Summer Markets: Where's the Volatility?

Not just talking about stocks here. Everything that is usually moving is not and everything that usually doesn't move has been moving.

Bonds: have been volatile, but will decline through the Summer, most likely. Will be highly dependent on "big economic data" because this market is being pseudo-driven by the Fed.

Oil: Has been doing nothing for the past 2 months, staying steady around $60 a barrel. Expect that to continue.

Stocks: nothing has happened ALL YEAR. Only things moving are Biotech and Healthcare. Momo's are gone for now, techs are doing mostly nothing, industrials and consumer stocks also have been flat.

Currencies: 

• USD ... has been movement and volatility but it's leaving, just like in US bonds.
• EUR ... won't be any volatility after the Greek 11th hour bailout. We're in a world of bailouts.
• JPY ... recent movement appears like a blip
• GBP ... nothing. of course, why would there be? Why is GBP a "big 4" currency?

Chinese stocks are currently experiencing volatility but they're in the middle of a massive run up so some sharp pull backs are definitely warranted. The PBOC is full-steam-ahead on that front. Cut rates and keep Shangahi airborne. 

Earnings season is coming in July, so obviously some individual names will have vol there

Probably won't be much movement anywhere through the summer until September when we wait for another "Fed rate hike." Only potential volatility will come from a Grexit / Chinses crash ... both I think are pretty unlikely. BAILOUT NATION(S) REMAINS SUPREME.

update 7/8/2015
well how about all that. China is trying to pull out all the stops on the declining Shanghai shares and it is not working. Greece had a surprise "oxi" on the bailout referendum, and an 11th our deal seems unlikely. I guess when Bflakaz comes out saying "where's the vol?" it's right around the corner, LOL

Greece and the Fed provide nice profits

The Greece "deal" and the Fed "decision" managed to suck a lot of volatility out of the Euro, causing my FXE iron condor to profit immensely, in addition to time running out. Managed to close an initial credit 0.90 with a 0.52 debit today! Clutch!

Made a trade Monday in a Chinese stock ETF, the Deutcshe Bank db-X (currency hedged) Chinese ETF. Because of the recent 13% drop on the Shanghai composite, IV has skyrocketed. I think the PBOC won't let that fall continue much longer but I don't think Chinese stocks will quickly resume their huge run-up. I'm expecting a consolidation before a move higher, which would slurp all that volatility out of Chinese stocks. At the time of placing the trade, both strikes of the iron condor were ~10% away from the market, and I still got a hefty 0.66 credit on a 2-wide strike, because IV rank was in the 99th percentile. Should be interesting because the liquidity of the options in ASHR is ... awful at best. Sometimes 0.40 wide bid-ask spreads!

Rolled that ORCL earnings trade to July opex. Has literally no chance of making money but hey, my total risk didn't increase from rolling it, so it was worth it to take a lotto chance of this becoming a scratch or a winner.

Really starting to like being delta neutral in this go-nowhere stock market. It's strange how there is more volatility in bonds and currencies than in stocks! Well, where the vol is, that's where the opportunities are right now. The support/resistance overbought/oversold directional swing trading just doesn't work in a non-trending market. I'll stick to delta neutral positions for awhile since they're working pretty well!

Earnings Trades

Not going with the standard 2SD strangle. Instead putting wings on a strangle making it a iron condor
Sell ATM call / put, buy OTM call / put. Credit is higher looking to engage in pure vol arbitrage.

Most I can lose is 1% of account. Should be interesting.

KR 67.5/72.5/77.5 @ 2.65
ORCL 43/45/47 @ 1.40

both have ~28% POP. This is mostly a learning experience.



Got out of TLT today @ 0.18
FXE looking ok despite total break down of Greek talks. No rate hike probably took some vol out.

June Holds No Rate Hike

No surprise.

The TLT bull put (111/113p) is lookin' good. Vol should really come down tomorrow and I'll probably take that trade off. It's @ 0.20 now, originally sold for 0.40. Closed at the highs of the day, usually signalling continuation to the upside tomorrow.

Greece continues to be an unknown. It looks more and more like no bailout deal will be reached, but a Grexit is still up in the air. Although vol has remained elevated, obviously, the time decay effect has helped the FXE position. now trading at 0.80, originally sold for 0.90.

Markets generally don't break out in the Summer, so I'd expect more of the same choppiness until September, when the rate hike decision will again be a no. I expect bonds to stabilize through the Summer as well now that a surprise June hike is off the table.

GL HF DD

Greece Provides a Rare Opportunity

The turbulence in Greece is now coming to a heed; Greece has to make a payment to its creditors very soon and it looks unlikely that they will do so. I'll spare the details, but it means that anything exposed to the Euro has high implied volatility (IV).

FXE, an ETF that attempts to mirror EUR/USD movements, has an IV rank of 93. That means that IV is pretty much at the highest levels it has been in the past 52 weeks, which is to be expected given the situation.

When IV rank gets that high, its is likely that IV will contract back to the mean at some point in the near future because the IV is pricing in an event ... most of the time. Greece making or not making that payment can determine their future in the Euro area, and that's weighing heavily on the Euro.

One of the biggest influences on my trading is a YouTube channel called tastytrade. In this video, the old pros go over why when IV rank us super high you should bring more chips to the table:




So instead of taking in 1/3 the width of the strikes in an iron condor, I'm going to try and take in 45% of the width. This reduces the PoP, but it also means I take in a much higher credit. The goal is to take advantage of not only Theta decay but also IV reverting to its mean, theoretically.

Here's the trade: -8 FXE JUL 106/108/113/115 iron condor @ 0.90. That's a max profit of $720 and a max loss of $880 with a 48% PoP. Here it is visually:

It's going to be hard to watch this one because of how tight that range is! But, I trust the tastytrade guys ... and even if the Greece announcement really moves FXE, IV should drop, meaning that drawdowns will be more limited. Plus, a higher credit helps defend against drawdowns.

The TLT trade worked perfectly, and now I wish that I was more aggressive on that one. But, always remember:

Bulls make money, Bears make money, Pigs get slaughtered

If anything, regardless of results, this will be a good learning opportunity. Hopefully a profitable one!

In other news, the NFLX position is still sitting around. NFLX refuses to go up much past 625 and below 615 ...  so it's a wait and see kind of thing.