What’s happening with bank shares

from late March 2013 to today 18 June, volatility has taken over Aussie Banks
From week ending 24 May to 18 June, WBC and CBA lost some 7% whilst NAB down 11%.

out of the three banks, which do you are most volatile in the last 4 weeks in terms of options trading.

CBA – put/call ratio moved from 1.7 when share price was diving to a a recovery of 0.63 (tipped towards calls) today
WBC – from 1.1 ratio to put to 0.62 today

CBA had been most volatile whilst WBC most stable of the three.

Trade what caught my attention today was a calendar spread on WBC and NAB.
short term upside capped whilst going long with a 3 month view.
selling Jun call at the money and buying sep at the money call.

This calendar spread expresses view short term weakness/medium term bullish view well.


High weekly options volume

XJO finished the week at 4335 (above 4300 after quite a few months)weekly equities volume was 8% lower but weekly options volume was more than 5 million traded.

Does that tell us anything?

Despite it being options expiry week, which normally generate around 4 million trades for the week, that was very good volume.

Let’s have a look where the volume came from.

Looking at the XJO Index options, volume was flat, not much higher than the week before. Hence it looks like volume came from trading in equity options (specific share options).

Sectors that had heavy volumes traded in calls were the banks and oils.

CBA had an increase of almost 4 times more than the week before, followed by ANZ  twice more and NAB and WBC trailing by more than 1 time more. Puts were  higher as well but not in the same proportion.

In the oil sector, STO and OSH demonstrated similar pattern.

As of Friday, the market looked like one that’s taking advantage of the strength in some sectors, by capturing some income from selling call options. But whether traders are convinced the market has broken a psychological level and moving higher from here? That’s the question I would like to answer in the coming weeks.

Tread carefuly with ANZ and NAB

ANZ closed at $22.51 and NAB at $24.18 on Friday 16 Mar 2012.

Some warning signs are emerging by a couple of indicators.


1)Put/call ratio

ANZ’s  put/call ratio (number of puts traded outweighing calls) had been creeping  up in the last 2 weeks. Last week it ended with a p/c ratio of 0.93 from 0.88 the week before, climbing from low under 1 readings since early Dec.

2) Historical daily Implied Volatility (IV)

Rising p/c ratio is coinciding with ANZ’s plunging  IV since Feb to now in the teens.  On Friday (16 Mar12), it was at early 17.

Putting these two indicators together, the last time we had ANZ IV at teens and p/c ratio at 1.7 was in 8th and 9th Nov, when ANZ was at close to $22 before plunging to under $19 after that.

 A rising p/c ratio combined with a low IV looking like the early Nov peak,  is a warning sign.

 On Friday, observed a calendar bear call spread executed which makes sense if one holds this view (selling of Mar $2250 call and buying of Apr $23 call).


 1 Put/call ratio

NAB’s p/c ratio has been creeping up as well. Last two weeks they had been at 1.07 and 1.05. Again, they have risen from low under 1 numbers since early Dec 11.

2  Historical daily Implied Volatility (IV)

In terms of volatility, quite similar to ANZ as well. Plunged to the teens of about 19. The last two times NAB’s IV was at 19 were on 8 Nov and 22 July when the share price was above $25 before plunging from there. As NAB is still shy of $25 now, it could mean two things, either the IV stays low for a while more whilst share price continue to rise to above $25 before turning down or this time, the peak is  shallower than the last two peaks. The former may be a stronger case.

 In any case, warning signs of a potential turning point (downwards) have emerged.  Though may not be immediate, cautiousness is required.




Traders switch focus from big miners to banks

Australian Financial Review 16 Mar 2010, Derivatives

By John Wasiliev

RBS Morgans derivatives adviser Wai-Yee Chen said traders had been selling April expiry $27 National puts and picking up premium income of 70c per option.

With the National price trading just below $27 yesterday, their strategy is designed either to buy National shares for $27 discounted to $26.30 if the share expires below $27 or if the shares are above $27 at the April options expiry and their contracts are not exercised, they would end up with the income, which would be a return of 2.6 percent over the seven-week period.