There are many traders and investors that like to draw comparisons to financials and the bond market. They say that volatility in the bond market leads to profits and volatility in the financials. If that is the case, we are not seeing that relationship. Take a look at the price movement and IV of the TLT.
Notice that realized vol continues to trade at a premium to implied vol and that the ETF continues to move around. One might argue that premium is underpriced. Meanwhile take a look at the activity in XLF
Now that the VIX is touching 12, traders are going to be saying its time to buy SPX options or VIX options. One thing to remember, when vols are low, they are typically very overpriced. Yes, the VIX will eventualy go up, but you will rot waiting for the VIX to rally. There are smart ways to go long, but based on how much the market is moving, the VIX is no deal. Take a look at the spread between realized and implied volatility.
A sleeping Giant has been awoken by Mobile Advertising. FB now appears like it is going to let all of those IPO buyers out of the stock and maybe more. I think selling at 38 though would be a huge mistake, because the stock appears to want to keep moving and IV appears to be heading higher in the near term. For starters IV is rallying with the stock.
Heading into non-farm payrolls I was a little surprised by how low VIX is trading, and even more so, how little of a spread there is between VIX and the August VIX future. VIX is trading around 13.50 the Aug future with 22 days to expire is trading around 14.65. Into a non-farm, in a low VIX period, that spread is VERY tight. How tight?
Looking at the other VIX periods, the most comparable VIX period I could find was the beginning of April. In April the VIX was also around 13.5. Take a look at how the tow futures curves compare to each other.
Today we have another sleepy day moving into the weekend. As I write this VIX Is up about .18 to 13.15 but probably will not be there for long with the volatility futures hovering just up for the day. As catalysts go, the consumer confidence number hit a 6 year high and that did not do much to push the market into higher territory. My closet theory is the US budget talk is coming again and there has been a solid two year history now of how destabilizing that patter can be. The current back and forth is not what I would call a bullish conversation. The market in 2013 has weathered the payroll tax hike and spending cuts in, well, record fashion. That should make the Keynesians go back to their drawing boards. The
It appears that the movement in the 10 year note has stopped being completely crazy. However, this does not mean that movement has stopped all together. In fact the 10 year and 30 year are both moving at a nice clip on a daily basis. The 14 day ATR on the 10 year is still WAY above where it traded before the ‘taper talk’ began. Looking at ETF’s that ATR of TLT is about 1.25 a day over the last 14 days. Yet, take a look at the 30 day IV chart of TLT
Back in the old days before the 3rd QE and Mario Draghi promised to support the Euro the SPX was trading 1329 and the market had one star, AAPL. Today feels like old is new again with AAPL lovers back after a not awful earnings report and pretty much everything else down. Gold, bonds, oil and stocks in general all are taking a breather from the recent run and the lack of great news locally gave investors pause. The strange thing is that Europe actually rallied today on a pickup in demand. For whatever reason AAPL was again the star and the post earnings volatility acted like it.
The earnings season has been a mixed bag so far. Mark commented about it on CNBC yesterday morning and the fact that IV is not really taking off. VXX is making year lows today and the IV in the SVXY (Pro Shares Short VIX futures ETF) is making a 52 week low today. Even with VIX cash up the VIX futures compressed a bit. The only thing cheaper than the IV is the realized volatility clocking in a at 7.27 for the SPX. The low volatilities seem to set a table for something higher down the road but we will need a catalyst. The earnings season has not provided one and the muted movement is having an effect on the skew in FB.
This morning on CNBC I was asked what I thought the main driver of the market would be in the near future. The anchor suggested it might be earnings. My answer: I do not think so. The issue with earnings is that unless all earnings are either bad or good, they tend to offset each other. Perhaps that is the reason why the SPX has completely stopped moving. Take a look at SPX vol from Livevolpro:
The market for volatility seems to be giving up its final breaths today. If underwhelming earnings in GOOG and MSFT cannot push things lower I am running out of things to think of. The Fed has backtracked sufficiently enough and the world seems resigned to the fact that Europe will be a socialist basket case for a while during the public/private sector reshuffle. Portugal is the latest headliner and it is not making a dent. Detroit files for bankruptcy here maybe pushing up the Treasuries a bit. The net result this afternoon is a market down fractionally and the VIX down into the 12 handle at 12.91. What gives?