So the Friday rout in volatility did not materialize. Stocks dutifully opened higher with VIX marking lower, and then everything went the other way. Today the big premiums we saw in VIX futures got chewed up as VIX Apr closed just about flat with the VIX cash. The VIX line in the sand at 13% is holding much better than Kaddafi’s Line of Death, and seemingly for months longer.
The stock market looks like it has had enough of tepid job reports. There were big hopes of 275k plus jobs, but all of those hopes were dashed today. The happy number was private payrolls are back up to the pre 2008 crash highs. I guess that means government payrolls are not, but somehow we are spending a whole lot more money than we were back then. Either way stocks were a bit grumpy about it.
A topic that is consuming the Pro Chat group at Option Pit has been the relative stickiness of the VXX lately. There was finally a break in the product over the past few days, but for the most part VXX has decayed much less than expected so far this year. I won't trouble you with the whys, but much has to do with how the VIX futures are acting. They just don't decay like they used to.
The market is deciding what to do today after making the big volatility crushing run to SPX 1885.52 yesterday. I can give it a day of rest even for a hyper active bull. The momentum drivers are a little slower today, so that might be part of it. Lackluster employment data, of which there seems no end, and other mixed data have us pretty flat so far.
For the first time in a while the VIX is getting smoked with a jump in the market. I don’t think it was Paul Ryan’s balanced budget proposal, but it probably did not hurt. Stocks did not get the crazy 1.5% move on no news, but a solid .60% move. That in general proves to be the volatility crusher, as slow but steady gains bring in the put sellers and start the risk train rolling again.
One of the most interesting things as the quarter pulls to a close is to see where the money is going today. It is not going to NFLX, GOOG and FB. After taking a good pasting the last couple of weeks, the darling stocks have not been able to get up off the mat. They are still up a bit since January, but definitely off of the nosebleed levels of a few weeks ago.
Stocks made a little rally today on the good economic news in the morning. Much of the early gains went away as the day wore on. For what seems like the 5th time this week, the VIX cannot hold the lows of the day into the close. As I write this, with 30 minutes to go today, the sub-14 VIX came and went with the slow deterioration of sentiment.
Where did it come from? To keep with the story of the last couple weeks, the OTM puts continue to attract the attention of premium buyers. Maybe the Russian’s massing on the boarder has something to do with it but there is still a bid for OTM IV going into the weekend.
It has been about a month since the VIX broke from its highs. Since then the S&P has crept higher and/or floated around 1850-1880 somewhat consistently. While there has been some gyration of prices for the most part, SPX vol has been stable. At the same time, VIX has been so stable and range bound at a level that remains stubbornly above 14 and more like 14.50-15%. However, I am wondering whether that time may be ending. Take a look at the VIX futures from Today and two days ago.
Today, after the bell, Citigroup had an exceptionaly large put trade. On top of having a much larger put to call ration than one might expect, one has to wonder if the Fed wasnt the only person that thought Citi's capital plan wasn't up to snuff. IV rallied all day even as the stock kinda just sat there. The most notable trade was a big 'buy-write' trade where a customer bought the 46 puts and C stock 'delta neutral'
As we have reported in our morning Volatility Reports, realized volatility in the broader markets are relatively low, but the VIX and the vol. products really are not moving. The only thing moving is the IV in the volatility products and those are coming in. The simple fact is that there are still buyers of OTM puts in the indexes and they are not exiting yet. Buying protection for an extended period is looking like the new normal as we head into Q2, since there is not enough of a sell off to unwind it. Tomorrow could be different of course.