For those of you that don’t get why the market rallied so much today, let me put it to you clearly. There is a huge amount of fear about Europe. The biggest is the banks getting completely screwed up (could we call the problem banking American style). There was serious and still residual fear that the PIGS (Portugal, Italy, Greece, and Spain) countries could really sink that ship. When the European banks came out and killed it the entire world let out a sigh of relief. Add this to China buying a ton of cars, and we have a rally. So now the real question, what happened to real volatility?
Real implied volatility got smoked today. Let’s not forget that coming out of the weekend the implied volatilities of the major market indexes are supposed to up by about .7%. The indexes IVs on a strike to strike basis were down over 1% from Friday to Monday. This was an all out smoking.
This is not good for the VXX trades that we had on, nor was it good for just about any income trader. The VXX trade is down, today I decided to double down a bit and bought a 21/24 call spread for .85. This way if the VXX does turn around I will I do really well. Basically, I laid down 85 dollars to win 200 if I am right. The odds seemed worth it to me.
Getting back to income trades, those that entered trades properly are probably not getting beaten too badly. I was looking over a few students positions today and condors were basically flat. With the move we have had I will call that a win.
During the Pit Report we entered a few SPY butterflies. Because, we set them up when skew was flat, those are not getting beat up that bad either. I will say this really quickly, the timing of a trade (conditions not actual time) will be a far greater determinant of the trades success than most people realize.
Don’t forget to check out the morning pit report every morning at 9:50 AM EDT!
