A screwy day for VIX

While there is posturing that normally goes on in Washington, then I guess there is another level of POSTURING when things get serious.  I am now beginning to think that Beltway politicians are the most overplayed relative to their work output.  I have not seen a lot of work output and they are all leaving for vacation.  I hear Nero’s fiddle playing in the background.

Enough about the fumblers, and let us get to the volatility matter at hand.  I am writing this up at 413pm ET and where do you think the VIX finished?  It looks like it is going out up .17 to 17.84.  The market was down 2%+ at one point and all we got was a small burp in the VIX.  The reality is the market had been pricing in this kind of move for some time.  On Tuesday the deal was starting to look done but the IV just would not come down.   The forward volatility market can be very good at pricing the move the big question is to where.

 

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Now we see a flip over in future prices.  For the early part of the morning the VIX cash (around the high 19’s) traded about .50 or more over the VIX Jan future.  By the end of the day that had reversed into a more normal contango and that is where it will probably stay.  The Jan and Feb future prices are very close at only .30 apart.  This would suggest most of the activity is still going to be in the short term or just around the New Year and it will be more violent.  The futures up to midday yesterday were pricing in a deal now I think we are back to no man’s land.  The same question though is it 1350 or 1470 and we will have to wait.  The most telling thing is that the market got a solid bid for volatility and then faded.  18% for IV is pretty solid daily movement and now the market will have to keep it up.

 

 

The Trade

I think it is time to nibble in the VXX Jan puts again now that the futures are back to contango.  Not a bunch but a few and don't rush.  The fact the politicians head faked everyone shows how much the market wants a sensible solution.  It won't get faked out again.  The politicians will negotiate this until the last minute which should leave a nice time to jump in.

I have a VXX and VIX position.

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