The VIX may have gained a little more than 1%, something those in the media will point toward as an increase in fear. As I look at volatility I do not seem much of an uptick at all. In the broad picture traders may see a pattern of increasing volatility:
However when compared to the movement in the SPX itself the lack of increase in SPX vol is quite astounding.
My friend Jared calls it complacency, I call it sloppy trading. There appear to be a large number of brilliant traders that think selling the July 1250/1200 put spread is a no brainer. Generally speaking traders were trying to sell everything they can today, if not for the late sell off the IV would have actually been down today. As it is if we look at the SPY (SPX data was a little screwy as I write this)
Yesterday's ATM strike was DOWN IV:
Today's ATM strike was flat IV:
The only place I saw a small uptick was in the lower end of the curve, where, for the first time I noticed there may have been a few people smart enough to consider covering their portfolios, here is how the IV of the 125 puts moved today:
Even with the small uptick in IV, skew remains pretty inexpensive, this makes butterfly trades appear to be the trade of the hour. I like them ATM with a little bit of put protection. While I think the market has some more slack, I am not one to argue with those selling thousands of the 1250's and I consider that somewhat of a floor.
I did notice that VIX futures are starting to get a flattish term structure, there are many interesting plays that can be put on in the VIX products and VIX based ETN's in an environment like this. One interesting trade might be Bill Luby's Favorite*: XVIX,
I think the stock is starting to look like a somewhat attractive long as I think VIX term structure is getting a little bit out of whack while IV itself has not rallied all that far. That seems to be a good environment for owning this product although I do not understand the product nearly as well as Bill does. My guess is that it could pop from 25 to 26 if we see a nice drop in July VIX futures on Monday or Tuesday.
*The Option Pit Blog made this up because they like assigning random favorites to smart bloggers for no reason
Disclosure: I hold several VXX and VIX positions
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Graphs from: LiveVolPro and Yahoo Finance
