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.
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).