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Trade Fears, Slowing Growth Spook Bulls

May 24, 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 16.32 77.78% 15.1 70.63% 0.93 7.34% 2.12 67.46% 3.64 84.13%
QQQ 21.06 73.41% 20.08 72.62% 0.95 20.24% 3.38 68.85% 5.66 95.24%
IWM 19.73 75.4% 18.5 74.4% 0.94 18.85% 0.01 36.9% 1.21 53.57%
FEZ 19.87 90.67% 15.53 55.16% 0.78 0.6% 3.64 85.32% 1.95 72.62%
EEM 19.09 63.49% 18.98 59.72% 0.99 30.56% -0.25 45.44% 2.06 88.89%

 

Risk-off was the theme this week as slowing global growth and the potential for a drawn out tech/trade war has the bulls on their heels. We’d like to take a look a two month skew in a couple major ETFs to help frame the market’s mindset here:

  • TLT – 2m Skew is currently 1.88 standard deviations below its trailing 1-year mean
  • QQQ – 2m Skew is currently 1.18 standard deviation below its trailing 1-year mean

One can interpret the data above in a variety of ways:

  • TLT: This week’s economic data was poor – JP Morgan cut its Q2 growth forecast to 1% from 2.25% – and the options market seems to be betting that the trend will continue
  • QQQ: Tech has lagged the broader market since US-China tensions escalated – the options market is indicating that the selloff is overdone and is looking for a rebound here
  • TLT/QQQ: A rate cut could be both bond and equity positive – the market is currently implying a rate cut in both September and December.

As of writing, the S&P is set to close down 1% this week as bonds climb to 2019 highs (TLT +1.6% this week). Cash VIX is now trading around the 16 level and touched as high as 18 during Thursday’s selloff. Next week will feature a jobs data Wednesday and April inflation data on Friday.

Highlights from this Week:

  • US Commerce Dept. makes 90-day concession to Huawei allowing the Chinese tech giant to resume business with US suppliers
  • EIA report shows significant build in Crude inventories (+4.7M vs. -1.5M est.)
  • European economic data  disappoints (Eurozone May Manufacturing Flash PMI 47.7 vs. 48.1)
  • May Markit PMI softer than expected (50.6 vs. 52.7 est.; lowest since Sep 2009). 
  • April Durable Goods data softer than expected (-2.1%  vs. -2.0% est.)
  • Theresa May will step down June 7th – Boris Johnson is the current favorite to replace her

 

Bullish: XLE Buyer 94,000 May 31st 63 calls (untied, paid $.26, ref. 61.37)

Bullish: FXI Seller 25,000 Jun 7th 42.5 calls to Buy 12,500 Jul 41 calls tied to stock (paid $.79 on the package, ref. 40.57)

Bullish: EEM Buyer 50,000 Jul 41 calls tied to stock (paid $.65 to open, ref. 39.96)

Bullish: JNK 5,000 Sep 108 puts trade (appears sold, $2.60, ref. 107.62)

Bullish: VIX Seller 12,900 Jun 26th 23 calls (opening, collects $.62, ref. 17.18 (Jun 26th))

 

Bearish: VXX Buyer 20,000 Jul 32 – 42 call spreads (paid $1.49, ref. 29.09)

Bearish: IWM Buyer 80,000 Jun 28th 143 – 140 put spreads (paid $.53, ref. 150.43)

Bearish: XOP Seller 125,000 Sep 27 – 25 put spreads (untied, collects $.75, rolls down, ref. 27.36)

Bearish: HYG 21,000 Aug 84 – 79 1x2 put spreads trade ($.31, ref. 86.06)

Bearish: KRE Seller 21,500 Jun 54 – 48 put spreads to Buy 23,200 Jul 50 – 44 put spreads (rolls out and down, ref. 52.32)

 

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