8 Hour LIVE online Boot Camp starts December 9th, 2014
Ahead of the ECB meeting tomorrow and the NFP numbers, stocks have taken a quiet turn to the upside. VIX is back in the 12 handle which is surprising for the type of announcements coming out and their potential for market moving news like we have seen in the past year. What has made headline news is the slide in oil prices and the destruction of all the E&P companies as the USA is upsetting the world apple cart for oil.
While today's sell off was actually a bit of a 'meh' there was one group of stocks that really got slapped around today: Loved Stocks. I loved stock is a stock that consistently is the most talked about on not only the networks but on Twitter. Take a look at the performance of some of the most loved stocks:
Loved Equities have higher jumps in IV today but the volume is light (flat).
The S&P 500 has blown up higher and is now closer to 2100 than 2000. Yet the VIX continues to be firm holding above 13.5, even in a somewhat low realized vol enviornment. It is pretty clear in the chart below:
1. As we rally longs are hedging. This is the bull case. Baseically, those with long positions like being long and are buying hedges with the market at all time highs and the VIX at, relative to longer term trends is somewhat low.
I know there continues to be some speculation about whether the Fed will raise rates in the 1st half of 2015, right now the answer is a resounding NO. In fact I think the Fed Funds rate stays at 0 for all of 2015. Here is why they have TONS of cover. Lets look at why:
1. Employment. The unemployment rate. While the heavily reported U-3 rate is back to normal, the more important U-6 rate is still at levels from October of 2008, no where near normal levels. Check out the spread between U-3 and U-6.
As option mentors we do a lot of teaching on VIX. When explaining the VIX one thing we like to discuss vol cycles. The idea that the VIX has cyclical levels from low to somewhat low, to somewhat high, to high. Clearly when the VIX was in the 10's and 11's the VIX was in a cyclically low level. However, that appears to have changed (despite the sudden drop in realized volatility). Even throwing out last months vol pop one should be able to see that the VIX pattern shifted