIX for 90 day options) and VXX (the VIX ETN, a rolling 30 day VIX future) have also hit 20 day lows. And neither is as subject to the quirks of the calendar. So while perhaps VIX overstated the *real* volatility drip, it didn't do it by much. *Real* volatility has indeed caved in.

And Dr. Brett's spot on in concept. Any numbers I ran for my book showed the same thing; when volatility underperforms vs. expectations (declines in a so-so market, flatlines in a weak market, et, al.) it's a red flag.

Big AAPL

2009-07-02T06:07:00.000-04:00

So I'm looking at AAPL and seeing options volatility at 9 month lows in the mid 30's. And the stock right around recent highs. I'm thinking it's a nice time to buy some options gamma with a bearish tilt.

So I bought some puts on the 145 line and shorted OTM's on a ratio. Still paid a little debit though. Right here right now it's a pretty volatility neutral play that will "win" on a slow decline in the stock, while risking the premium I paid if the stock goes higher, or the extra puts I sold if it gets plowed.

Now we've hammered this point home lately, about "cheap" options volatility maybe not so cheap after all when you look at the volatility of the stocks themselves. But this AAPL got absurd as I see now. 10 Day HV hit 15 a couple weeks ago. AAPL. 15 volatility. Never remember seeing anything like that. Guess those worries about Steve Jobs health were .....not really worries in the stock itself. It's very sad obviously on a personal level. but on an investing level, it's truly in the stock already.

Game, Set...MEDX?

2009-07-01T15:06:00.003-04:00

Some active names as we research why Ana Ivanovic never wins major tennis titles any more.

Activity picked up in Medarex (MEDX) yesterday after the co. announced it will receive a milestone payment from Novartis (NVS). The payment, for an undisclosed amount, is in connection with FDA approval to market Ilaris for the treatment of cryopyrin-associated periodic syndrome. MEDX is up another 32 cents to $8.67 today and options volume is running 4X the usual, with 14K calls and 2000 puts traded. Top trades of the day: 3500 Jan 7.5/Feb 12 spreads, sold for $1.05 (sold Jan/bought Feb). Looks like a roll of a bullish position. Implied vols down to 58, from about 60 the day before.

.....If you are interested in more info like this, check out WhatsTrading.com

Dennis on Digital D***weeds

2009-07-01T14:13:00.002-04:00

OK, everybody see Sir Dennis Kneale takedown of Blogistan? If not, here it is.

I have never seen his show, other than the Macke Car People clip, but apparently he makes all sorts of rosy proclamations based on....well, who knows. And apparently bloggers attack him for it. Go figure.

Here's some Dennis from the relevant segment.

Now I had predicted on Friday night that some cynical, mean spirited bloggers would trash me for this end of recession proclamation. They haven't let me down. Their invective is lighting up the anonymous, dark and cowardly corners of the blogosphere. Blogs including ZeroHedge, Dealbreaker.com, MarketMindzzz (with a z) and more have jeered at my optimism. They say I'm irritating and unwatchable though they post the video of me anyway. They call me "Beaker" after that Muppets character, which I gotta admit is kind of funny....

Dennis continues on a little more defending his optimism.

....that was "hope" and "fortitude" you digital dickweed. And I say dickweed because apparently it is indeed a plant, akin to pond scum and name calling seems to be the lingua franca of the blogosphere. So here's the thing. I've always liked a good argument, so we contacted seven different bloggers who've taken shots at me from the dark and cozy safety of their mothers basements I presume. And we invited them to come on air and have at it.....

Keep in mind that this "rant" was so authentic, they had already contacted the bloggers in question to have them on. ZeroHedge has the email up and back regarding CNBC's offer to have him on the show. Someone ("Mike" from AnnuityIQ, a site I have never heard of) did go on and they gave him 45 seconds total to make his case before Dennis turned it into a monologue again.

So let me start by stating where I agree with Dennis. Sort of. You do lose a bit or credibility of the attack when you do it from the comfort on anonymity. I understand why many have to remain anonymous for professional reasons. But the mere fact they don't attach their names to it does not necessarily diminish good and valid points they may make and defend with actual facts. But still I admit, it's just easier to hurl out whatever you want without having to personally defend it.

