The VIX is now near 14.50, and IV is now back at 75%. Sounds great, except, that is still elevated relative to where the lows have been over the last year or so. So the question is, is the market ready to start a normal move higher, or is this a simple break before China and Russia cause more problems? Keep an eye on the range the VIX trades in, since the VIX topped 20 last month it has failed to hold below 14, additionally IV of the options stayed high and kept creeping higher. Take a look at the chart below:
Well, like the Greek referendum in 2012, they came, they voted and stocks rallied. I am talking about the Crimean’s who don’t seem to want anything to do with the rest of Ukraine. How it all shakes out is a bit of a mystery, but some very select Ukrainians and Russians will not be able to go to their ATM machines anymore when they fly to London or New York. That message hit loud and clear as both Russian and US stocks rallied back a bit today.
At the money volatility got hit in all the big indexes as you can see from the Livevol Term Structure slice below.
The VIX kept winding its way higher and skew keeps winding its way higher. Stocks in general today were a mixed bag, with the SPX down .3% or so. The darlings got hit (FB, PCLN), but a good chunk of stocks were up on the day. It is tough to justify today’s VIX on today’s equity movement.
The panic rise in the VIX is from what might happen come Monday. See here how the VIX cash spent most of it day running and then selling off, only to get running again and level off into the close. A 1.6 point move in a 16.22 VIX with a .3% SPX index move is a signal for a good size move, up or down.
One of the interesting things to look at is the correlation of a stock to its IV. One thing we know is that typically, when IV is creeping up with a stock price, at a minimum, there is going to be a strong move at some point. The vol will almost always 'pay the piper.' We saw this recently in VIX. While VIX itself stayed stable and (relative to the last year) elevated 14+ , the IV of its options was slowly climbing:
I am of the belief that politics will trump economics when it comes to the stock market. What I mean is, one politician can do more to destroy (or help, but rarely) an economy with the stroke of a pen than all the good earnings reports combined. Lately, that politician has been V. Putin since the Russians loss at the Olympics. He has been all sorts of grumpy and decided to take over a small piece of the Ukraine to make himself happy.
In a recent conversation I had with Amy Wu, of RBC, she brought up that one of the reasons that volatiltiy has been so slow as of late is strategic stock buy backs. It has established floors for stocks like AAPL, and potentially even the whole market. Yet, at a certain point, even with buy backs, IV's get to the point of being silly cheap. It appears that the VXAPL (vix of AAPL) may finally be bottoming after touching levels that we have never seen before (in this iteration of AAPL). Believe it or not, the stock went up and call buyers entered the market for the 1st time in a while.
A while back when GLD was trading between 165-175 the IV of the options started to get silly cheap. The GVZ, which is the VIX of GLD options, go to the point where it made almost no sense to sell options. ATM IV too cheap, skew too flat, basically, everyone wanted to sell puts to get long GLD and to sell calls against their long GLD. Well take a look at GLD vol is currently trading:
While most coverage in the media is done on SPX and DJIA, the really interesting index over the last few weeks is actually the RUT. Take a look at the upward momentum in that index. Also, take a look at how fast that movement has been. It's incredible. At the same time the RUT IV is going no where. Take a look:
While the market waited for NFP numbers to come out on Friday, the Fed declared the subzero temperatures as a drag on the economy. Unless you were selling de-icer or coffee during February, they were probably right. A little milestone kicked in today, in case you were not watching; FB closed at an all-time record just shy of the intraday high. Last year folks were wondering if this was the worst IPO in history, and this year they might be wondering when FB gets to $100.