Chart Emporium

Friday, December 23, 2011

Resources / Education - Updated

http://chartemporium.blogspot.com/p/resources-education.html

Updated online resources / book list. Goal of the blog would be to talk about the mkt / trades while promoting education on the markets.

Weekly Charts - Updated

http://chartemporium.blogspot.com/p/weekly-charts.html

If you think central banks continue to ease (QE, USD swap lines, LTRO, ... ) taking a stab at treasuries to the upside through calls is becoming fairly cheap. Also skew is selling off, which sets up nicely for call spread . Historically as skew sells off, treasuries tend to rally shortly after. Probably just a coincidence, but worth noting.

note: Skew is the difference between puts and calls on an implied vol basis. I usually look at +1/-1 sigma ivol as it normalizes moves across asset classes. (a 1% move in gold is less likely than a 1% move in silver).

XLU (S&P Utilities) Recent Outperformance

XLU (S&P Utilities) is up 15% YTD and outperformed the S&P by 14%. A lot of the out-performance can be attributed to the defensive positioning of the market, recent slightly favorable EPA ruling and the market's desire to chase yields (dividends in this case). XLU puts make sense as vol has become cheap (in my view relative to mkt risks) and XLU should under perform the market if we rip into Q1 2012 or sell off with the broader mkt.

Looking for a cheap hedge - try JNK

Vol across the board is cheap. Maybe not cheap to realized going into a holiday weekend, but based on the countless number of tail risks in the market - Sov crisis, China slowing, potential US economic head-fake, Iran (and now Iraq), and not to mention the every growing unprecedented level of intervention by Central Banks. Just because it looks like we might close 2011 on recent highs doesn't mean January or February won't be a mess. Check out JNK Jan puts ahead of the new year for around 7 vol.