Seeking Alpha

ophirgott's  Instablog

ophirgott
Send Message
I have worked as an equity option market maker and prop trader on the NYSE ARCA exchange floor since Feb. 2008. I'm now upstairs (off floor) and visit the floor a few times a week. Prior to working on the exchange floor I worked as a structurer on the Countrywide trading desk and before that as... More
My company:
Livevol, Inc.
My blog:
Livevol Blog
View ophirgott's Instablogs on:
  • VIX - Future Value, Implied Combo, Skew Comps to Past
    VIX spot is quoting $16.41, unched at time of writing with IV30™ down 6.8%. The LIVEVOL™ Pro Summary is below.



    The 52 wk range on VIX is [15.23, 48.20], so the 16.41 level is obviously near the low. But, the futures are pointing consistently and substantially higher, AKA "Contango."

    Let's look to the Options Tab with just the ATM for all months in VIX and back out the future values (we don't need no stinkin' futures).



    Using put-call parity (assuming essentially 0 interest rates), here are the future implied values of VIX as well as a nice little chart.





    So, in English, although the VIX is nearing it's year low as the year ends, out to May, the future fair value is in the 25 range. Yikes... Let's dig a little deeper and look at some skew charts. Below you can see:

    1. VIX skew today
    2. VIX skew a year ago
    3. VIX skew two years ago








    Here's what I see.
    1. The spot values were quite different:
    2010: 16.4
    2009: 20.49
    2008: 44.56


    2. Check out the difference in the skew shape between today and two years ago. 2008 showed essentially a flat skew. Recall that this right after the VIX had been at 80. There is more relative upside risk compared to the ATM in the VIX reflected in the options now, than there was then.

    3. Look at the upside skew spread between the monthly vols between 2010, 2009 and 2008. 2010 shows the the greatest relative vol difference month-to-month. That is, each monthly IV is lower than the next by a fairly large amount compared to the other time frames (in OTM calls).

    One way to look at this could be simply: "Sell that upside skew in VIX a few weeks from expo each month as it elevates."

    Potential Trades to Analyze
    1. One trading strategy could be to buy the depressed May OTM calls and sell the front month, one at time for each of the next 5 months. This trade leaves a covered upside and potentially ends in May with an OTM call for a credit (paid for by the other months). This strategy implicitly believes that the VIX futures curve is too steep.

    2. Another take: The downside puts are way too cheap, buy them. We can see that the 15 and 16 strike puts in VIX are in the $0.05 to $0.30 range depending on month and strike. It's a small bet to own those. If VIX goes back to 10 (ish), those are a huge winner.

    3. Riskier: Sell the upside naked and bet on convergence downward of VIX spot to future value. The Feb 18 calls (as one example) are priced at ~$4.10 fair value. The Feb 24 calls are priced at ~ $1.75 fair value.

    4. Even riskier: If you want to bet the VIX goes to a specific price on a specific date (or expo), sell that straddle. For example, if you think VIX is going to sit on 20 (ish) by Jan expo, sell that straddle naked @ $3.60 and be safe in ($16.40, 23.60).

    5. Contrarian: If you think we're headed for a collapse, buy a VIX call spread.

    This is trade analysis, not a recommendation.

    Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

    Legal Stuff: http://www.livevolpro.com/help/disclaimer_legal.html

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 21 2:06 PM | Link | Comment!
  • MGIC (MTG) - Call Bonanza in Mortgage Insurer

    MTG is trading $10.00, down small with IV30™ up 2.6%. The LIVEVOL™ Pro Summary is below.



    MTG is a holding company. Through its wholly owned subsidiaries, the Company provides private mortgage insurance in the United States.

    The company has traded over 61,600 contracts in an hour on total daily average option volume of just 5,634. Over 61,500 calls have traded yielding a 317:1 call:put ratio. 60,000 calls traded in a single trade:

    Buy 20,000 2012 Jan 20 calls paid $0.32
    Sold 15,000 March 9 calls @ $1.56
    Buy 25,000 Feb 10 calls paid $0.92

    Color from Mike Bristow of the Vtrader Group. But this trade is more interesting than it looks on the surface. The Stats Tab and Day's biggest trades snapshots are included (below).



    The Options Tab (below) illustrates that:
    Feb 10 calls calls are entirely opening (compare OI to trade size).
    Jan'12 20 calls are mostly opening (compare OI to trade size).
    Mar 9 calls are ambiguous as Trade volume = OI.

    I did a little hunting and found that the Mar 9 call interest opened on 11-15-2010 and it was a purchase for ~ $1.05. That means the sale today was a close of a long position that won ~$0.50 15,000x or $750,000. So it's a $750,000 win with another purchase for $2.94 million in the other calls.



    Take it a step further, we can see the Jan 12.5 calls have 25,000+ OI as well. As far as I can tell, that is long interest (on 11-5-2010 about 13,000 were purchased for ~$1.68).

    So the position now is:
    Long 20,000 Jan'12 20 calls
    Long 25,000 Feb 10 calls
    Long 25,000 Jan'12 12.5 calls

    Whoa!

    The Skew Tab snap (below) illustrates the vols by strike by month.



    I've circled the strikes that traded today. The skew actually look pretty normal, which is weird to me.

    Finally, the Charts Tab (12 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



    We can see MTG was as high as $13.80 on 4-16-2010, then fell off substantially on earnings.

    This is trade analysis, not a recommendation.

    Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

    Legal Stuff:

    Livevol, Inc.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 21 11:37 AM | Link | Comment!
  • ANN, JCG - Different Earnings Trade Approaches Across Vols

    ANN is trading 18.60 with IV30TM up 5%.  JCG is trading 46.84.  Note that they both have earnings coming this week.  The LIVEVOLTM Pro Summaries are below.



     

    ANN has traded ~7,000 options today on total daily average option volume of 2,135 with March call purchases the largest trades.   JCG has traded ~8,500 options today on total daily average option volume of 2,259 with March put sales the largest trades.  The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

    ANN




    JCG



    The Options Tab for ANN (click to enlarge) illustrates that the calls have traded less than OI.  A little digging has convinced me that the Mar 15, 17.5 and 20 calls are the same side as the OI (they are opening).  Also, the Mar 20 calls OI has jumped from ~200 to ~5000 in less than a week.  You can also see that Mar vol is the highest of all months with earnings (a vol event).


    The Options Tab for JCG (click to enlarge) illustrates that the Mar 45 put sales are at least mostly opening (volume > OI).  Like ANN, you can also see that Mar vol is the highest of all months with earnings (a vol event).

    The Skew Charts for each are provided (click to enlarge).  Note the similar shapes and in particular how high the front month vol is relative to the back months.

    Skew Legend:
    Red - Front month
    Yellow - Second month
    Green - Third month
    Blue - Fourth month

    Finally, the Charts Tab (6 months) for each is included (click to enlarge).  The bottom portion is the vol - IV30TM (red line) vs. HV20TM  (blue line). The yellow shaded area at the very bottom is the IV30TM vs. the HV20TM vol difference.



    Note the similarities - recent stock run ups with short term vol well above HV20TM.

    Conclusion:
    The order flow is heavy in both relative to average and is getting long deltas.  JCG trades are selling the high vol, ANN trades are getting long the vol.  Based on the earnings vol levels and the bullish sentiment, I probably like JCG approach (selling the vol to get long) rather than ANN.

    This is trade analysis, not a recommendation.


    Disclosure: No positions
    Tags: JCG, ANN
    Mar 08 1:37 PM | Link | Comment!
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.