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Skew is more lively at the end of the day

Market price swings are from a variety of factors.  I can bucket them into two big categories though:

Non-mechanic factors- like panic, news, earnings/fundaments and events

Mechanic factors- margin calls, liquidations, short gamma and short squeezes

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All is Well? Probably Not

As the bond market continues to deteriorate the SPX managed to hold positive on the day.  This after a massive sell off and a major Spike in the VIX on Thursday.  The VIX came in nicely into the weekend along with the small market rally.  Intraday, the market had a nice push downward and managed to bounce off the lows.  So does this mean that it is now officially safe harbor?  Probably not, take a look at a chart of VIX pops and the following days:

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VIX makes the high of the year

The bears were right.  The market was due to fall apart any minute.  The problem is that they have been saying that since 1100 on the SPX in 2011.  Today the bears were right and they will be howling about it.  The reality is the sentiment is now bent to the Fed getting out of the economy.  At some point we will figure out how much the market priced in the Fed gas by how far the market crumbles.  The SPX was down 40 handles and it felt like an orderly retreat.  How so you say that when the VIX made a year high.  It could have been much worse.

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Don’t fight the Fed

Since the QE program started every Fed meeting has been met with a combination of shock and awe.  Most of the shock going into the IV before the announcement and a lot of the awe is the sound traders make looking at the market with their mouths open waiting for news.  I cannot blame anyone for waiting as we were doing that ourselves.  Normally we try to position some sort of long gamma, which we did at the last minute, with some short volatility, which we avoided for the most part.  The reason being this was a strange FOMC reading according to the     IV ch

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Endless Summer for TLT?

The Fed will release some information by Wednesday that most likely will tell us that they are going to stay the course which isbuying bonds for now with an eye toward easing in the future that is now approaching faster than the last time they commented on it.

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This is a Nervous SPX

The SPX continues to oscillate between 1610 and 1650, a pretty tight range.  Yet as we said Volatility continues to rally.  The truth is the market does not trust rallies right now and is buying into dips.  A clear example can be seen today.

The SPX popped on the open, to the high on Friday, yet IV failed to fall levels we saw on Friday.  And, unlike the VIX, the Livevol guys actually make up for the weekend issue, so the vols compare pretty well.  Then as the market chopped in place and crept higher, so did IV.

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A different kind of print in DDD

As a young floor trader back in the old paper days there was always a need to put the trades on the “tape”.  As in “the customer needs to see a print.”  Hard to believe that it was such a big deal but at that time electronic execution was in its infancy.  Back then traders did not want to be “on the wheel” because markets were updated by open outcry and the automated update systems were still having the kinks worked out.  A print now takes on a whole new meaning.  We can print things in 3D and the days of worrying about a trade hitting the tape on time are

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VIX About To go Backward

The VIX cash has been backward over the VIX futures for a surprisingly large portion of this month so far.  The same cannot be true for the VIX futures themselves.  Usually the sign of an official sell off, the VIX futures have yet to go backward since this sell off began.  However, if we get one more day like today, I think that all changes.  The VIX curve is about as flat as it can get without being backward:

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