It is somewhat common knowledge that I continue to be a seller of option premiums right now. However, that doesn’t mean that traders should be selling all option premiums. There are a few tech names where the implied volatilities have been crushed to levels that we have not seen in some time. Take AAPL for instance: 30 day option implied volatility is at two year lows:
Today was a day on Wall Street that was well, strange. There was a nice little rally in the NASDAQ as it teetered near even most of the day and ended with a little move up. For the most part the other indexes were lower including the VIX, as there was little good news to really lift things. I think, at this point, the markets are at the end of cheap credit. Negative interest rates for TIPS anyone? That is not the kind of thing markets want to see. There feels like there is some serious confusion as to what money managers will put money into. Does anyone really want
The 4th quarter of 2011 is now viewed as the quarter of "the big growth momentum earnings wreck syndrome". The big names like AAPL, NFLX and GMCR took it on the chin. So did much of the market as I recall, but I digress. At least for the first two names for this earnings cycle that is not the case in the sunny land of 2012 (no problems fixed and the credit you want). I am going to focus on NFLX for now, because I think the reason for the move is much different than AAPL’s, and there is a more interesting trade in there.
To show you how great of an effect that the Fed, Europe, and congress is having on the market, I thought I would point out something unique that is currently happening: Here is a quick look at volatility in the SPX
Livevol (r) www.livevol.com
There has been a bit of confusion as to what exactly what the reserach Jim Cramer quoted Mark Sebastian on last night meant (watch the Video here). Here is the research that was used along with a slightly more indepth description. It should clear up any confusion. As a follow up, you can catch our live webinar on using options to trade stock earnings on Feb 15th. Register here.
In my short stint as a floor clerk (Ronald Reagan just left the White House), I learned an early lesson in liquidity. One of the partners in the firm I worked for would use low liquidity as a partial definition of a Bear Market. Sitting on a trading floor, clerking for a trader who was watching the paint dry was a visceral experience. Watching every equity bid hit in the move up to Gulf War I (Dow around 2300), I could feel no one wanted to do anything. Usually, in a liquid market, there is action between the bid and offer. Not so for that stretch in 1990. No trader would give a floor
If you would like to catch up on Mark and Andrew's webin on "When Not to Use the VIX as an Indicator", click here for the video! You will either need to be signed up for an Option Pit service or a free account to watch this webinar. In this Webinar Option Pit's educators discuss what the VIX is, how it is used, and then the important times not to use it.
The Jan VIX Future settles 23.64 for the high tick of the day. Who knew?
The VIX settlement price is always a hot topic on the Option Pit Report. The Tuesday before VIX settlement is a little game about how the cash will price the expiring future contract. This expiration was no exception. The January VIX contract settled at the high point for the day at 23.64. Take a look at the VIX intraday chart below in the “burst” of opening volatility. The index was in a real hurry to print up and spent the rest of the day melting down.
Don't forget to register for tomorrow's webinar. You can do it here.
I have been saying for some time that I thought we were going to touch 1300. Now that we have, where are we going from here? I'll be honest, I am on the fence. There are a few things coming out of option prices that make me bullish:
1. VIX futures are in a somewhat heavy contango
2. Market momentum
3. The way the SPX has shrugged off bad news on Friday