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Fade the Rally – Bears Pounce Amid Global Growth Concerns

Dec 14, 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 17.11 86.31% 18.44 95.63% 1.08 45.24% -3.77 19.44% -1.09 37.7%
QQQ 23.75 84.92% 23.5 94.05% 0.99 37.7% -5.13 22.22% -5.22 21.03%
IWM 22.47 94.05% 21.74 97.82% 0.97 24.8% -1.79 22.22% -0.71 26.98%
FEZ 18.52 83.73% 19.13 94.05% 1.03 53.17% -0.36 42.46% 1.23 68.45%
EEM 21.69 75.0% 22.86 94.05% 1.05 69.84% -1.38 39.68% -2.06 23.81%

 

Highlights from the past week

  • Markets were mostly muted this week before legging lower Friday. A positive November retail figure may temporarily alleviate fears of a domestic slowdown but likely gives the Fed more ammo to raise rates at next Wednesday’s FOMC meeting. As of writing, traders are pricing in a 76.7% probability of a hike. Although equities didn’t swing as wildly this week, uncertainties around the trade war and Brexit have maintained a bid in the VIX (trading ~ 22).

Bullish: EEM Seller 110,000 Dec 42 call options (closing) to Buy 72,000 Jan 42 call options and Sell 94,000 Jan 43.5 call options all tied to stock (rolls out, ref. 40.63)

Bullish: XLF Seller 30,000 Jan 22 put options to Buy 30,000 Jan 25 call options (ref. 24.54)

Bullish: OIH Buyer 66,200 Jan 18 call options (ref. 16.19)

Bearish: XLF Seller 35,700 Jun 26 put options (closing) to Buy 42,900 Jun 23 put options (rolls down, ref. 24.46)

Bearish: EFA Buyer 15,000 Feb 56 – 50 put options spreads (ref. 59.70)

Bearish: TLT Seller 94,000 Jan 120 – 126 call options spreads (closing, ref. 81.69)

Bearish: XLU Buyer 30,000 Jan 56 put options tied to stock (ref. 56.53)

 

 

  • One of the most active single-name options this week was Michael Kors (KORS). Despite a ~ 50% drop in price from its summer highs, one investor sees long-term value in the luxury retailer. With implied volatility sitting at 52-week highs, one player paid $3.2 million for 20,000 Jan21 75 calls. A total of 48,000 trade on the week and the call options are 95% out of the money. Should the bullish view play out, the trader will certainly able to pick out his or her Jimmy Choo bag of choice.  

Bullish: KORS Buyer 20,000 Jan21 75 call options (48,000 trade on the week, ref. 37.85)

 

  • When yields were climbing higher, the Financial sector failed to participate in a meaningful manner. Now that bonds have strengthened during the recent selloff, the banks have gotten absolutely crushed. XLF is down 10% in December but it’s not all doom and gloom as we saw consistently bullish flow amongst the banks early this week.

 Bullish: MS Buyer 14,400 Jan 25th 44 call options (ref. 41.15)

           Bullish: C Buyer 22,800 Feb 60 call options (ref. 56.18)

          Bullish: WFC Buyer 26,000 Jan20 50 call options tied to stock (ref. 47.64)