Actionable trade ideas for stock market investors and traders seeking alpha by overlaying their portfolios with options, other derivatives, ETFs, and disciplined and applied Game Theory for hedge fund managers and other active fund managers worldwide. Ryan Renicker, CFA

1. U.S. Listed Options Sales Tuesday, September
29, 2009
Market Commentary
Ryan Renicker, CFA
Derivatives Strategist
Richest of the Rich
(646) 557-7999
Exchange Traded Funds
Despite signs of improving macroeconomic conditions, on thing is clear: the direction and pace of the
recovery remains unclear.
In other words, the one thing that is clear is investor uncertainty.
In the options market, such uncertainty can be quantified by analyzing the degree to which securities’
options prices are priced “rich” or “cheap”.
We deem options as “rich” when options implied volatility spread – which is the difference between implied
volatility and realized volatility over a defined period of time – is at least one standard deviation above the
average of where this spread has traded during, say, a six month, one year, or two year period.
The current market environment, however, is much different than it was even one year ago: there is a new
Presidential administration, new economic policies, an entirely new regulatory environment (TARP, TALF) as
well as a host of other geopolitical changes (policies in the Middle East).
Because of this, I will scan for options using the most recent 6 month period (roughly in line with the amount
of time that has transpired since the broader market rally began in early arch of this year).
Accordingly, I believe the following list of ETFs are trading relatively rich.
Consider expressing directional opinions by selling options on these ETFs and / or initiating short gamma
positions if you believe these sectors / asset classes are likely to trade range bound in the near term.
Figure 1: ETFs Having Relatively “Rich” Front Month Options.
Source: Bloomberg and Newedge U.S. Listed Options Sales.
Date of first use: 09/29/2009
© Newedge USA, LLC - September 2009
All rights reserved.
"Disclaimer Attached"
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Date of first use: 09/29/2009
© Newedge USA, LLC - September 2009
All rights reserved.
"Disclaimer Attached"
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