Despite today’s fall in VIX, volatility is at 5 year highs. This is a great place to reinforce macro GEM views and seize upon either price weakness or get paid from volatility. Emerging markets – especially when analyzed across specific country lines are not a fad, or even a bubble, but a 10 year growth story. Despite what I can argue on the “decoupling” from developed markets, GEM will trade in sympathy with global markets especially during extraordinary market events. Yes, earnings growth could slow from 15-20% to 5-10% and GDP will be revised down 75-200bps in GEM in 2008 but the top core markets are growing organically and can expect significant state spending to buffer external factors.
Sell volatility today to get implicitly long out 6 months. Sell 6 month out of the money Puts in down 10-20% in core GEM ETFs, especially those who are running annualized vol north of 45%.
Annualized volatility in EEM(GEM MSCI) is 45%, EWZ (Brazil) 52%, FXI China 60%
Many of these country ETFs are already down 20% from their highs; by taking a view on an index you are removing company factor risk which is a potential concern for any company out 6 months. By selling the obligation to buy the ETF (a view on a country) at a price you are happy to own it(down another 10%?, 20%) you are getting paid now whether you get exercised or not. Your risk is that you don’t get exercised and your opportunity cost in never actually owning the mkt as it trades higher(and you wanted to own it at that level) without hitting your strike.
About Tim Seymour
Timothy Seymour is Co-Founder and Managing Partner of Red Star Asset Management and is also Chief Operating Officer of the $116 million Red Star Double Alpha Fund. Prior to coming on board with Red Star, Seymour was the Head of Fixed Income in Moscow at Troika Dialog Group, and was later appointed Global Head of Sales for all products. In January 2000, Seymour moved to New York to found Troika Dialog USA, a full-service NASD/SEC regulated brokerage firm and subsidiary of Troika Dialog Group. He also oversaw the development of Troika's US corporate finance business, working with multinationals seeking strategic partnerships and green-field projects in Russia, as well as Russian companies making acquisitions in the US. Seymour holds an MBA from Fordham Graduate School of Business with a concentration in International Finance and a BSBA in Marketing from Georgetown School of Business Administration. He comments regularly on developments in Russia's capital markets on CNBC, Bloomberg and CNN.
Sell Vol at These Levels
Despite today’s fall in VIX, volatility is at 5 year highs. This is a great place to reinforce macro GEM views and seize upon either price weakness or get paid from volatility. Emerging markets – especially when analyzed across specific country lines are not a fad, or even a bubble, but a 10 year growth story. Despite what I can argue on the “decoupling” from developed markets, GEM will trade in sympathy with global markets especially during extraordinary market events. Yes, earnings growth could slow from 15-20% to 5-10% and GDP will be revised down 75-200bps in GEM in 2008 but the top core markets are growing organically and can expect significant state spending to buffer external factors.
Sell volatility today to get implicitly long out 6 months. Sell 6 month out of the money Puts in down 10-20% in core GEM ETFs, especially those who are running annualized vol north of 45%.
Annualized volatility in EEM(GEM MSCI) is 45%, EWZ (Brazil) 52%, FXI China 60%
Many of these country ETFs are already down 20% from their highs; by taking a view on an index you are removing company factor risk which is a potential concern for any company out 6 months. By selling the obligation to buy the ETF (a view on a country) at a price you are happy to own it(down another 10%?, 20%) you are getting paid now whether you get exercised or not. Your risk is that you don’t get exercised and your opportunity cost in never actually owning the mkt as it trades higher(and you wanted to own it at that level) without hitting your strike.
About Tim Seymour
Timothy Seymour is Co-Founder and Managing Partner of Red Star Asset Management and is also Chief Operating Officer of the $116 million Red Star Double Alpha Fund. Prior to coming on board with Red Star, Seymour was the Head of Fixed Income in Moscow at Troika Dialog Group, and was later appointed Global Head of Sales for all products. In January 2000, Seymour moved to New York to found Troika Dialog USA, a full-service NASD/SEC regulated brokerage firm and subsidiary of Troika Dialog Group. He also oversaw the development of Troika's US corporate finance business, working with multinationals seeking strategic partnerships and green-field projects in Russia, as well as Russian companies making acquisitions in the US. Seymour holds an MBA from Fordham Graduate School of Business with a concentration in International Finance and a BSBA in Marketing from Georgetown School of Business Administration. He comments regularly on developments in Russia's capital markets on CNBC, Bloomberg and CNN.