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Global Growth Fears Halt Rally, VIX Spikes

Mar 22, 2019

 

Diverse Option Strategies for All Risk LevelsDiverse Option Strategies for All Risk Levels
Diverse Option Strategies for All Risk LevelsDiverse Option Strategies for All Risk Levels
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 11.42 42.46% 12.7 45.04% 1.11 59.33% 2.64 81.75% -4.39 38.49%
QQQ 15.04 34.13% 15.95 31.35% 1.06 66.67% 3.85 81.75% -5.91 40.48%
IWM 15.9 60.71% 15.4 52.38% 0.97 27.98% 2.21 60.32% -2.78 36.11%
FEZ 13.89 38.1% 17.29 82.54% 1.24 95.04% 3.9 88.49% 2.8 96.83%
EEM 15.14 3.97% 16.14 2.38% 1.07 81.15% 0.34 54.76% -0.16 61.11%

 

Quantitatively-Derived Options Trades: Transparent and Easily ExecutableQuantitatively-Derived Options Trades: Transparent and Easily Executable
Quantitatively-Derived Options Trades: Transparent and Easily ExecutableQuantitatively-Derived Options Trades: Transparent and Easily Executable

 

After the Fed signaled it was done raising rates for the foreseeable future, equities seemingly had a path to go higher. But some poor data out of Europe in combination with an inversion of the  3-month - 10-year curve spooked investors. The irony here is that most feared an inversion from an overly hawkish Fed but  the recessionary signal materialized due to an incrementally dovish pivot (resulting in aggressive buying at the long end). For the week, the S&P is set to close roughly flat for the week (ref. 280.87) while bonds gained meaningfully (TLT +2.4% on the week). Cash VIX is up roughly 20% on the week with most of that move coming during Friday’s selloff. Next week will bring more Brexit drama (3rd vote on PM May’s deal) and some new economic data (Housing Starts, Consumer Confidence, Trade Deficit)

Bullish: XLK Buyer 25,000 Apr 76 calls (ref. 74.76)

Bullish: EEM Buyer 63,800 Apr 39 puts to Sell 61,000 May 41 puts (rolls write out and up, ref. 43.59)

Bullish: GDX Buyer 100,000 May 24 – 25 call spreads (ref. 22.42)

Bullish: SPY Buyer 13,585 May 300 calls (ref. 282.37)

Bearish: KRE Seller 34,500 Apr 53 – 46 put spreads to Buy 42,000 Jun 52 – 46 puts spreads (rolls out, adjusts upper strike, ref. 53.92)

Bearish: VNQ Seller 60,000 Apr 77 puts to Buy 40,500 Jun 81 puts (rolls out and up , ref. 84.62)

Bearish: XLP Buyer 10,000 Apr 55 puts (ref. 55.05)

Bearish: VIX Buyer 33,000 Apr 18 – 22 – 26 call flies (ref. 15.00)

 

Let’s take a quick look at the effect interest rates can have on certain sectors of the economy.

Banks – Regional Banks had a rough go of it this week with KRE losing more roughly 10%.  The current environment is less than friendly to banks given a flat yield curve and slowing economy. Banks borrow short-term debt and lend long term and profit on that spread … So when it narrows, they are less profitable.

Real Estate – The Real Estate sector outperformed this week (IYR roughly flat) as the 10-year yield fell to its lowest levels of 2019. Thanks in part to more attractive rates for borrowers, February Existing Home Sales beat expectations (5.51M v 5.10m) which is indicative of a more attractive environment for home buyers.

Bullish: IYR Seller 6,000 Apr 85 puts (ref. 85.10)

Bearish: KRE Seller 5,000 Apr 53 – 49 put spreads to Buy 5,000 May 50 – 45 put spreads (monetizes, rolls out and down, ref. 49.30)

 

OptionsQuantitatively derived options trades TRANSPARENT AND EASILY EXECUTABLE
OptionsQuantitatively derived options trades TRANSPARENT AND EASILY EXECUTABLE