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We have the market flirting with all-time highs again today and investors should be beginning to wonder if the financial crisis is over.  Asia looks ok, India ok, Latin America ok and the US recovering but in a pokey big government way.  Europe is still a basket case but that is mostly due to the reluctance of a good chunk of the population to work for a living and for the governments to stop paying for it.  At least short term the Euro should stay intact while the drudgery of budget discipline starts to happen.  While I won’t declare the financial crisis dead there is plenty of anecdotal evidence for that.  TARP was a success, Fannie and Freddie could pay back what they owe and home mortgage payments are now cheaper than rents

Somewhere between the ADP report on Wednesday and today’s NFP report the nation found a bunch of jobs.  The broader markets also found themselves in record territory with NASDAQ making at least multiyear highs.  What I find heartening (for bulls like me) is that the Treasuries are finally weakening with a near 3 point drop today.  If the rally has to continue folks need to stop running to no-yield bonds.  With better jobs news the need for the Fed to buy more is a much tougher case to make.  The thing is we have .75% gaps in the SPX still and while the realized volatility has tailed a bit we are getting one to two days a week of bigger moves.

The last two weeks have been interesting for VIX and VIX futures watchers, for several reasons.  In relation to the VIX, the realized volatility has been above implied for about 2 weeks and appears that it might stay there for a while. 

Livevol (R) www.livevol.com

The market seems to be okay with HV higher than IV as long as the move is higher.  This makes me uncomfortable, with overall VIX levels and has me convinced we do NOT see an 11 handle anytime soon.

I wrote the first installment of this series over two years ago, promising to explain the practical ramifications of the the basics that I’d covered using the tools of the trade. After enough procrastinating, I’ve finally gotten around to doing the second installment.

One of the most followed stocks on the NASDAQ, FB, had earnings last night.  There was HUGE volume yesterday ahead of earnings and May3 weekly volatility got to 150% ATM.  FB actually made a decent move by the end of the day today, moving up to near 29.00 a share.  But, those who bought upside calls are probably NOT happy.  Take a look at a shot of the FB May3 29 calls from yesterday.

LivevolX (r) www.livevol.com

Notice that high IV of near 140%.  Notice the price of the calls is above .50 a contract.  Take a look at what happened to FB volatility today.

With the underwhelming ADP report the private sector is just limping along but improving slightly.  At some point here now that stocks are near all-time highs the residual of the financial crisis ending can only propel things for so long.  I mean that as earnings have climbed back up over the last 4 years stocks have had just fits and starts depending on larger macro issue (US debt rating, Euro, US Fiscal Cliff, Europe, Europe, etc) .  2012 was nice but 2011 was a wash as investors worried about the Euro.  Now  lower interest rates are powering stocks globally.  For some reason that is not enough to jumpstart hiring by companies.  My only guess at this point is the continuing government dysfunction is worryin

Today on Bloomberg TV I discussed an earnings trading in Time Warner Entertainment (TWX).  While I am not an expert on cable entertainment, I am an expert on paper flow.  You can watch the video here:

My main point revolved around how large customer money was flowing today.  Take a look at time and sales for option traders larger than 100 contracts today:

Kind of a bubbly day today as the market stretched out a little bit and put the rally cap on.  Several factors, mostly big picture stuff like the consumer and Italy, help buoy spirits today.  Of the market in general we have been getting to these highs on higher realized volatility than in the past.  10 Day HV from LiveVol© is clocking in at 18.62 for the SPY and after today’s upswing that number will only wilt slightly.  I spend a lot of time watching realized volatility because that tells me the “how” of movement.  Look at JCP lately.

Looking at the rally Thursday on what I would say is so-so news I am reminded of the fact that over the last year most of the melting has been to the upside.   The market has tended to take off like a shot with Fed easing and the BOJ declaring war on interest rates.  The US market with a decent dividend yield is starting to look attractive all of a sudden.  While I am still mild bullish it pays to take a look at how the market is viewing volatility in the near term.

IN the last few days, since Bank of America took a dive on its earnings, the stock has found some real strength.  BAC is now just a few cents from its 52 week high and threatening a 2 year high.  The move has not been a slow grinding move like we see sometimes out of banks.  It’s been a nice quick move.

This is why I am so confused by where BAC IV is trading.  Take a look at this stock chart, IV graph (the red line) and 20 day HV chart (the blue line).

LivevolX (R) www.livevol.com