Blog

As Bill Luby reported on his blog VIXandMore.  VIX option volume and call volume both set records today.  Which leads us to this question?  Why?  There are two potential answers:

1.  The Market is about to tank and smart money is covering their butt

2.  The large stock funds are scared, and hedging their portfolio's

Lets pull up a 1 year chart of VIX.  On the top are the levels of VIX and on the bottom is call and put volume.  I thought it would be interesting to look at past volume spikes to see if they are a potential leading indicator.

Justin Braun is the CEO of Scaled Dynamic (an advertiser).  He is writing a guest blog on using his platform to potentialy trade the YEN.

It is news when the VIX cash settles at a level that is higher than the VIX futures.  I think it is an even bigger deal when the VIX settles above 6 futures contracts like it did today (almost 7, actually).  Yet, there was something that was also interesting about today, the movement in the VIX futures themselves.  While the futures certainly reacted to the news,  the entire curve really didn't flatten up very much.

www.vixcentral.com

Well here we go again… or maybe not.   Italians go to the polls this weekend and surprise Silvio Berlusconi has a shot of upsetting the apple cart and turning Italian politics into more of a farce than our politics.  Not that he can win per se but setting up the European style coalition is going to be tougher.  It might be a tempest in a teapot but market watchers are tired of useless politicians a bit more than normal lately and the thought of Silvio back in the game has folks spooked.  At least it has the volatility markets taking notice.

Today we had good old fashioned follow through and as I write this the market is only down small on the day.  VIX made a power move only to 16.27 and it looks like it will close in the low 15.20s.  There is now doubt the market can change direction in a heartbeat if necessary and 1500 in the SPX looked like the sticky area.  A stock that performed well all day was Boeing so let’s look.

One of the apparent things in a low volatility environment is how fast volatility can turn the other way.  The Fed announced some split sentiment moving forward on what to do about the latest round of bond buying.  The improving news in the housing front was largely overshadowed by what appears to be some differing opinions in the minds of the Fed governors.  Either way the market did not like the news very much.  Neither did gold or oil or anything that has an inflationary long delta attached to them.  Market players were looking for a reason to sell off and a possible end to bond buying looked good enough.

One of the things we concentrate on in our option mentoring is trading indexes.  There is plenty to be made in the index space, typically on the short premium side.  In the case of all the indexes IV has been overpriced for so long,  all the way down to these levels, and continues to be overpriced.    Index IV has been overpriced for going on a year and half and there is no end in sight.  Perhaps the worst offender is NDX, especially in the past few weeks.

Take a look at the way the Index has moved since the beginning of the year, or more...HASN'T moved.  

LivevolX www.livevol.com

Most of the week saw sideways action in the major indexes.  As I write this the S&P 500 is set to close around unchanged.  There were too many cross currents in the global front messing with the mostly positive news domestically.  With the S&P 500 at multi year highs the news is going to have to get a bit better for us to rally to new levels.  A big Yen devaluation and slowing European growth are not going to pave account statements with a new path to riches.  Neither macro issue was a surprise which is why the market shrugged it off a bit.  The VIX however is going to close the week in the 12 handle which it has not done very often.  Usually we have enough of a selloff in stocks to send the VIX back up.  Not so this week.  The fact t

STZ was up very hard on the InBev, Modelo Deal rallying 37%.  But, I question whether the deal is 100% a go based on the option trading today.  Traders were jumping over themselves to buy puts in STZ today.  Check out the volume in March:

livevolX (r) www.livevol.com

STZ typically has a larger call to put ratio, one can see in the open interest.  Yet, here we are on a day when volume was 20 times normal volume, puts were 1.5 times as active as calls.  

livevolX (r) www.livevol.com

If you love AAPL and are sensitive, stop reading this blog post right now:

I have an option mentoring student in town for the next few days.  He and I were walking through LivevolX looking at skew charts.  I pulled up a stock that had a chart that looked like this:

LivovolX (R) www.livevol.com

We then pulled up a second stock that had a chart that looked like this:

LivovolX (R) www.livevol.com