I am a firm believer that the mini options are going to be a great thing for the retail trader long term, as long as the retail trader can steer clear of Television. There are 2 trades we hear more about on CNBC than any other trades. Those trades are GLD and AAPL. CNBC chatter is indicative of where the retail trader is investing. I wonder why the retail trader is still out of the market:
This was a weird day. As weak as the market looked all day it felt more like a lack of buyers than an over- supply of sellers. That did not stop the VIX from riding a roller coaster. This reminded me of the 2001 after 9/11. There are a lot of strange vibrations coursing through the market picking up the news bites. This is re-enforcing the tragic and generally gloomy news that we have had since Monday. Mediocre earnings do not help. The earnings were not awful from BAC but there was a sense of baggage on them.
With the market recovering some of the sell off yesterday, we look at more mundane features in the market. Redistributing some of AAPL's cash hoard comes to mind. AAPL rallied to the $480’s earlier this year on the new cash payout hype so here we are again looking for another excuse to goose up the stock into earnings.
Let’s review the rules for dividends as it pertains to options.
First- Call values do not like dividends and put values do. A dividend increase will decrease call values and increase put values.
The SPX had a very ugly day today. Yet, I think this might be a short lived move. While the tragic Boston Marathon attack throws a small wrench in how the market might act in the coming days, I think the VIX is pointing toward a short lived sell off.
Take a look at how the VIX moved today and take note of how little it moved relative to the Italian elections, a day where the SPX moved LESS than it did today.
Thursday was another record for the SPY. If you listen to the folks on TV each person on camera is trying to pick a top or look for another reason for the market to crack. That well may be as some kind of selloff is inevitable. The market looks down about .5% so maybe the pundits will have their day. Looking at the trade on the close yesterday I saw a slight change in the SPY skew. That is telling a different story.
During the Vol Report Andrew made a great comment about what might have happened the last few days. With all the money now flowing to the path of least resistance (like a river), Ben Bernanke's put might actually be more like a straddle. The 'T.I.N.A.' trade, essentially forces traders to go long, creating a synthetic call. With the 10 year at near all time lows, Japan crushing its currency, and Europe...being Europe, money is flowing into the S&P shooting the trade higher.
Trading this market successfully has been about avoiding being too bearish. For the most part I have succeeded in that, but as far as trades go we are getting thin with the volatility products. All of the indexes are up 1% at least, which is keeping with the theme over this last year that the majority of melting has been on the upside. With 1% moves the VIX will not go through 12. Volatility cuts both directions and with the l
I have been closely watching the VIX curve over the last month for signals that this rally could end in the near future. Since March 12th, the SPY is about 1.10, a little less than .75%. In that same time the VIX has made exactly NO movement. Take a look at the VIX curve from March 12th vs. today:
The market has thoroughly shaken off the jobs report from Friday. While I watched for some headline news today, there did not seem like a lot out to cause us to rally and press the VIX down to 13.19. Mostly a lack of bad news, and we rallied. A failed merger in Greece of some big banks, and the TLT actually fell off by a good clip today. I guess we have two days of bizarro action (see Friday’s blog).