As an option mentor one of the things I have noticed is that when sentiment stinks the market tends to bounce. The pattern we have been seeing in volatility where we hit lower lows and lower highs in both the SPX and the VIX I wrote about in my nationally published piece: Perception of Fear, somewhat came to fruition, as we had quite the up day. First China then a pretty decent ISM, this failed to be dampened by the ADP report that was slightly worse than expectations. While the employment picture still looms large, when traders are this negative I think most of the bad news is priced in, and good news is not. Thus I would not be shocked if we made it up to 1100-1120 range. At the same time, when sentiment stinks, people sell. We could very easily head back toward 1040. With that in mind let’s have Option Pit Option Mentoring's State of SPX volatility. With a new section: how much was implied volatility really down today.
SPX High-Low 10-day Volatility: 24.75% as I have stated every time I have written this section. High and low implied volatility has not been that bad. 24.75% seems a lot lower than many people probably think. If we consider that the VIX (I know) hung above 25 for most of the past 10 days, is 24.75% really crazy, I think not.
SPX 10 Day Intra-Day Volatility: 27.70% this is the where the market is showing it’s teach. No the highs and lows have not been that crazy, but the intraday movement has pretty back and forth. Over the last ten days we had 3 really big moves and 7 ones where the trader could have skipped looking at the market. However, those 3 days would have caused all kinds of problems.
SPX ATM Blended IV:
SPX Sep ATM IV: 20.35%
SPX Oct ATM IV: 22.12%
SPX Blended ATM IV= 21.23%
If I had written this piece yesterday the ATM IV’s would have been much higher, because we were 30 points lower (thus lower on the skew curve) and because IV did fall today. These are lower because I think that traders are pricing out a touch of Labor Day believe it or not, and after today, there may be a little less fear leading into non-farm payrolls.
How much was IV in today? Based on the change in ATM price, something that makes the VIX a poor index, implied volatility appeared to be down a touch less than 1% in the SPX. Far less than even the 2.16% the VIX reported. Although skew came in which also affects the VIX.
SPX Put Skew: The 10 delta put is currently trading at about 130% of ATM IV in September. Unchanged since last week; although this morning skew was as low as 125%. In October the skew is quite a bit steeper at 137% of ATM IV. Both lower than last week.
SPX Call Skew: The 25 delta call is trading at about 87% of ATM IV in September with October trading more steeply at 85%. Both of these are mostly unchanged week over week.
SPX Term Structure: The term structure has been hanging around 1% since we saw it get supper wide last week. As is usually the case the term structure widening was a leading indicator to a few price swings. Now that it is more normal, calendars do not appear to be much of a sale or a buy.
To tie things together: I rarely do this but I have a no trade for now until at least next Tuesday. There are few opportunities with real edge and a lot of news in the near future. I am keeping an eye on Oct-Nov as there seems to be a trade developing there.
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