2015 is starting off as the year of many swings. For all the big daily moves in 2015, equities have not really gotten anywhere. The post-FOMC rallies are fueled by the notion of lower rates and we run. Then the sad realization of why we need lower rates hits and we sell off. The only think I can say for this year is that the swings are solid and VIX is off the basement floor.
We are watching an incredibly orderly sell off of stocks right now. While last Wednesday we saw a huge reaction in the VIX, since then the market has been down somewhat aggressively, certainly on an intra-day basis. However, VIX has moved with a slow orderly basis, essentially not panicking. In addition, it keeps being sold at the end of the day.
If VIX is the 'fear index' (it isn't) then today was actually quite worry free. While the SPX gave away almost 2%, the VIX barely moved rallying only a touch over 2 points and settling below 20. Recall that coming off a weekend the VIX SHOULD be higher by .75-1% anway. What does this spell? Take a look at the chart, when I am watching VIX and SPX I always look for divergence... times where the SPX is low and the VIX is low too.
In Tuesday's webinar Options for Stock Traders I discussed how I can use VIX to spot intraday trends. One of the strongest signals for a reversal is when the market is hitting new lows, but the VIX is failing to hit new highs and/or is actually declining in price. We saw a clear example of that this morning. The chart below shows a tick chart of SPX and VIX on the day.
With stocks ringing up another banner year the most unloved asset is making a move into the close. No I do not mean oil. That asset is volatility. VIX is up 1.60 to 17.52 as I write this as players are getting very nervous moving into 2015. The relative volume landscape tells a more enlightening story.
The OIV which is the VIX of options on WTI is through the roof. It currently in the mid-fifties. To put things in perspective, the last time the VIX itself wasin the 50's was in 2008. So that traders can get a real view of how it is moving I thought I would show a comparison of VIX returns relative to OIV over the last 6 months.
Since today is another day stocks are making a little run on the shortened session prior to Christmas. I think the move to 2100 on the SPX is pre-ordained by the law of even numbers. Stocks love going to a number. Test a new high, break some support, it is all just round number.
The most curious product for 2014 is the TLT. Realized volatility is stuck at year highs as there is some serious doubt in the recent movement. 5% economic growth and near term lows in interest rates and I guess this can go on for as long as the Fed wants it too. Why TLT 123 and not 118 or lower? There is still serious worry out there.
As we come to the end of the year I thought I would put out my favorite blog of 2014. It was a lesson on the weekend effect and how traders roll dates forward to pre-load time decay through the holiday. As we are coming into the double barrel of Christmas and New Year I thought this would be helpful. The short answer is selling options on Christmas Eve will not yield the dough one might think.
Realized vol is still high enough that selling short term options could get you in a heap of worry if the Santa Clause rally holds up.
One thing I always like to keep an eye on is how 'high fliers' perform in sell offs. In these most recent sell offs 'loved' names like TSLA, AMZN, GPRO, and AAPL have gotten a bit of a smoosh. One 'loved name' that did exceptionally well in this sell off is FB. While AAPL dipped to 108, and GPRO back to 55, FB stayed somewhat healthy never breaking 74.