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Today’s Option Blogs November 24, 2010

  • Expiring Monthly on Commodities

    The November issue of Expiring Monthly has a large feature section on commodity options, and I think this is the most thematically unified issue we’ve published to date. The whole issue is a good read, in my opinion, but I thought I’d mention some highlights:

    • In the feature article, “The Volatility Risk Premium in Commodity Options,” I explain the concept of the volatility risk premium, review some literature identifying the presence of this premium in options on commodity futures, and present some

  • Expiring Monthly November 2010 Issue Recap
    A reminder that the November issue of Expiring Monthly: The Option Traders Journal was published yesterday and is available for subscribers to download.

    This month’s issue has what may be my favorite feature article to date, The Volatility Risk Premium in Commodity Options, authored by Jared Woodard. If you have an interest in options on commodities, this issue has seven articles devoted to various aspects of that subject.

    I have two contributions to the November issue. The first is Options Volume and Commodities ETFs, in which I discuss some of my thoughts on volume as it applies to combining market timing and options. The second piece comes from the back page column of the magazine (the same place where The Education of a Trader first appeared) and is necessarily more tangential to the options world than the other articles in the magazine. I have given this effort the title of Life Is A Call Option and will leave it at that in order to retain at least a little mystique.

    I have reproduced a copy of the Table of Contents for the November issue below for those who may be interested in learning more about the magazine. Thanks to all who have already subscribed. For those who are interested in subscription information and additional details about the magazine, you can find all that and more at

  • VelocityShares Jumping in to VIX ETP Space with Leveraged and Inverse Products
    Less than two weeks after I mapped out the various VIX exchange-traded products (ETNs + ETFs) in The Evolving VIX ETN Landscape, that landscape has has already changed dramatically. The first surprise was the launch of the C-Tracks ETN on CVOL (CVOL), a direct competitor to VXX, one week ago today.

    The bigger change, however, is a suite of six new VIX-based ETNs on the way from VelocityShares (see filing) to be issued by Credit Suisse (hat tip to Adam Warner, who may be de-blogging for awhile, but is still tweeting his thoughts.) In the updated VIX ETP graphic below, I have coded the new VelocityShares products with a (V) suffix. In terms of covering the existing waterfront, the new VelocityShares products include VIIX and VIIZ to compete directly with VXX and VXZ, with the inverse XIV to compete against XXV.

    The innovations come in the form of new leveraged ETNs as well as a new inverse ETN which targets VIX futures with a five month maturity. In the +2x space, these are TVIX (one month target maturity) and TVIZ (five month target maturity). In the inverse space, the new entry is ZIV, which has a five month target maturity.

    For volatility traders, these are exciting developments. While I have no idea what the timeframe is for the launch of the new VelocityShares products, I can already envision dozens of exciting trades…which has me wondering why I am blogging about this instead of opening up a hedge fund…

  • Chart of the Week: European Stocks Holding Up Well
    Six months ago the European sovereign debt crisis was flaring up and my chart of the week was the Flight-to-Safety Trade.

    With the joint EU-IMF bailout of Ireland unfolding over the weekend and the future of Greece and Portugal in the euro zone also being called into question over the course of the past two weeks, this seems like a good time to compare the performance of Europe against some of the other continents.

    While relative performance is almost always dependent upon the date one picks as a starting point, I still think many will be surprised to see in this week’s chart of the week below that at least over the course of the past six month,s Europe (VGK) has performed on par with Latin America (ILF) and has significantly outperformed Asia (VPL) and the United States. Should Europe be able to finish the year without giving up any ground to its counterpart regional ETFs, I think the continent should be allowed to exhale and declare victory, at least for 2010.

  • De-Blogging
    Holiday’s are upon us, so going to take a Blog-Break. Posting will be somewhere between sporadic and non-existent. Will still be around on twitter and in the comments. All the best.
  • VIX and The Turkey Coma
    By and large, the VIX has sat in a range lately. But that didn’t stop us from a (very brief) moment of excitement the other day as our fine volatility tracking friend busted above the 20,2 Bollinger band. Always remember that the VIX is a mean-reverting instrument. It can trend, of course, but for the […]
  • Guest Columnist for Steven Sears at Barron’s
    It may just be a coincidence, but each time I have been tapped as a guest columnist for The Striking Price on behalf of Steven Sears at Barron’s, there has been a spike in volatility just as I sit down to draft some thoughts. Perhaps Steven knows something I don’t, but if he does, he’s not telling.

    Today in There’s Opportunity in Uncertainty, I build on some themes from a previous September column, Will Market Volatility Return to Crisis Levels? and discuss why I think those who have been earning a nice living by selling options steadily for the past two years or so may still be able to carry that strategy forward.

    In today’s column, I also mention the sentiment cycle pioneered by Justin Mamis in The Nature of Risk. As that graphic has never appeared on the blog, I have decided to include it below for reference.

    I will take up some of the ideas presented in the Barron’s column, including information risk and price risk, in this space going forward.

  • Volatility Screen-Fest
    Everyone’s always looking for volatility screeners. And hey, Goldman runs a few for us! Up above they compare implied volatility of 3 month duration ATM options to 1 month options. If this ratio reads high, it suggests a steep term structure. Perhaps there’s a reason. Like lets say its a biotech and there’s news due […]
  • A Cluster of Support
    Last week in Looking for SPX Support Levels, I introduced a chart which highlighted two areas in which stocks had traded in a narrow range for about two weeks before breaking the deadlock and moving higher. I referred to these two areas as congestion areas and highlighted them in red ovals in the cart below.

    The higher of the two congestion areas, which spans roughly SPX 1175-1185, represents what I consider to be the first of two tipping points. Last week I described 1175-1185 as a “line of demarcation between a minor pullback and a bearish counter trend.” So far this area of congestion has managed to muster sufficient support to halt the decline, but has yet to inspire enough buying to turn stocks back upward.

    The chart below updates the two congestion areas through today’s closing data. Note that the 50-day moving average of 1167 is about to come into play as well, even as technical factors take a back seat to issues in Europe and China.

  • HGSI Blow-Down
    Not sure I’ve ever seen a big biotech options bidup turn into quite the dud as HGSI. Check out the “Net” columns up above for the moves on the Nov options today. You could have really made the $5-6 selling strangles, verticals, The usual drill is that they bid everything into the stratosphere, and […]

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