With the most recent rally in the 10 year back to yields near 2.90, traders have taken this opportunity to completely dump options. The VXTYN is near its lows, 30 year bond vol is dirt cheap, and in the equities TLT and TBT vols are both at 2 year lows.
Near the end of the day we have a pretty solid bounce in the broader market with stocks recovering all but 6 or so handles from the previous day’s highs. The reason for the selloff was kind of uncertain, so with just so-so retail sales, things are back up to nicer levels. As Mark discussed yesterday, the IV only made a tepid response so the bounce is not too surprising. The quick rally and inability to make new highs over the last 2 weeks has shaken up the upside skew a bit.
Last week, we wrote how we expected the ATM straddle to go out somewhere near 18 dollars into non-farm payrolls. Boy were we off. Today, the straddle went out less than 12.00. This means that the market is about 58% certain (greater than 50/50) that the SPX is going to move less than 12 dollars tomorrow. The VIX and the Vol of VIX both failed to catch any bid this week.
Since the end of the congressional stand off, the VVIX (the vol of VIX) has done one thing: plummet. For a brief period, VIX vol hit periods in the 50's, levels not since these options listed in the mid 2000's. Take a look at how low 30 day IV has gotten in VIX optoins.
The big surprise for me is the lack of interest in volatility into the NFP on Friday. VIX notched its 5th straight decline going into a big number which is something I don’t remember happening in the QE period since the first talk of taper began. VIX could easily pop back up tomorrow but for now I would not trade it.
As 2014 continues with the not much happening award, there are some big mark downs going on in the volatility markets. Stocks are sitting around, but volatility in the volatility products are hitting some very low levels.
Take VXX turning in 38% implied volatility with NFP still to come on Friday. It feels like paper has all but taken out the possibility of a move in VXX for this week.