All that being said, word to Dennis. 2003 called, they want their Blogger Stereotypes back. Is he being intentionally ironic still trotting out the old "mean spirited" and "Mom's basement" bromides? And offering up the ability to come on his show and have a "debate" about utter nonsense? I mean part of the reason financial blogs exist and thrive is to provide a bit more value-added than a day filled with useless shoutfest debates like the very "The Economy Is Great: No It's Not" discussion that he's proposing here.

What I love in his email exchange with ZeroHedge is how the CNBC rep implies that it's such a coup for ZeroHedge and the others to get on Dennis's show. What Dennis and producers either completely miss, or (more likely) know too well, is that ZeroHedge's audience (and Dealbreaker's for that matter) dwarfs Dennis's audience. And ZeroHedge opinions are taken very seriously across the street (whether you agree with them or not). Dennis is considered a bit of a joke. Personally, I think there's a smart guy in there playing the "Dennis The Dolt" character, but who knows?

But truth be told, this segment is not an real "attack". I mean it's such cartoonishly amateurish drivel. Rather it's a calculated and willful attempt to go viral and get some online publicity. And it worked....I mean I'm writing about, so is the Fly, so are many others, it's all over twitter, et. al. So kudos to CNBC! It's a great test of the axiom that bad publicity beats no publicity.

So You Still Want to Trade These Triple Home ETF's?

2009-07-01T10:31:00.000-04:00

Ron Rowland sheds some more color on these new Macroshares (hat tip Abnormal).

I believe those statements are extremely misleading. There is no asterisk pointing to the disclosures. Here are just a few of the reasons why these securities will not track the S&P/Case-Shiller Composite-10 Home Price Index:

The S&P Case-Shiller Index is updated only once per month and released at 9am EST on the last Tuesday of the month. The prices for UMM and DMM will not change just once per month; they fluctuate dramatically all month long and will therefore not track the monthly index.
When the S&P Case-Shiller Index is updated and released each month, it is based on home prices for two to five months prior to the release date. For example, this morning's (June 30, 2009) index release was for home prices in February 2009 through April 2009. The prices for UMM and DMM will fluctuate dramatically all month long and will not wait for months in an attempt to track the index. Do you really believe that these MacroShares are tracking an index that contains housing prices from February?
MacroShare are not ETFs and the trading price cannot be forced to track the underlying value through arbitrage and in-kind exchanges.
The fact sheet boasts that this non-tracking characteristic is actually a "feature" and that the trading price be at a premium or discount reflecting investor expectations.
The fact sheet further states that "MacroShares prices naturally diverge from underlying value."

I used to advise readers not to trade certain products (say, VIX futures for one) but over time thought the better of that. If you feel comfortable that you understand how it works, go for it.

But this one? I mean this is just pure gambling. Like Roger said earlier, you're betting on people's future sentiment about a statistical calculation. They could overanticipate a recovery forever. It's akin to thinking you're betting on the Super Bowl, when in actuality all you're doing is betting on where the point spread will go. A point spread on a game that never actually gets played.

We have something vaguelly similar in options in that implied volatility may erroneously predict an uptick in realized volatility. Like now. But it costs money each day you make a bad bet like that in the form of time decay, which to me provides a natural mechanism for it to resolve.

But where's the mechanism here? You will not necessarily even get punished at all if you cry "Green Shoots" too early. All you need is someone louder crying Green Shoots after you. Who's to say even a bad Case Schiller number will cause a selloff? I'm fairly certain you've had housing stocks lift in the face of a horrible number or two on the hope the things will get better next time.

So again, not going to tell anyone not to trade it. Just know it's a triple leveraged bet on what someone will anticipate somebody else will eventually anticipate about a monthly statistical release.

S&P 500 Update July 1st

2009-07-01T08:45:00.001-04:00

A quick word from the Market Club. Please click thru here to check out the video.

Today I'm going to take another look at the S&P 500 Index. It appears that some of the rose coloring on traders' glasses is beginning to wear thin. Many more traders now perceive this as a two way trading market as opposed to a one way street we witnessed in March and April.

