Monthly Archives: July 2011

SPY Sept. Butterfly Trade Idea

I’m keeping an eye on a 112 / 118 / 124 put butterfly spread that crossed Monday or Tuesday for 46 cents. What caught my attention was the volume. 60k/120k/60k. The trader paid $2,760,000.00 and risks the same. The potential profit is about 15 times that or 30,000,000.00. The probability  that the $SPY falls below 118 is 17%.

How did they target this particular spread? The logic on the chart is semi-clear. You have some good resistance/support at 126 (March, June 2011) again at 118 (October, November 2011) and further out (August, September 2010). This trade expects the $SPY to pull back atleast beyond the high of April 2010 by September expiration. On first glance an agressive bear trade on the $SPY. I’m most perplexed by the choice of the September timeframe.

Just looking at the charts can’t be the whole story. We’re in the mist of a pissing contest in Washington and the rating agencies are saying, ‘Hey Washington don’t forget about us… we’re gonna be here” no matter who pisses the farthest.

I’m making a wild guess that a crack team of analysts built a nice excel spreadsheet. And the conclusion was, one way or another, Washington WILL raise the debt ceiling AND the rating agencies WILL downgrade US debt. Their excel conclusion must have been 118. But maybe this is some elaborate type of hedge! I’d love to speak with whoever put this trade on!

Branding Diallo

The Guardian (and all the other major news outlets) continues reporting on DSK’s accuser; she’s not in it for the money. The lawyers, PR people, and talking-heads are following the roadshow of Nafissatou Diallo. It’s her turn…

Syria is stepping up raids while the world is distracted with sovereign debt.

Goldman Sachs (GS) upgrades Cisco (Street Insider)? We are starting to see concrete actions from Cisco, but with the Goldman upgrade I’m sceptical, again. This week $JNPR took a good 10% hit so what’s the strategy here??? Large institutional investors have a particular interest in seeing CSCO start to move. 66% is institutionally owned. Guessing 15 is the magic red-flag number.

Mediapart sheds some light on political advantage in the French Senate. Ongoing frustration with the priveleged class, and where they get the extra money… (Le Sénat distribue un million d’euros d’indemnités cachées à ses “dignitaires”)

Deadline fatigue… More after lunch!

I’ve eaten, and I still have deadline fatique… More after coffee?

Coffee and a freshman press conference. It lingers, still.

VIX as a Strategy Indicator

I’m a huge fan of McMillan on Options by Lawrence G. McMillan. At one point he discusses the relationship between peeks in volatility and changes in direction. You should read this book if you haven’t.

  • An extremely high implied volatility reading, especially if it occurs as a spike, is generally a sign that a short-term bottom is as at hand for the broad market“.

The case study he builds dates between 1997-1999 and  the VIX buy signal highs that he graphs are between 33-39, but cautions that the VIX ‘values’ should be viewed in context to the market and not be taken literally. The peaks he saw were caused by the Russian debt crisis escalating out of control, and the failure of Long-Term Capital, a massive hedge fund.

I’m sensing some parallels recently, as I noted in “Marketing a Country” and in “Mr. Soros is Sending My Money Back“.

Mr. Soros Sending My Money Back

What a name. What a brand. A legend. I’m feeling guilty for what I wrote earlier. “Capital Ratios on the Upper East Side“. I think what we can learn from his decision to close his fund is that the market’s are in for some strange times ahead.

Soros to end fund (from Bloomberg)

Airlines… This tax relief and the rising fares: deplorable. (from SF Chronicle)

Eurozone PMI info.

FSLR Breaking?

What is the First Solar, Inc. (FSLR) earnings trade?

This chart caught my attention with a trigger at 121.41. There are two interesting channels both suggesting downward movement. Earnings will be released Thursday; with a 36.75% short float and bullish analysts, I’m sceptical… Who’s playing both sides on $FSLR… ??

Volatility jumped 9.9% today with option traders expecting atleast a 5% move in the stock.

The Wall St. Cheat Sheet has a decent  summary of expectations.