Today the SPX finally broke its streak of not closing up or down 1%. While that is certainly important to note, it is not the most important thing that happened today. What most important is how flat footed a few trader got caught. While the S&P moved, the VIX exploded. The VIX moved from the low 11's to almost 15% in one day, in what turned out to be an exceptionally short period of time.
More Yellen testimony hurt the RUT and VIX today as both those indexes made some pretty good size drops. With a lot of old tech like MSFT and especially INTC, starting to trade at multiples out of the single digits what is volatility to do. A client wrote me today and asked if CSCO is next? All of a sudden establish companies are doing something not many thought possible a year ago and that is deliver some growth.
Goldman blew the door off earnings today and now is starting to threaten 170 again on move of about 1.5% today. On the heels of this, traders absolutely demolished GS implied volatility today. While GS is not at its all time high, the IV of the options is at its lowest level post 2008 crisis:
After a weekend of non-activity stocks got back to their old ways and launched this morning without so much as a how do you do. This latest Euro issue has been around since December apparently and Euro bank stocks were already trading at lower levels. Either way VIX and the volatility futures are tanking today and the only thing holding up the IV is the balance of earnings.
So the day after Euro Zone disaster light and stocks found their footing by eking out a modest gain. It was still not enough move much but the stock market has been remarkable resilient in shaking off minor irritations. That brings me or our volatility view of the week.
Note the very flat term structure in the volatility curve for VIX. The August future is a $1 over and Sep $1.65. We have been used to 30 day futures of at least $2 in premium on average for the last several years so what gives?
There we go stock finally had a solid down day. No wait, that was the opening. By the end of the day stocks retraced half of what they lost and the NDX got to just up about midday before giving some back. It has been a while since a European entity or issue has shaken stocks. The last one that comes to mind was the banking crisis in Cyprus that made Bitcoin a household name.
The following shows a vol chart of a high dollar stock, The Stock has been a high flier and has had wicked moves. The IV has been extrememly bid relatively consistently, yet over the last two months the undelrying stock volatility has changed. The stock has no longer been moving around as much and has become somewhat range bound. take a look and see if you can guess what the stock is:
The VIX is trading around 12, which implies that the market is going to move about .75% a day, if it is priced perfectly. In the last two days, the SPX has moved about .66% and over the last 10 and 20 days it has moved less than 7%
Tomorrow option headlines will talk about how the VIX 'popeed' almost 10% to over 11.33% today. This will be a complete miss representation of what happened today. Let us talk about a few important things to notice:
1. We were coming off a long weekend where the market closed for 3 1/2 days, a normal VIX adjustment coming off that long of a break should be about 1-1.2% depending on how much Vega is in SPX options at the time.
That is the question I am asking myself. I show IV now in the 6 handle for OTM calls in the SPY. This is on top of the SP 500 moving into record territory again. We are moving into the realm where the upside is so cheap no one wants to sell it anymore. Fund managers looking for extra yield are going to start selling calls in stocks if they cannot get the dollars they want in indexes.