I am going to be analyzing a daily S&P index chart and making some observations that I think potentially could work out if certain elements fall into place.

At the present time our "Trade Triangle" technology is indicating a neutral stance in this market. With the -55 reading our "Trade Triangles" are indicating a trading range which could possibly be an early sign of a reversal.

You can watch this video with my compliments and there is no registration requirements. I would love to get your feedback about this video on our blog.

All the best,

Adam Hewison
President, INO.com
Co-creator, MarketClub

What Could Possibly Go Wrong?

2009-07-01T06:39:00.004-04:00

Hey, as per Jimmy C, the housing market is bottoming..........right now. So it's perfect timing that this product comes to market. This from Bespoke.

MacroShares has been working on developing an ETF that tracks this index for what seems like years now, and today they finally start trading. And yes, leverage is involved. UMM tracks 3 times the 10-City Median Home Price index, while DMM tracks 3 times the inverse of the index. Whether you want to use these as a hedge for your own home or speculate on the direction of housing, these ETFs now allow you to do it.

Now it all sounds so neat and simple. But alas if we've learned one thing over the past year (besides not telling Lenny your credit card number) it's that all is never as it appears with ETF's. If it's not Contango risk with USO is Compound Madness with all the leveraged ETF's.

So what about here? I asked Roger, and he was kind enough to ping me this.

The deal with the housing products is you need to be right about two things.

One, the direction of the index which prints monthly.

Two what the market's expectation of the future will be.

The literature tells you it will trade away from NAV.

It is more important to be right about what the market expects than what the actual index does maybe anyway

On the surface, it sounds a bit like a VIX product where you are gaming market expectations of volatility expectations in the future. Buy a November VIX contract and you are betting on where traders in November expect SPX volatility 30 days forward from there.

So long story short, tread carefully here as dollars to donuts you will have massive confusion and Manipulation Accusations the first time these pups move contra they way they "should".

Stay Bullish on Vaccines, My Friends

2009-06-30T15:01:00.002-04:00

Not much going on today, though we have this from the Flu Space.

Novavax (NVAX) is bucking the bearish trend. Shares are up 90 cents to $3.40 and not far from session highs ($3.48) on news the Spanish government selected the company’s technology for a comprehensive flu vaccine program in Spain. Shares are rallying and options volume is running 4X the usual, with 5,900 calls and 987 puts traded. July and January calls at the $2.5 strike are the most actives. July and August 5 calls are seeing interest as well.

....If you are interested in more info like this, check out WhatsTrading.com

Pirate Absurdity and a Stealth Expiration

2009-06-30T14:19:00.001-04:00

If there was any doubt the Yankees will win the pennant this year, this should put it to rest.

The Yankees moved Tuesday to add a multi-purposed bat to Joe Girardi's lineup card, acquiring Eric Hinske from the Pirates in exchange for Minor League right-hander Casey Erickson and outfielder Eric Fryer.

Hinske, a 31-year-old left-handed hitter who was part of Boston's 2007 World Series championship club, batted .255 in 54 games with the Pirates. He had one home run and had driven in 11 runs.

Sure Hinske's mediocre and the Yankees need another slow, bad fielding DH type, like CNBC needs to spend more time on Madoff But Hinske's kind of a good luck charm. On the Red Sox in 07 and then the Rays in 08. Guess it's just a good old salary dump. Or not.

Yanks are getting $400,000 in the trade, about half of what Hinske is owed for the rest of the season.

WTF? Pirates are kicking in relative chump change just to give a player away? To the Yankees? It's like going to a strip club with Buffett and him making you fork over the singles.

You can't possibly tell me Yanks needed the 400K to make this deal work, that's like Little Stein's lunch tab. Had to be like an interoffice bet or something just to see how pathetic they could make the Pirates look. "OK, we'll take him, but you have to kick in half the money and announce the trade in Pig Latin while dressed as Sideshow Bob".

And while we were waxing sarcasm, the VIX positively exploded back to......27. Can we please just acknowledge there's noise in in this week and stay away from parsing. Call back Monday-Tuesday, it will closer approximate reality.

