The euphoria of Thursday is now over. The rally we had on concessions from Greece now give way to the fact that the Syriza party is running for its next election realizing it cannot deliver on any promises besides sending Greece into the economic stone age. Volatility traders love this because it is, well, some volatility to trade. Volatility wants to move, but only at the pace of a 3 legged race. The will to move out is not there yet.
I toss that out there of course and I don’t mean VIX. What I do mean is the ATM volatility for the SPX. With the Greece deal on and off again the one thing that has been consistent over the last two days is the total immolation in implied volatility. The 9 handle for SPX ATM IV is a tough barrier to break because it means traders are actively hitting option bids on the downside to drive the ATM lower. We are almost there.
On Monday we discussed how VIX futures were not buying into what the VIX cash was dealing. We called it scared and complacent at the same time. Today we appear to be hear to discuss how, yet again, VIX futures traders were right and SPX put option buyers were wrong. It amazing, this time two days ago VIX cash was at a premium to June. 2 days later, a .60 discount. If in a situation between VIX and VIX futures most of the time the futures traders are right.
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We have another lackluster session today with no good news coming out of the EU on the Greece subject. For now that is the millstone around the market’s neck with things just dragging. Besides NFLX up, stocks cannot put in any kind of sustained rally. Bonds are getting trashed too in the face of QE out of the European Central Bank.
The old saying is complacency kills, to which I would say...unless one likes to sell premium. In that case complacency rules. All kidding aside, the market appears to be in an odd spot: On one hand we have the VIX cash market, the market derived from index options. its trading at about 15.30 or so as I write this and is currently trading slighly above the June future (which still has a 9 days until it settles.