Last Friday we wrote how the SPX ATM straddle was pricing in a level of around 34 bucks a spread, this after the SPX had just ripped up 70 points or so. At the time VIX was around 16. Since then the market has ripped up higher a little over 35 points. The straddle is worth close to 40.00 a spread. Today, the VIX is down to below 14.50 after moving 35 points in 3 days. With 8 full trading days to go, the SPX straddle expiring next week is pricing in under 33.50 dollars a spread.
Do you have questions about the options markets, how options markets work (or how options work) tweet questions for the blog @optionpit
While the S&P 500 has recoverd to its 100 Day Moving Average (we shall see if it gets past their) the VIX and VVIX remain high relative to where they were at the beginning of the month. For the VIX this makes some sense as Friday and Monday were the first back to back less than 1% movement days in the SPX in sometime. VIX options also continue to have extrodinarily high vols. The VVIX, the VIX of VIX has remained above 100 for a long period of time.
“Learn Use Volatility to Put the Wind at Your Trade's Back”
Stocks ended their 4 day rally today after a lack of new promised stimulation from a Central Bank failed to materialize. Corporate earnings are getting a bit better into the cycle and even a whiff of inflation today kept a rally going this morning. For gosh sakes even YHOO posted rising revenue last night. Without the system shock of QE stocks could not sustain the climb from the bottom. Getting back to all-time highs will take a bit longer.
If you arent aware that the VIX is about half of itself from its peak last week, its time to take notice. What is interesting is how right the VIX really was at the time. leading into the sell off the VIX was creeping higher, closer to 16 or 17%, climed to above 20% pretty quickly and topped out last Tuesday when it settled lat about 26% or so.
I am not sure if the VIX is done moving. But the market was certainly interested in selling premium today. Traders came in, ahead of VIX expiration on Wednesday morning, and absolutely crushed October and November in the VIX futures. Nov futures outpaced the move one might expect from a future with 30 days to expire by a nice margin. The cash, which also got crushed was down 3.40, while the future was down about 1.80 points, more than the 50% move i might exect. At the same time, the curve dropped, like a gate back into contango:
The market has been moving at a clip of between 1-2% (today aside) for a few days now. If one looks at ATR today looks crazy as well in fact. Looking at GARCH from the last 10 days relative to SPX IV (similar to VIX) it appears that implied volatility is finally trading at some sort of premium to SPX.