It has been about a month since the VIX broke from its highs. Since then the S&P has crept higher and/or floated around 1850-1880 somewhat consistently. While there has been some gyration of prices for the most part, SPX vol has been stable. At the same time, VIX has been so stable and range bound at a level that remains stubbornly above 14 and more like 14.50-15%. However, I am wondering whether that time may be ending. Take a look at the VIX futures from Today and two days ago.
Today, after the bell, Citigroup had an exceptionaly large put trade. On top of having a much larger put to call ration than one might expect, one has to wonder if the Fed wasnt the only person that thought Citi's capital plan wasn't up to snuff. IV rallied all day even as the stock kinda just sat there. The most notable trade was a big 'buy-write' trade where a customer bought the 46 puts and C stock 'delta neutral'
As we have reported in our morning Volatility Reports, realized volatility in the broader markets are relatively low, but the VIX and the vol. products really are not moving. The only thing moving is the IV in the volatility products and those are coming in. The simple fact is that there are still buyers of OTM puts in the indexes and they are not exiting yet. Buying protection for an extended period is looking like the new normal as we head into Q2, since there is not enough of a sell off to unwind it. Tomorrow could be different of course.
Following up on Friday’s action we did get a little pull back in the index skew today. VIX is in a touch and most of the vol. ETP’s might be even or down a touch with the market rolling in down .3%. There still feels like something is brewing out there, but I cannot put my finger on it. Gold is getting trounced since Ms. Yellen is looking more hawkish than dovish. Who knew? T-bonds are still clinging to some near term highs and that always gives me the heeby geebies until the shoe drops.
Stocks sniffed all-time highs again and pulled back from the brink. The simple answer is there is no reason to be running at all-time highs. That was enough to push stocks back off of their shiny new plateau. Since we are a volatility shop, let’s look at the underlying currents. The first stop is SDEX, it's still at nosebleed levels.
Charts by google finance
Next, if you look at the 3D skew ATM IV is coming in but the further one moves OTM, the rate of decline seems to taper. That would be the highlighted row moving right to left. What that means is there is a lack of willing sellers of downside puts.
Unless I am mistaken, the new Fed Chairman lobbed the interest rate bomb over the market yesterday, and the initial reaction was sell, sell, sell. Things settled down today a bit but there were still some scars. Bonds did not really move much, which is due more to the new geopolitical uncertainty around new Czar Putin. No one is in a hurry to leave them. Markets have come full circle from last year when the Fed started hinting exit. Between Federal belt tightening and the Taper, stocks have done nothing but rally. So why can’t the VXX decay?
Today, as Janet Yellen spoke, the markets got spooked. She seemed to potentially move up the time table on when rates might move. Markets got rattled...for a second. Check out the way VIX and VIX option vol (VVIX moved).
The VIX is now near 14.50, and IV is now back at 75%. Sounds great, except, that is still elevated relative to where the lows have been over the last year or so. So the question is, is the market ready to start a normal move higher, or is this a simple break before China and Russia cause more problems? Keep an eye on the range the VIX trades in, since the VIX topped 20 last month it has failed to hold below 14, additionally IV of the options stayed high and kept creeping higher. Take a look at the chart below:
Well, like the Greek referendum in 2012, they came, they voted and stocks rallied. I am talking about the Crimean’s who don’t seem to want anything to do with the rest of Ukraine. How it all shakes out is a bit of a mystery, but some very select Ukrainians and Russians will not be able to go to their ATM machines anymore when they fly to London or New York. That message hit loud and clear as both Russian and US stocks rallied back a bit today.
At the money volatility got hit in all the big indexes as you can see from the Livevol Term Structure slice below.
The VIX kept winding its way higher and skew keeps winding its way higher. Stocks in general today were a mixed bag, with the SPX down .3% or so. The darlings got hit (FB, PCLN), but a good chunk of stocks were up on the day. It is tough to justify today’s VIX on today’s equity movement.
The panic rise in the VIX is from what might happen come Monday. See here how the VIX cash spent most of it day running and then selling off, only to get running again and level off into the close. A 1.6 point move in a 16.22 VIX with a .3% SPX index move is a signal for a good size move, up or down.