As option mentors we do a lot of teaching on VIX. When explaining the VIX one thing we like to discuss vol cycles. The idea that the VIX has cyclical levels from low to somewhat low, to somewhat high, to high. Clearly when the VIX was in the 10's and 11's the VIX was in a cyclically low level. However, that appears to have changed (despite the sudden drop in realized volatility). Even throwing out last months vol pop one should be able to see that the VIX pattern shifted
Stocks had a ho-hum day today unless your name is AAPL. The late afternoon bid for BHI by HAL might be a sign the oil services business is not dead yet. The Russians are making lots of noise in the Ukraine again but that did not stop the SPX from making yet another new high. It was a small high but a new high nonetheless.
Stocks are struggling today to make it to another record for the S&P 500. As of right now a little push at the end of the day should do it. Without anything news worthy I don’t expect stocks to do a whole lot. A stock that has been doing a lot is BABA.
Alibaba Group Holdings, BABA has been on a tear since mid-October as it held up better than just about everything else with the stuff hit the fan not too long ago. Chinese equities have done ok since then but nothing like BABA. Yesterday was the big Singles Day retail extravaganza and BABA pulled in more of their share.
This is the 3rd or 4th recent record for the S&P 500 as I cannot remember because we have had so many. Stocks are seeing renewed buying interest after the election and for now the wind is at the markets back. There is not much wind in option premiums. All the bears got their time in mid-October and for now that is all they have to hold onto. The bump from the BOJ and ECB has put the kibosh on the bears hopes for now.
The CBOE is at an all time high. As I stated multiple times in the last few months, for those who might be afraid of things like VIX or even 'options' stock on CBOE itself can be a hedge on the market. Why? Because when the market is tanking CBOE is breaking records in VIX and sometimes SPX. In addition to a the stock likely rallying in a down market, it has a dividend and listed options. So even when it sits there is a chance to collect some income.
The stock is at an all time high and I think it could make some sense to buy call options on the exchange. Take a look at the chart below:
Ahead of nonfarm payrolls the general belief is that implied volatility will increase. This is true, where consus is wrong is when IV peaks. General consus is that it will peak on Thursday just before payrolls are announced. While historically this is true, it has not been true over the last few years. Look at the graph below, what one will notice is that IV has a pattern ahead of Nonfarms.
1. IV starts to rise Monday
2. It rises all the way until midday on Wednesday
3. There is a push to lower IV's, somewhat aggresively on Thursday morning
4. They catch a small bid (lower than Wednesday mornings high) on Thursday night
Tomorrow morning Alibaba reports earnings. The market is expecting big things because the IV is exploding. What is interesting is that the IV in Yahoo options is not. Currently BABA accounts for about 85% of YHOO's market value. Thus a pop in BABA options should produce a pop in YHOO options. But take a look at the two IV charts compared: