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Earnings move markets – Volatility remains elevated

Oct 26, 2018

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 18.72 97.22% 16.68 94.84% 0.89 2.98% -2.39 19.44% 2.95 56.94%
QQQ 25.09 96.83% 21.78 95.63% 0.87 3.57% -6.64 11.9% 1.15 37.7%
IWM 22.9 98.02% 20.7 99.21% 0.9 3.57% -0.88 18.45% 4.53 82.94%
FEZ 19.75 95.24% 18.04 94.44% 0.91 8.93% 1.76 57.94% 1.1 57.94%
EEM 25.6 98.41% 23.5 98.81% 0.92 3.77% -1.03 34.13% 1.6 61.51%

 

What a wild week for the market – after a steep selloff on Wednesday, stocks rebounded Thursday only to revisit lows Friday morning thanks to disappointing revenue figures from Amazon and Google. On the other side of the coin, US GDP grew 3.5% in Q3 (vs. 3.4% est.) and Consumer Spending ticked up 4%. For the month of October, SPY is down ~ 8%, its worst month since the financial crisis of 2008. This week’s mixed index flow is indicative of the market’s volatility – is this the beginning of an extended correction or an opportunity to buy the dip?

Bearish: IWM Seller 33,000 Nov 153 – 137 put spreads (closing) to Buy 66,600 Nov 145 – 130 put spreads (monetizes and rolls down, ref. 146.95)

Bearish: VIX Buyer 40,000 Nov 35 calls (ref. 20.67)

Bullish: EFA Buyer 40,000 Nov 23rd 63.5 calls (ref. 61.60, *EFA is composed of international equities)

Bullish: VXX Buyer 42,000 Nov 32 puts (ref. 38.27)

 

  • One of the year’s worst performing sectors, Home Builders, got more bad news this week. Amid a rising rate environment, new home sales fell for the fourth consecutive month and 5.5% in September. Though wages continue to rise modestly, mortgage rates are now approaching 5% which has brought the real estate market under significant pressure. With home builder stocks down ~ 40% YTD, some fear further stress while others appear to be picking a bottom.

Bearish: VNQ Seller 66,000 Dec 76 puts (closing) to Buy 66,000 Jan 72 puts (monetizes, rolls out and down, ref. 77.59)

Bullish: IYR Buyer 5,000 Nov 78 calls (ref. 77.29)

Bullish: XHB 5,000 Jun 35 calls trade (ref. 33.44)

 

  • Despite a difficult week for tech (see FAANG’s), Twitter had a strong week after reporting Q3 earnings. The social media platform is up roughly ~ 13% this week and ad revenue saw a 29% YoY increase. Investors are bullish on the stock despite a drop in daily active users – the firm has made it a priority to remove fake accounts. In options action, the largest trades of the week were upside calls.

Bullish: TWTR 16,000 Nov 34 calls trade (ref. 29.25)

Bearish: TWTR Buyer 3,000 Mar 25 puts (ref. 27.28)