In this chart we can see the pattern formed year to date where the time between VIX spikes is decreasing.
With each spike the VIX is taking less time to return to above the 15 year average to the 18%+ range.
Measured from peak to peak, each of the three spikes has been about 126 trading days apart.
The average number of trading days measured from dropping under...
Took another pot shot today after the gap fill today that the index reverses and makes some retracement lower from here soon.
Bought a bearish put spread on SPY : 20 SEP 19 285/284 PUT @.25
The risk:reward ratio is only 17%, long at the 26 delta, paying less than 1/3 the width.
The market is pricing in a probability of collecting the full payout at 14% and ...
Powell rocked the markets yesterday:
“Let me be clear: What I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that. Not seeing us in that place. You would do that if you saw real economic weakness and...
Still a day behind on posting trades here.
Yesterday I took another directional cheap shot while IV was relatively low.
BOT +2 VERTICAL QQQ 100 20 SEP 19 188/187 PUT @.22
Long the 30 delta put, $1 wide
breakeven at 187.78, which was about a 3% drop by expiry
Thing went nicely in that direction today with all the FOMC insanity.
Fingers crossed we see a...
Forgot to publish this idea a couple weeks ago:
BOT +2 VERTICAL EEM 100 20 SEP 19 42/41 PUT @.25
- pays 150 on max profit at 41 range on expiry
- breakeven at expiry 41.75. Needs a 2.7% drop to break even on the trade.
Slightly positive right now, and progressing well overall.
I put this trade on mid month when the EEM was around 43.
Looks like a type of H&S...
Today's trade: BOT +2 VIX 100 21 AUG 19 18 CALL @.55
We're taking a position here that the VIX is overdue to 'normalize' and possibly spike higher than average by late August.
This could happen if the S&P500 were to suddenly start to sell off after this recent period of low volatility.
There have been reports lately of a mysterious VIX trader who's been...
Here is a chart of quarterly PCE growth, which gives another useful 'recession watch' indicator. It is currently at a critical level and worth keeping a close eye on.
Commentary from "The Recession Playbook" from Morgan Stanley:
"With growth in real personal consumption expenditures (PCE) below 2.5% sending a reasonably consistent recession signal. Each of the...
BOT VERTICAL XLK 100 20 SEP 19 79/78 PUT @.23, .77 max profit.
Risk to reward ratio just under 1:3
Gives a breakeven price target of 78.77 which is 3.4% lower from the spot price at the time of trade.
Longed the 30 delta, shorted the 25 delta.
It's a lower probability trade with under 30% estimated probability.
XLK seems to be hugging the high...
Sold a strangle on $GDXJ today for a buck at around the 1SD range. 20 SEP 19 48/35 CALL/PUT
Has 94% IVR, and 1.24x the year average HV,
The IV is 38% which is about the same as GE stock right now.
I may exit the trade early if I collect over half the credit or if IVR remains high enough that I can roll to the next month with about 20 days left to expiry....
This long term chart compares the SPX (orange), US10Y (white) and the Fed's National Activity Index (blue).
Note the extended periods of the NAI which remain below 0 marking recession.
The 10 year yield tends to peak well in advance of the next recession. On a daily basis we see ongoing concern about the 10y-3mo inverted yield curve as an indication of...
This long term weekly chart compares the relationship between:
1) economic fundamentals
2) fears of falling equity prices
3) expected default rates in credit markets
The top half of the chart overlays the long term correlation between the VIX (in orange) to speculative corporate bond yields (blue). The bottom half of this chart shows the Fed's National...
I heard some interesting commentary this week from the pros about watching for signs in the cyclical:defensive sector ratio.
I put together this chart using (XLK+XLI+XLB)/(XLP+XLU+XLV).
It is a composite of tech, industrials and materials indexes as a ratio to staples, utils and health sector indexes.
The chart ratio is about 1:1 right now.
In a late stage...
This weekly chart shows the long term correlation between the VIX (in orange) to the corporate bond yield spreads.
The light blue line shows the BAML investment grade bond index yields a spread of 3.9% above the 10 year treasury.
The white line shows the yield spread between investment grade BBB bonds and BB speculative grade.
At over 19x forward earnings it would appear BRK.b stock isn't exactly cheap right now. In fact, a fair valuation model (DCF) suggests it could be valued at this price by year end 2020 based on long term earnings growth estimates of 7%.
Looking at earnings estimates for 2019 gives projections for 10.40 EPS. A long term average market multiple of 17x suggests ...
Which SPX target will you bank on for 2019? Comment below!
Each of these year end scenarios are based on a DCF valuation model:
A) 2700 fair value, 170 EPS 2019 estimate, 15.88 PE (20 year average forward PE)
4% EPS growth for next 5 years, shrinking to 2% after
B) 2500 fair value, 170 EPS 2019 estimate, 14.7 PE
2% perpetual EPS growth, 9% discount...
This chart shows the ratio of XAUUSD vs BKX bank index
Gold is typically considered a secure investment in times of economic uncertainty
The KBW Bank Index (ticker BKX) tracks the stocks of 24 major banking companies since the early 90s.
This index serves as a benchmark of the banking sector.
During the Great Financial Crisis of 2007–08 questions regarding...
This chart compares the real yield of 10 year Treasuries (bottom red) to XAUUSD (top). The real yield is the yield that a treasury buyer can expect to earn after inflation (nominal interest rate minus the inflation rate). At a glance there's visibly a strong negative correlation between real rates and the price of gold over time. Research by _Erb and Harvey...
During several previous liquidity crisis in 2001,2008,2012, 2016 the investment grade corporate yields spread over treasuries hit 200+ bps ... right now at an average spread of 150 basis points, may suggest more pain ahead before capitulation is reached. In other words investment grade corporate bond yields may be still too low. Based on what we've seen during...