FB announced earnings tonight. While we saw some decent fire works out of AAPL, we did not see the same thing out of FB. The market was pricing in a move of about 7%. As I write this the stock has barely budged. The short strangle/straddle is goign to pay out extremely tomorrow, Shorts will make about 4-5 hundred dollars a spread. The payout is pretty clear below:
Look for the Option Pit Store to open soon!
The market did not like CAT or MSFT earnings today. It actually felt good to know stocks could sell off on bad news instead of the heroin induced QE state of suspended animation that has taken over equity prices for the last couple of years. I don’t think the MSFT earnings were 10% bad but the market did not agree with me. We are not talking MSFT, we will talk AAPL.
The weekend provided little real excitement as the Greek elections turned out worse than expected and no one cared. The leftists are in power but what they are going to realize is they have little choice. That seems to be the consensus from the reaction in European and US stocks. VIX managed to turn in a new short term low to close 15.58.
Stocks made a little run down today on bad UPS earnings and some worries about the weekend vote in Greece. If folks are paying up for SBUX coffee, things cannot be that bad so we will blame the Greeks. Even after the ECB made their made policy announcement the Euro continued to sell off. I guess the question is why would you buy European sovereign debt? Spain yields nothing, you have to pay the Germans and Greece is always on the brink of default. The 10 year Treasury is still looking pretty good even after the dollar rally.
The ECB finally announces a bond buying program of their own. We will call it Euro QE. At the rate the Euro is crumbling there won’t be much left of the bond buying program in dollar terms as the Euro rushes pack to parity with the US dollar. Stocks love the QE since they takeoff after a whiff of it is announced.
Mark Sebastian our Founder wrote up this analysis on VIX yesterday, in which he described the changes in market volatility over the last few months.
In August of 2013, the day the VIX of VIX settlement also happend to be the day of the a FOMC announcment that many thought might be when they would announce the beginning of the end of QE in the US. The night before the VIX cash settled 14.91. With little to no movement in the SPX. the VIX opened up much higher and settled to almost EVERYONE's surprize at 16.42. A huge pop. Check out the intra-day range the index had.
We are finishing a volatile week for global markets and it most likely will stay that way until the ECB comes up with some announcement on Jan 22nd and/or the Greeks decide to elect a new government by the end of the month. Earnings reports so far have been mediocre and without the promise of domestic QE, stocks have not been able to recover. Short term things will stay choppy.
I am not sure what the confluence of news was that made folks nervous but it seemed to be a combination of retail sales, no ECB QE and the latest weak data out of China. That was enough to drive VIX into the 23 handle briefly and set the VIX future curve backward to Aug. We did get a close of Jan VIX close Aug however. The vol traders could not hold the Jan too backward overnight. They could not push it lower however so a little more movement is still expected.