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Well the Yen is in the can, the Treasuries are dumping and everything that glitters is a dud today.  Stocks though are mostly mixed while the volatility market is about flat to slightly up in the VIX futures.  As a continuation of last night’s blog I think our summer will be the Zone of Unintended Consequences.  I don’t know in modern history if a currency has been able to debase it’s way to glory (see Zimbabwe, Brazil in the bad old days and of course Weimar Germany). Maybe this time it is different but the by looks of the other Asian markets today  they do not like the result.  Let’s get back to commodities and specifically coffee.

The good thing about the stock market is that it is just like the weather in Maine.  Wait a day and it will change.  We wrote earlier this week that bond volatility was in the toilet and low and behold the market has changed course a bit. Why, the underlying assumptions can always change.  There were rumors floating that the Fed might curtail purchases of bonds and that sent the TLT down from 121.25 to 120.10 by the close.

As the SPX continues its rally though 1630 and toward 1650, may a novice is asking why the VIX isn’t touching all-time lows.  The answer is simple: volatility

When the VIX got to its recent low realized volatility was in the toilet.  We had been through about 2 straight months of nothingness.  10 Day HV was near 5 and both 20 and 30 day HV were near 10%.  Looking at HV now we can see a clear difference.  10 day HV is closer to 10% and 20 and 30 day are actually trading at a premium to VIX.

LivevolX (r) www.livevol.com

We have the market flirting with all-time highs again today and investors should be beginning to wonder if the financial crisis is over.  Asia looks ok, India ok, Latin America ok and the US recovering but in a pokey big government way.  Europe is still a basket case but that is mostly due to the reluctance of a good chunk of the population to work for a living and for the governments to stop paying for it.  At least short term the Euro should stay intact while the drudgery of budget discipline starts to happen.  While I won’t declare the financial crisis dead there is plenty of anecdotal evidence for that.  TARP was a success, Fannie and Freddie could pay back what they owe and home mortgage payments are now cheaper than rents

Somewhere between the ADP report on Wednesday and today’s NFP report the nation found a bunch of jobs.  The broader markets also found themselves in record territory with NASDAQ making at least multiyear highs.  What I find heartening (for bulls like me) is that the Treasuries are finally weakening with a near 3 point drop today.  If the rally has to continue folks need to stop running to no-yield bonds.  With better jobs news the need for the Fed to buy more is a much tougher case to make.  The thing is we have .75% gaps in the SPX still and while the realized volatility has tailed a bit we are getting one to two days a week of bigger moves.

The last two weeks have been interesting for VIX and VIX futures watchers, for several reasons.  In relation to the VIX, the realized volatility has been above implied for about 2 weeks and appears that it might stay there for a while. 

Livevol (R) www.livevol.com

The market seems to be okay with HV higher than IV as long as the move is higher.  This makes me uncomfortable, with overall VIX levels and has me convinced we do NOT see an 11 handle anytime soon.

I wrote the first installment of this series over two years ago, promising to explain the practical ramifications of the the basics that I’d covered using the tools of the trade. After enough procrastinating, I’ve finally gotten around to doing the second installment.

One of the most followed stocks on the NASDAQ, FB, had earnings last night.  There was HUGE volume yesterday ahead of earnings and May3 weekly volatility got to 150% ATM.  FB actually made a decent move by the end of the day today, moving up to near 29.00 a share.  But, those who bought upside calls are probably NOT happy.  Take a look at a shot of the FB May3 29 calls from yesterday.

LivevolX (r) www.livevol.com

Notice that high IV of near 140%.  Notice the price of the calls is above .50 a contract.  Take a look at what happened to FB volatility today.

With the underwhelming ADP report the private sector is just limping along but improving slightly.  At some point here now that stocks are near all-time highs the residual of the financial crisis ending can only propel things for so long.  I mean that as earnings have climbed back up over the last 4 years stocks have had just fits and starts depending on larger macro issue (US debt rating, Euro, US Fiscal Cliff, Europe, Europe, etc) .  2012 was nice but 2011 was a wash as investors worried about the Euro.  Now  lower interest rates are powering stocks globally.  For some reason that is not enough to jumpstart hiring by companies.  My only guess at this point is the continuing government dysfunction is worryin

Today on Bloomberg TV I discussed an earnings trading in Time Warner Entertainment (TWX).  While I am not an expert on cable entertainment, I am an expert on paper flow.  You can watch the video here:

My main point revolved around how large customer money was flowing today.  Take a look at time and sales for option traders larger than 100 contracts today: