There it is!!! Today is the Most Frightened Day Yet...In Relative Terms

When I went on CNBC last month (where I mentioned that the VIX was ramping up in vol), I talked about how the VIX is relative.  Well in terms of volatility relative to movement in the SPX, at its peak, today's movement in the SPX volatility was the worst we have seen.  Take a look at today's movement in comparison to last Monday's.

Notice that, while SPX vol reached a higher level last week, in terms of magnitude of volatility movement relative to movement in SPX, today was far worse.  The SPX moved only about 75% at most at its worst, meanwhile the VIX rallies more than 13% closer to 85% (more if we throw out the slightly errant reading that the VIX printed at the end of the day that Monday).  

I do not think this is a good omen for the market.  I think we are almost assured of touching 1100 and could get down to the flash crash lows.  I think the current crisis is worse than anything from last year. However, based on the amount of government intervention that is now available, I do not think we see the same type of issues we saw in 08.  As long as credit markets work, the SPX is not going to break 1000.00

Looking at the market, there is a lot of opportunit,y but traders should be nimble.  Remember a few things:

1.  VXX is outperforming VIX right now, pay attention to that.

2.  SPX calendars are super expensive right now

3.  Skew is steep and Vol is high

4.  Vol is mean reverting

5.  SPX price levels are not

6.  XLF volatility could go WAY higher

7.  Are the BAC Sep 6 puts for .39 THAT overpriced?  Not if this gets worse

Trades I like:

Condors and short calendars, and that’s about it for the retail world.

If all of this discussion has seems like a lot to handle, consider taking our volatility course.  It’s less than 400.00 and you will learn a ton.  Register at our Events page.