It is actually an expiration of sorts though as Steve Smith noted yesterday. Quarterly's in a handful of ETF's. SPY for one does have decent open interest in the strangling 91 and 92 lines, so would be very surprising to see it move much away from here.

Walking All Over Sunshine

2009-06-30T10:16:00.000-04:00

OK, I'm no chartist, but FSLR sure looks on the fugly side. Best you can say is you have some support here on both the gap fill and soon the 200 day MA (albeit one that's downsloping).

But if you expect volatility and stock price to move in perfect opposition you would be ......quite dissappointed. As the middle graph shows, 30 Day IV in FSLR now sits at 6-month lows (if you went further it's like everything else and at levels last breached in late summer 2008).

And right this second we don't even have actual stock volatility to blame as the recent dippage has taken that back up to 60, right where the options trade.

So in other words, it's a perfect example of all we've talked about lately. Options low vs. the past half year plus, but high vs. the realized volatility in the stock. Stock volatility then clicks up, but lo and behold the options volatility does not budge.

Why?

Well partly because late June/early July is just an awful time to own options. But part is also because the options pre-anticipated the uptick in stock volatility in FSLR. And everywhere else.

Just something to keep in mind with all these "bargains" floating around.

McMillan and VIX Premiums

2009-06-30T06:45:00.002-04:00

Apologies in advance for thinking of this show every time I hear the name McMillan.

As we've pointed out many many times lately, options volatility remains wildly overpriced compared to realized volatility whether you look at individual stocks or indices.

When we see pricing out of line like this, does this have any predictive ability? The great Lawrence McMillan (very much not shown) takes a look in his recent newsletter.

Remember the VIX looks forward 30 calender days, while HV looks backward in trading days. So to come reasonably close to comparing Apples to Apples, he uses 20 day HV. Over the course of time, the VIX overprices 20 day HV in SPX by an average of 4 points.

Going back to 1993, The McMillan letter found 35 instances where the VIX vs. 20 day HV differential was 10 points or more. Obviously it has to resolve in some fashion, either HV picking up or IV falling, as the market will not overbid for options forever. McMillan found that in 31 of the 35 times, it resolved with HV perking up.

So fast forwarding to now, sounds like odds sure favor an increase in stock volatility.

But before you jump to conclusions that volatility = down market, consider this. When those 35 instances above resolved, there was little predictive ability as far as the market is concerned. He found the market lower 10 times, unch. 10 times, and higher 15 times.

Now he goes another step and relates HV to VIX futures, and VIX futures premiums and does find that when you get VIX premiums to HV high as above AND VIX blended futures at a premium, it provided a good market signal. Down. Problem is there are only five instancs thanks to the fact VIX futures are only 3 years old.

All The Small Things

2009-06-29T15:27:00.002-04:00

Some ETF oddities today. One I think I can explain, the underperformance of the Russell vs. SPX.

Friday was International Game the Russell Rebalance Day, and it seems the play was chasing anything going into the Russell 2000 right on the bell. Which I suspect is leading to modest underperformance today now that they're part of the index.

Important to note that Russell uses a fixed formula, so never any surprise what's going in, you can start buying them like in April.

The other oddity is we've had QQQQ up most of today while The Four Horsemen are all down. Don't see that too often, and that I have no explanation for as semi's and biotech doing a whole lot of nothing.

Ultra Straddle Short?

2009-06-29T13:57:00.001-04:00

Some trading in UPL via Schaeffer's.

Ultra Petroleum Corp. (UPL: sentiment, chart, options) saw a spike in options trading on Friday, as more than 46,300 contracts changed hands. This volume is more than 12 times the stock's average daily trading volume of 3,806 contracts, according to WhatsTrading.com.
After digging into the action in the front three months of options, it appears that a trader may have opened a short strangle on the shares of UPL. The September 46 call added more than 15,000 new positions, pushing its open interest up to 15,887 contracts. At 3:10 p.m., a block of 10,000 contracts traded at a bid price of $1.91, while a block of 5,000 contracts changed hands at a bid price of $1.92.
Meanwhile, the September 34 put added approximately 15,000 new positions, resulting in open interest of 15,224 contracts. At 3:10 p.m. Eastern time, a block of 15,000 contracts changed hands at a bid price of $1.61. In a short strangle, the trader collects the premium from the two halves of the position and expects the shares to remain between the two strikes through expiration so that the options expire worthless.

