As vol rallied earlier this week, it was noted by a few people that the spread between SPX vol, the VIX and NDX vol, the VXN is at its widest point in years. One might think that with the NDX calming down and VIX moving back to the sub 14 level that the spread would have tightened significantly...it has not. Take a look:
Well, maybe not the next internet craze, and no this is not the title of the next Michael Lewis book. The craze has already come and gone. I like looking at new products and this KWEB (KraneShares CSI China Internet Trust) is interesting in that it has flown under the radar for a while. No options trade on it, (hint: CBOE list them!) but the product moves around pretty good.
So the Friday rout in volatility did not materialize. Stocks dutifully opened higher with VIX marking lower, and then everything went the other way. Today the big premiums we saw in VIX futures got chewed up as VIX Apr closed just about flat with the VIX cash. The VIX line in the sand at 13% is holding much better than Kaddafi’s Line of Death, and seemingly for months longer.
The stock market looks like it has had enough of tepid job reports. There were big hopes of 275k plus jobs, but all of those hopes were dashed today. The happy number was private payrolls are back up to the pre 2008 crash highs. I guess that means government payrolls are not, but somehow we are spending a whole lot more money than we were back then. Either way stocks were a bit grumpy about it.
A topic that is consuming the Pro Chat group at Option Pit has been the relative stickiness of the VXX lately. There was finally a break in the product over the past few days, but for the most part VXX has decayed much less than expected so far this year. I won't trouble you with the whys, but much has to do with how the VIX futures are acting. They just don't decay like they used to.
The market is deciding what to do today after making the big volatility crushing run to SPX 1885.52 yesterday. I can give it a day of rest even for a hyper active bull. The momentum drivers are a little slower today, so that might be part of it. Lackluster employment data, of which there seems no end, and other mixed data have us pretty flat so far.
For the first time in a while the VIX is getting smoked with a jump in the market. I don’t think it was Paul Ryan’s balanced budget proposal, but it probably did not hurt. Stocks did not get the crazy 1.5% move on no news, but a solid .60% move. That in general proves to be the volatility crusher, as slow but steady gains bring in the put sellers and start the risk train rolling again.
One of the most interesting things as the quarter pulls to a close is to see where the money is going today. It is not going to NFLX, GOOG and FB. After taking a good pasting the last couple of weeks, the darling stocks have not been able to get up off the mat. They are still up a bit since January, but definitely off of the nosebleed levels of a few weeks ago.
Stocks made a little rally today on the good economic news in the morning. Much of the early gains went away as the day wore on. For what seems like the 5th time this week, the VIX cannot hold the lows of the day into the close. As I write this, with 30 minutes to go today, the sub-14 VIX came and went with the slow deterioration of sentiment.
Where did it come from? To keep with the story of the last couple weeks, the OTM puts continue to attract the attention of premium buyers. Maybe the Russian’s massing on the boarder has something to do with it but there is still a bid for OTM IV going into the weekend.