Today was just a good old rollercoaster ride in both the SPX and the VIX. There was poor unemployment and ISM reports and that added to the gloomy Washington slime that is coating stocks. The good news is that bad news is bad again. The market is starting to look at bad economic data as bad for stocks as opposed to bullish for more QE
One of the questions Andrew and I get most is "How do I find edge in the market place?" There are thousands of ways to do it, and many of them take years of training and trading to learn. There are also ones that are much simpler than they may seem. One way of capturing edge, that Andrew and I like is buying options in stocks that have vols that are at multi-year lows, especially when they are high flying stocks.
One clear example is AAPL last year. Right before the stock ripped from the high 500's to the 700's the IV on calls was at an all-time low.
Despite the SPX picking up 13 points, basically making up for the last two days of sell offs, the VIX is not signaling the all clear signal yet. In fact, the VIX is still quite elevated relative to where it was only a week ago at almost the exact same levels. Take a look at a chart of SPX and SPX IV's from Livevol
Just ahead of the continuing resolution the market is doing a little flim-flam. Basically traders are trying to handicap the budget process and starting to place bets accordingly. In a big index ETF like the SPY that starts to shift the skew around while liquidity providers deal with the different market forces.
While many of us are stuck watching the wankers on C-Span get nowhere it is refreshing to know that the world outside of our shores keeps moving along. The US equity market is in a malaise in either direction while the health care rollout and the budget discussions drag on. As a side note, if the medical industry was going in the can why would a company like SYK be buying MAKO for a fat premium? I digress.
Look at the performance of DRYS lately, or any dry bulk shipper for that matter. They all have doubled in the past month.
The market is pretty flat today going into the bigger events of the next two weeks. Budget, NFP and more Fed minutes all make for what should be an exciting time. Yet somehow the VIX sank a bit through midday. I would not be surprised if it rallied into the close. I find myself watching more about the minutiae of Congressional procedure than volatility. For today not much to report on the volatility front but I have seen some strange activity in JBLU.
Last Friday, the VIX closed a touch over 13%. Historically low, and recently low. However, if the history is an indicator the VIX is likely to go higher. I think these events out of Washington are silly and likely to cause little to no real damage to the economy. But, the fear of a 2011 like scenario has taught the market a lesson: don't get over confident. Thus, despite little to no real movement today, VIX caught a nice little bid.
More fumblygook, new word, out of the Fed where there is a little he said/she said over the direction of the taper. As I write this, the House of Representatives passed a spending bill without funding for the new health law which should shake things up a bit in the Senate. All of this has some consequences for volatility.
Look at the IV30 for VIX this morning. It is pretty much trading at a year low. Look at the volatility spikes during the last two budget debates. I think IV is going higher and the volatility futures think so too.