Friday, September 9, 2011

MSCI Germany Index (EWG) - New Lows, Vol Doubles, What's a Lehman Brothers?

EWG is trading $17.90, down 4.8% with IV30™ up 6.6%. The LIVEVOL® Pro Summary is below.


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iShares MSCI Germany Index Fund (the Fund) seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the aggregate in the German market, as measured by the MSCI Germany Index (the Index).

With the market down today on concerns over, well lots of things, but partially over Europe, let's turn to the most advanced industrial economy on that continent and see what the option markets reflect. I'll review some order flow, but ultimately, it's the chart that grabbed my attention -- both the price and the vol. This ETF has breached its 52 wk low and bets are rolling in for more volatility.

The ETF has traded a little under 7,500 contracts on total daily average option volume of just 2,366. Puts have traded slightly more than calls on a 1.2:1 ratio as opposed to an average of 1:1.The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates action. The largest volume has come in the Apr'12 options, where it looks like someone bought 2,000 Apr'12 17/20 strangles for $3.70. That's a $740,000 outlay and long vega. If held to Apr expo, that trade requires EWG be outside of ($13.30, $23.70). The 52 wk range is [$18.26, $28.33]. Note that the low has been breached today.

The Skew Tab snap (below) illustrates the vols by strike by month.

The skew shows a normal shape with decided downside vol. The month-to-month term strucuture is monotonically increasing to the front months. Apr'12, though not included here, continues in that same vein -- priced the lowest of all the expos.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

On 7-26-11, the ETF closed at $26.77. Since then (as of this writing), it's down 33%. The IV30™ in that same time has climbed 105%. For sake of comparison, the SPY in that same time is down 13% with IV30™ up 95%. So, in English, the Geman index/ETF is down almost twice as much as the SPY with vol rising slightly more.

Possible Trades to Analyze
Every Friday leaves the looming Monday open. There's this bank rule "thingy" coming out in the UK which has exploded BCS vol up ~50% today alone. In Germany (ish), DB vol is up ~16% with the stock down another 8.1%, well into another new 52 wk low. The question (and therefore trade) really is -- do you want to sell this vol? Answer that, and you'll find any number of trades in those three names.

I did a 1x2 put spread in Oct for BCS (the Oct 6/5) betting that BCS doesn't dip below $4 to Oct expo while collecting a pretty nice premium. I mean, BCS can't go below $4, right? What? What's that you say? I've never heard of those companies... Lehman Brothers and Bear what?. We'll see...

This is trade analysis, not a recommendation.

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