FMG – falling with iron ore price?

FMG touched a low of $4.24 in the morning of 5 Mar, following weakness in iron ore price (instigated by China’s property price curb).

Options actions in the stock:

- strong activities in calls

- current month implied volatility and At the money strikes calls and puts tell a story – calls’ Implied Vol is much stronger than puts. Showing a lot more demand and interest in calls than puts

- Put/Call ratio on options had been positive in the last 10 days despite stock falling.

- If it Historical Volatility stays within the 39-45 range it has done since October 2012 (is closed under 45 yesterday), then it could be signalling a recovering share price. If not, then we are looking for Historical Vol to go up to 48 and share price falling to under $4.00

Options traders seem to be betting the stock on recovery and historical vol reaching a near term peak. Catalyst could be the 17% fall since mid Feb, post results.

High risk trade for those who want a bet.

QBE – divergence in options indicator

QBE’s Historical Volatility (HV) rose in the last two months as share rallied from early Jan to yesterday. The normal pattern is that of an INVERSE relationship.

Historical:

4 Jun 12 to 8 Aug 12: share rose 22%, HV fell 13%

7 Jan 2013 to 25 Feb 2013: share rose 10%, HV ROSE 38% (!)

Questions:

1 Did this foreshadow today’s plunge of around 4% (at the time of writing)  post results?

2 With the HV now near peak (yesterday was 35, let peak in Jun 2012 was 36), if HV were to come OFF its peak, would this then foreshadow a rally in the share price?

Strategy for Bhp’s reporting on 20 Feb

Wed 230 pm 6 Feb CNBC cash flow

Where to now, S&P/ASX200 touched 4801 this morning

What’s next?

That’s the question top of mind, as investors revisit portfolios and traders returning to desks after the holidays, to a buoyant market. so far this month to 21 Jan 2013, the XJO has returned 3%.

4800 level of the XJO is a level not seen for 2 years.

Last time we were at this level was late Jan/early Feb 2011

Let’s look at the market’s volatility in Feb 2011.

The XVI then was 16%, after touching a low of 12.5% 2 months before (Dec 2010).

This cycle, same level on the XJO, but the XVI touched a low of 10.5% (last Thursday).

Points to note:

- since 10.5 last Thursday, in the last 4 trading sessions, the XJO has been staying above 11%. Volatility has been trending up. Not a signal to sell the market, but indeed, investors are more vigilant as they come back and LESS complacent.

- the VIX index in on the CBOE was at an all-time low on Friday as well 12.5. but has not shown the trending up we have seen locally in Australia.

What to do in a ranging stock market ?

The XJO dipped to a low of mid 4200 in early Sep12 and rallied to mid 4500 in mid October.

If you share the view it’s likely to mirror the range from now to pre-Christmas and want to make an income from it, then we’ve got a trade.

Go long at 4300 Dec12 XJO by selling put
Go short at 4500 Dec12 XJO by sellingcall. Together the combination gives 40 points credit or *$10, $400 per contract

Set aside about $2k cash or share value per combination of the trade and leave it alone till 20Dec12. Meanwhile XJO can go anywhere it wants to, there shall be no implication. As long as it stays within 4300 and 4500 on 20dec12.

Profit downgrades storm QBE

QBE has fallen 6% today to $11.07 as profit downgrades from brokers swamp the stock.

1) very high options volume in the stock yesterday and today

trades on 12 Nov Monday alone (for both calls and puts) equal that of the whole of last week’s. Skewed towards puts.

2) volatility rose again to above 27. breaking above this level may bring to up to 33.

3)  long strategy was seen at $10.50 level

Likely to have more activities as stock settles, some looking for bargain whilst others seeking refuge.

Not settled yet.

Hurricane Sandy and QBE

30 October 2012 2:10pm

QBE touched a low of $12.95 this morning and has recovered slightly to be trading a bit above $13.00

Top of mind for traders are: i the potential liability of SuperStorm on QBE’s earnings ii will it meet is FY12 guidance

Well, though impact of storm is still too early to tell, but QBE has 2 defenses for now: catastrophes had been light in 2012 and it has increased its provision from premium for 8% ish to 10% ish. So, at current state of play, yes, it’s likely to meet FY12 guidance.

This uncertainty has caused Implied Volatility (IV) in QBE to spike

Rrecent low of IV when stock hit $14, was 19%

last few days as stock fell a dollar from $14 on 19 October, IV has spiked to 24% yesterday.

Spiked IV, prime for options selling.

Those who don’t hold a bearich view on the stock, had been selling

Dec12 $13 and Dec12 $13.25 puts