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US Stocks Rally to YTD Highs, VIX Falls Below 13

Apr 05, 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

 

Highlights from the past week

Some better than expected economic data out of China and the US helped buoy risk assets this week.

Here are some of the highlights:

  • Caixin (China) PMI à 50.8 v. 50.0 est.
  • US ISM Manufacturing PMI à 55.3 v. 54.5 est.
  • New York’s March ISM print came in at a four month high à 66.9 vs. 61.1 est.
  • United States March Nonfarm Payrolls à 196k vs. 177k est.

It wasn’t all roses as the ISM Non-Manufacturing Index came in below expectations (56.1 v. 58 est.; Lowest print since Aug 2017) but on the whole this was a positive week for those looking for reflationary pressures.

On the trade front, a deal feels like an eventuality at this point (90% done according to the Financial Times) as a ‘new consensus’ has been reached according to China’s top representative Premier Liu He.

As of writing, the S&P  is set to gain roughly 1.5% on the week while Bonds softened in large part due to the positive data (TLT -1.2% on the week).  Cash VIX is set to settle below 13 though next week could bring some volatility on potential Brexit drama.

  • Bullish: XLF Buyer 100,000 Jun 28 calls (240,000 trade total, paid $.23 on largest block, ref. 26.53)
  • Bullish: XOP Buyer 20,000 Jun 35 calls (paid $.44, ref. 31.30)
  • Bullish: EWY Buyer 10,000 May 65 calls (South Korea ETF, paid $.72, ref. 63.16)
  • Bullish: EEM Buyer 180,000 May 46 calls tied to 2.7M shares (paid $.19, ref. 43.44)
  • Bearish: SPXW Buyer 20,000 May 3rd 2550 puts (untied, paid $2.25, ref. 2867.41)
  • Bearish: IYR Buyer 10,000 May 85 puts (paid $.97, ref. 86.51)
  • Bearish: LQD Buyer 17,500 Jan 115 puts (paid $1.40, ref. 118.57)
  • Bearish: EMB Buyer 8,500 Jun 109 – 107 put spreads (paid $.35, ref. 110.12)

 

Even as Theresa May appeals for another Brexit extension, the options market is flashing warning signs. Both FXB (Great British Pound ETF) and EWU (United Kingdom) are ranking at the top of our Bearish Skew rankings. FXB 2m Skew is 1.59 standard deviations over its trailing one year meanwhile EWU is 1.48 standard deviations over. The great danger headed into next week is if one of the members of the EU rejects the idea of another extension (which would bring a No Deal scenario into play on April 12th)

 

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OptionsQuantitatively derived options trades TRANSPARENT AND EASILY EXECUTABLE