Now it's interesting in that UPL volatility (like everything else) is bounding near lows not seen since last September. And is cheaper than 10 Day HV, although that number includes a one-off down day and overstates actual stock volatility.

Update: Looks like a 3rd leg went up on the above trade, HT Joe in the comments.

Sonar Mania

2009-06-29T10:12:00.000-04:00

So what's doing in VIX products these days?

Upside buying in August says Jamie here. Big 3:1 on Friday where the customer sells 1 Aug 32.5 call vs. buying 3 August 45 calls. As Jamie points out, he'll need the VIX over 49 to make some coin on it. But of course we know not what he has on againt it. They've seen buying recently in Aug OTM's, so perhaps it's someone hedging a short in some upside VIX calls.

Now it's also important to keep in mind a lot will have to happen to get the VIX to 49 and above in August. VIX futures have a slight premium now, but would lag "cash" VIX badly in a fast move up. So in other words, you'd need a VIX in the 50's and maybe even 60's to put VIX Aug 45's into serious play (timing would determind all this). You never want to say never, but truly hard to imagine the VIX back near there any time soon.

So not really sure what to make of all this OTM VIX interest, it almost seems to be feeding on itself, with little impact on actual volatility so far.

VIX Vs. VXX: The Bout To Knock The Other Guy Out

2009-06-28T23:10:00.001-04:00

Rob from Quantifiable Edges, Bill from VIX and More, and yours truly, had a little email conversation the other day regarding the VIX:VXV ratio.

To refresh, VXV is basically the VIX for normalized 90 day SPX options. So the thinking is that if the VIX gets too low relative to VXV, that's both bearish for the market (too complacent) and bullish for the VIX.

And the data they run seems to bear that out. As the ratio relates to the SPX, it tends to work on Rob's system, though the duration of the trade is a bit long (it's a subscriber letter, so I do not want to give details of the exact system he uses). As it pertains to the VIX itself, it's almost perfect in that the VIX is always higher when the trade trigger closes. The issue though is you can't actually trade the VIX, only VXX or VIX futures, and there's not enough history on either to see whether you'd win on that part of the trade. Take now for example, you would have gotten the VIX:VXV signal (it went below .90) but VIX futures trade at a premium to the VIX (over 2 points now).

Anyway, here's my email response to all of it

Interesting data. I'm a little skeptical of VIX/VXV around a holiday. VIX should act week when a significant chunk of the 30 day period is early summer and pre-holiday blahs. It's 10 calendar days right now until July 6th. SPX traders will lower their bids ahead of anticipated slow trading stretches (remember real options have real time decay you need to offset). So it's overwhelmingly likely VIX will be higher in 10 days than it is now and the VIX/VXV ratio will increase as VXV will not lift as much (10 days decay is not as meaningful in a 90 day option).

Is there a way to "game" that? Well, it has no predictive ability for the market between now and then imho. So VXX seems like the best vehicle. In normal circumstances, VXX will track about 40-50% of the VIX move, but will it track it that well now? VXX represents a 30 day (hypothetical) VIX future. A VIX future itself just takes a snapshot of where the VIX will be on expiraiton day. A holiday between now and then has no impact. VIX July's as I type are about 29, a 2+ premium to the VIX. So you'd first have to make that up before profitting on the VIX.

Now here's the kicker though. I show July as the worst cycle of the year in terms of average and median VIX readings. But if I divide i into the first half of cycle and 2nd half (2nd half always just the last 2 weeks, so if it's a 5 week cycle the first 3 weeks are defined as "half") it almost always lifts in the 2nd half. Which makes perfect sense given the holiday in teh middle and then earnings season kicking in at the end.

So you're going to see the VIX trough pretty soon and then lift. Will the VXX lift with it? That's I'm not as sure of.

