As we go into the 3 day weekend the traders are putting the juice back in the options. As I said in our Vol Report this morning, VIX will stay bid to the close. After all no one really knows how the market will react to whatever Greece decides about Greece. It is a binary event similar to what goes on around earnings. The best clue to the prospective move is around the ATM straddle.
Andrew Giovinazzi's blog
It happened. It finally happened. Greece defaults on debt to the IMF and gets the title of most beautiful but deadbeat country. What did stocks do? They rallied after it appeared Greece’s citizens think the EU is saner than the current government. Voters will most likely vote yes on referendum to stay in the Euro Zone on Sunday.
Sign up for our Time Spread class here
As I write this Greece defaults on debt to the IMF and sends its citizens into some uncharted waters. The SPY is up .25 from the close so it is a safe bet for now that US stocks don’t care anymore. The game is ending and is about to play out with a referendum this weekend. It would not surprise me to see stocks start a rally again and end up at new highs after the labor reports this week. Another surprise was the jump in AAPL IV on a down volatility day in the market.
Stocks had a hard time today jumping up to all-time highs. The SPX started the day down and never looked back as the better than expected GDP revisions caused some rate concern. Greece’s PM also started back on the crazy train so that unsettled European markets after they were anxious to get to higher levels. FB is not feeling that right now.
Yet we have another FOMC announcement with the Fed choosing to do nothing. I don’t know how far the economy has to grow before rates start to normalize but we have to be getting close now. We had the 90’s and a government surplus and higher rates and no one was complaining. Once again post-meeting the VIX dropped even with near sure 25 basis point rises in 2015 mapped out.
Seeing news reports on TWTR about AMZN using couriers to deliver packages gave me the UBER kind of feeling. UBER is on its way to becoming one of the highest valued pre-IPO companies on the planet and it makes some sense AMZN is taking a page from its playbook. That got me looking to AMZN volatility and it is very cheap.
The euphoria of Thursday is now over. The rally we had on concessions from Greece now give way to the fact that the Syriza party is running for its next election realizing it cannot deliver on any promises besides sending Greece into the economic stone age. Volatility traders love this because it is, well, some volatility to trade. Volatility wants to move, but only at the pace of a 3 legged race. The will to move out is not there yet.
I toss that out there of course and I don’t mean VIX. What I do mean is the ATM volatility for the SPX. With the Greece deal on and off again the one thing that has been consistent over the last two days is the total immolation in implied volatility. The 9 handle for SPX ATM IV is a tough barrier to break because it means traders are actively hitting option bids on the downside to drive the ATM lower. We are almost there.
Last chance to sign up for Boot Camp here
We have another lackluster session today with no good news coming out of the EU on the Greece subject. For now that is the millstone around the market’s neck with things just dragging. Besides NFLX up, stocks cannot put in any kind of sustained rally. Bonds are getting trashed too in the face of QE out of the European Central Bank.