VXN is Cheap, VIX is Not

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The VIX is trading around 12, which implies that the market is going to move about .75% a day, if it is priced perfectly.  In the last two days, the SPX has moved about .66% and over the last 10 and 20 days it has moved less than 7%


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Meanwhile the NDX moved more than 1% today and had moved on par with the SPX prior to that.  

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Tomorrow option headlines will talk about how the VIX 'popeed' almost 10% to over 11.33% today.  This will be a complete miss representation of what happened today.  Let us talk about a few important things to notice:

Tick chart - ^VIX - CBOE Volatility Index_window_screenshot_1.png

Livevol (r)

1.  We were coming off a long weekend where the market closed for 3 1/2 days,  a normal VIX adjustment coming off that long of a break should be about 1-1.2% depending on how much Vega is in SPX options at the time.

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Are we running out of volatility to sell?

That is the question I am asking myself.  I show IV now in the 6 handle for OTM calls in the SPY.    This is on top of the SP 500 moving into record territory again.  We are moving into the realm where the upside is so cheap no one wants to sell it anymore.  Fund managers looking for extra yield are going to start selling calls in stocks if they cannot get the dollars they want in indexes.

Upside IV is in the 6 handle!


3D chart by OptionVision

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Is YHOO back?

Don’t forget equity option exchanges close at 1 pm et tomorrow.

At this stage of the game the NFP trade seems over.  VIX is closing sub-11 and the SPY managed to eke out another closing high on the solid ADP jobs numbers.  The moves we usually get in stocks and volatility after the NFP already happened.  Sure there might be a nasty surprise but VIX looks poised to print sub-10 for the first time in a long time.

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Gold Vol is too cheap again

Records, records everywhere today as the major indexes posted new highs for the year.  I don’t know what the headline rally was that got the buyers excited but there are some choices: first day of the quarter, POTUS goes around Congress on immigration, so-so economic numbers, Iraq is still a mess, etc.  In short there was no good reason for the rally except that we are in a bull market as global economies shake off the financial crisis.  It will probably stay that way for a while.

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VIX Not Going Anywhere But Down

Currently the VIX futures are trading at a premium of less 1 point relative to the cash VIX.


With more than two weeks to expiration, this is a pretty light spread.  When taking into account that the cash VIX is in the 11's and the Future is 12.45 this is incredibly low.  Basically, traders think that a cushion of about .95 and a VIX future of less than 12.5 is plenty of spread to handle any upside risk in VIX.  Why?

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Hello, Avon Lady

A dead day is a dead day.  And today the market is living up to its low volatility number by putting in a .14% drop today.  That is hardly enough to register on the VIX-o-meter.  Any little blip in activity stands out more on a day like today.

Note the activity in the AVP Aug 13 puts.  Paper bought a big block of puts and most likely this was tied to stock.  As we move forward earnings are usually on the 1 day of August in AVP.  This is pretty early in the earnings cycle to buy a big chunk of juice.


3D volume charts by OptionVision

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There IS some Underpriced Vol

I spent most of the day trying to find places where one could buy premium and have a reasonable chance of success.  The answer was not in equities, metals, or even in crude.  But there is an area where risk seems to be appropriately or even underpriced:  credit.  Take a look at this chart of TLT and its IV 30 vs HV 10 and 20.


LivevolX (r)

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Don't Hold VXX to Track VIX EX# 1000505

Just about every source has written about how, the VXX is what we thought it was:  a good way to day trade volatility and a terrible vehicle for tracking the VIX.  We have written  about it multiple times.  , Bill at VIXandMore has, Jared at Condor Options has, actually just about everyone has.  However, very rarely do we get such a clear example of how the ETN fails as a multi-day VIX tracker than we saw over the last two days.  Take a look at this chart:


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VIX has its revenge

With Syrian warplanes getting into the mix stocks took a slight pause today.  Between Syria and Iran the ISIS militants have found a more able adversary.  Early in the session the NDX was moving into some lofty ground but by the end of the day started to head into negative territory.  The only names still up were Treasuries and the volatility products.

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