Just to be clear, I'm only looking at market implications for the next week and change, By July 6th and beyond the holiday as done and it's earnings season. Rob's numbers go way further than that.

Bad Week for Celebs

2009-06-28T12:19:00.001-04:00

Ed McMahon, Farrah, Tito Jackson's younger brother, and now Billy Mays, oy.

Still The Best Ap Ever?

2009-06-27T10:58:00.003-04:00

So I upgraded the MLB ap on my Iphone to get the new live game videos. As my son quickly discovered it's about 30 seconds to a minute behind the actual game, which obviously is no big deal if that's how you're watching the game (and I should note that MLB TV online has the same time lag).

But here's the problem, how are you actually going to watch a game on the Iphone? Aside from the fact that it's like a 3 inch screen, it kills your battery. About an hour in you have to recharge. Which is fine if you're home. Or in the car I guess although not sure I'd recommend watching live baseball while driving. If you're home though, there's this thing called an actual TV.

Now at $10.99 the MLB ap is cheaper than the Extra Innings package on the TV (I think it's about $150) and MLB TV online ($89.95 for premium, $69.95 for basic, plus monthly and per game options). But again, it's a tiny screen that you can't watch for too long.

Bottom line is I thought ability to watch games on your phone was the best invention ever. At least until they create an ap that provides organ transplants. The reality though is unless I'm on a train at the same time a game is going on, not sure I'll ever really use it.

Gone Surfing...

2009-06-26T14:19:00.000-04:00

OK, actually not, but my attendance was very spotty this week. Will strive for better next week as I wonder what happens to guys that had legitimate Appalachian Hiking trips all lined up for the holiday weekend?

Anyway, look for one s-l-o-w trade next week, although tough to top today for lack of motion. The VIX often troughs right about now each year. "Now" meaning sometime between June expiry and the July 4th weekend. I don't believe it presents the greatest trading/fading opportunity, though I have some numbers to show that may contradict what I just said.

Well, not the greatest opportunity ever, but option buys in the July cycle may be ok if you wait another week or so.

Fly in Retail

2009-06-26T11:37:00.002-04:00

Margeret Brennan and her twin sister ....Margaret....have apparently left CNBC for Bloomberg. What will Bill Griffeth do? And who will report on the retailers now? Speaking of which.

SPDR Retail Trust (XRT) is up 3 cents to $27.53 and the July 24 - 25 - 26 put fly is bought 4000X for 11 cents. Looks like a play on a move down towards $25 (-9.2 percent) over the next few weeks, which is chock full of economic data including jobs data next Thursday (markets closed Friday). The next monthly retail sales are due out July 14, a few days before the expiration.

....If you are interested in more info like this, check out WhatsTrading.com

Don't Stop Till You Get Enough (Leveraged ETF's)

2009-06-26T10:08:00.001-04:00

I can't think of a more touching tribute to MJ than this Alien Ant Farm cover of "Smooth Criminal".

And in another fitting memorial, looks like we have some more Ultra's to play with soon.

ProFunds Group, the world’s largest manager of short and leveraged funds¹, announced today that it is launching the first ETFs designed to seek triple exposure to the S&P 500 on a daily basis. ProShares UltraPro S&P500 (UPRO) seeks 300% of the performance of the S&P 500 for a single day, while ProShares UltraPro Short S&P500 (SPXU) seeks 300% of the inverse performance of the S&P 500 for a single day (before fees and expenses). The new ETFs will be listed on NYSE Arca today.

“The S&P 500 has the largest following in the ETP industry with nearly $90 billion of assets benchmarked to it,” said Michael L. Sapir, ProFunds Group Chairman and CEO. “As the leader in short and leveraged ETFs, we are committed to giving investors more choices to manage risk and pursue returns.”

Now technically they speak the truth, but Direxion's BGU and BGZ triple track the Russell 1000, which pretty much moves with the S&P 500 so you've been able to play Big Cap with 3x and -3x.

And you know that thought that perhaps the SEC should not have approved leveraged ETF's? By just adding more and more I am guessing that thought is out the window. Which is fine, I mean at this point I would everyone understands the mechanics behind these pups.