It looked real ugly this morning toward noon. From what I could tell there was enough decent news to push stocks higher pre-open and then the flood gates of selling opened, hitting the momentum stocks particularly hard. The on again/off again saga of the Russians camping out in the Ukraine is putting the market into a tizzy. A near term weak market gets downright ugly when the liquidity dries up after countries start shooting at each other.
Putin’s incursion into Ukraine is looking like a big babushka doll trying to corral one of the little dolls back into place. The Ukraine is not quite ready to hop back in so we keep watching. This is a War Market, short term as it might be. The players stay on the sidelines until something happens one way or another. The low liquidity can cause big swings since the uncertainty of a shooting war is so random.
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Look at the short term vol of vol in VXX. With VXX trading over $46 things looked bad as short term vol of vol spiked. By the end of the day, it tanked as the nastiness did not quite materialize. Note, as we move into the close the vol products are not tanking. Around a 16% VIX is feeling fair value until the War Market ends. Your guess is as good as mine when that happens, but if things calm down watch out on the upside.
I am adding to Emerging Market longs by selling put spreads and wheel-type trade in EDC and EWZ that are OTM. If the VIX can’t go down, we can see more of the same tomorrow.
Disclosure- positions in EDC, EWZ
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