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How cheap is post QE vol?

It seems since the August Flash Crash this is the cheapest volatility has gotten since before that time.  When I look at a vol chart it seems there is this year and last year.  When I look at BAC it is no exception.  There was last year’s IV and this year’s IV and now we have very low IV going into earnings.  I read this as the market expects little out of this earnings cycle.  Except someone forgot to tell the equity markets as  they have raced to new highs.

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Bond Vol is Too Cheap

In the last two days this blog has had two trade ideas:  S&P vol is too cheap (even cheaper now) and Oil vol is too expensive (which it is).  Moving into fixed income,  one can see that the dog wagging the tail of S&P 500 movement is bonds.  Take a look at realized vol in the bonds and how much bond IV has increased (this is TLT).  Bond vol has slowly rallied,  but is still too cheap,  We like buying TLT premium and/or TLT calendar spreads.

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SPX Vol is Probably Too Cheap

When I look at a day where the S&P moved about .75% and has moved more than 1% in a lot of recent days,  then see 60 HV higher than 30 day IV I start to think one thing:  vol is too cheap.  Think about it, one could have bought an ATM straddle at just about any day over the last few weeks and hit a complete homerun.  Take a look at movement realtive to vol in the last few weeks.  Its not like movement has backed off:

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Oil Vol is Too High

In the last few days the market has continued to see vol collapse and the market hit new highs.  Meanwhile USO has started to churn up and down but IV has crept up.  This wont last and should be sold.  An OVX above 40 is too high,  an OVX above 35 is probably too high.

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