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Volatility remains elevated – Equities reverse after early-week rally

Oct 19, 2018

Implied Volatility Data for Liquid Macro Index ETFs

ETF 30D IV 30D IV Percentile 90D IV 90D IV Percentile 90D/30D IV 90D/30D IV Percentile 30D IV-20D HV 30D IV-20D HV Percentile 90D IV-60D HV 90D IV-60D HV Percentile
SPY 15.61 90.08% 15.16 89.29% 0.97 8.93% -1.74 21.03% 3.35 67.26%
QQQ 23.93 94.05% 20.65 92.46% 0.86 2.18% -0.87 30.16% 2.95 64.68%
IWM 18.96 95.24% 18.23 95.63% 0.96 9.92% 0.22 27.38% 4.11 80.75%
FEZ 20.03 96.43% 18.4 97.22% 0.92 10.12% 5.91 94.44% 2.77 68.25%
EEM 24.75 97.62% 22.48 97.62% 0.91 2.58% 1.86 64.68% 2.1 65.08%

 

  • Stocks roared higher Tuesday on the back of strong earnings but failed to maintain their momentum thanks to growing fears over restrictive monetary policy. The Fed released minutes from their latest meeting (Sep 25 – 26) and appear to be sticking by their “gradual increases” approach. The implications of rising rates and a strengthening dollar environment is bad news for emerging markets debtors which was reflected in EMB (EM Bond ETF) flow.

Bearish: EMB Seller 20,000 Jan 105 – 95 put spreads (closing) to Buy 20,000 Mar 100 – 90 put spreads (rolls out and down, ref. 106.22)

 

  • Amid growing tensions with Saudi Arabia (Jamal Khashoggi disappearance), one would think that oil would catch a bid. However, the opposite has been true over the past two weeks and WTI crude is now down ~ 9.5% from its October 3rd high. The driving factors behind WTI’s move lower this week were a bearish EIA inventory report and speculation that the Saudi’s may seek to appease the US (i.e. cheaper oil). Flow in the oil ETF’s was mixed this week reflecting uncertainty over the direction of the commodity.

Bullish: USO Buyer 30,000 Jan 15.5 calls (ref. 14.76)

Bearish: XOP Seller 40,000 Nov 40 – 36 puts spreads (closing) to Buy 40,000 Dec 38 – 34 put spreads (rolls out and down, ref. 40.47)

 

  • Netflix and not – so – chill. The stock, which is up roughly 70% YTD reported quarterly earnings this week. Shares rallied as much as 15% on the report (EPS of $.89 vs. $.68 est.; added 6.96 million subscribers) but have since pared gains and are flat on the week. Despite the impressive quarterly figures, news that Disney will be releasing its own streaming platform has weighed on the stock. Options flow was notably bullish headed into earnings but was mixed overall.

Bullish: NFLX Buyer 4,200 Dec 360 – 415 call spreads (ref. 354.55)

Bullish: NFLX 15,300 Oct 400 calls trade (ref. 365.97, *note – traded ahead of earnings)

Bearish: NFLX Seller 4,200 Dec 370 calls (closing, ref. 354.55)