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I seem to remember this time last Wednesday when the SPX was trading just below 1900. Chinese markets were closed for a holiday week and the weak jobs number on Friday created the whipsaw we had for the last week and a 100 point rally in the SPX. Like we saw twice already since the late August debacle, the rallies were as vicious as the selloffs.
How long are traders going to let long dated bond vol stay this cheap. It has been quite a while since the two have actually traded with IV above HV in relative terms. And the underlying is still flying around. At this point something has to give, my guess is the IV ticks up.
Livevol X for Lightspeed
The trade: i like owning premium in TLT
Today we saw a few seriously bullish trends. The VIX cash index fell below the October future, the November future is now trading at a discount to December and flat with the cash index. Additionally, the VVX has finally been slammed back into normalcy by the market. VVIX is now near 90 and below its 200 DMA. A sign that the VIX of VIX is reverting to its mean. This is usually a sign that VIX is going to do the same. I would not be shocked to see a 17 VIX in the next week or two.
We like JPM calls
While the VIX ended the day down big, it was not the end of day recovery that dictated where VIX was going it was the middle of the day. Below is a 2 day tick chart. The low of yesterday was pretty much the same level as the low of today. But notice something important, the VIX was lower at the LOWS of the day, on what had been a big turnaround on the day where the SPZ had gone from up 15 pre-market to down 17 mid-day...and yet VIX was LOWER!.
On the week the VIX, despite not panicking, is up substantially. The VVIX which is the VIX of options on VIX has gone NO WHERE. When the VIX seems to be underperforming and VVIX is unchanged one has to wonder what is going on. Generally speaking, it means that traders are NOT buying puts in the SPX and are NOT buying calls in the VIX. Thus, traders are in fact NOT hedging into this sell off. The VIX move is likely more due to the change in strikes the caculation uses to derive itself than any large increase in true volatility. This is evident in the last of movement in VVIX.
The SPX has a super ugly day today, dropping below 1900 and nearly 50 points. The SPX is now with in points of threatening the august lows. Yet, the VIX bore little reaction to today's market sell off. A day where the SPX is down more than 2.5% and the NDX was down almost 3% saw the VIX barely up 4 points. Yes, the VIX is already somewhat high at over 20%, but when we see a sell off like we saw today, and outright panic in the Biotechs, one has to wonder what is up. To put things in perspective, take a look at the lack or reaction in VIX (the red line) relative to August.