While I believe that the VIX is not going to 20, I think today's move below 13% might be over done. The VIX has not just eased off the last few days, it has borderline crashed. Take a look at how it looks incomparison to the S&P:
We all know that as companies mature there can be some permanent changes to the implied volatility of its options. They can go from low to high and back. Think how the IV of Corning (had their been options) would have appeared when they were in the business of making ugly cookware vs high end glass. That being said, when a stock hits a certain level of volatility that the options become disgustingly cheap it usually makes sense to buy some premium. Take a look at NetFlix IV:
I am not one to be into technical analysis. However, to say that they completely don't matter is probably a stretch. For instance, up until today, the 100 Day Moving Average was acting like a trampoline. Everytime the S&P touched the level it would bounce. If you think traders weren't watching the level, take a look at how the VIX would move when the SPX crossed 1913 (the 100 Day)
Free Webinar: Using Options for Directional Trading, join the event HERE.
While I do agree that there is little predictive value in the VIX on its own, two things that I do think have some predictive qualtites are the relative performance of VIX relative to the SPX and VIX term structure. The one I want to concentrate on today is term structure.
I do not think today is the beggining of the end. That said, I think there is a good chance that there is at least a little follow through tomorrow (unless there is some sort of crazy surprize in non-farms). Even so, unless the market is down another 1%+ tomorrow, there is a chance the VIX might actually fall or remain relatively flat tomorrow. At the same time, I expect that VIX futures and the VIX ETN's might all be green tomorrow. Take a look at the VIX vs the CURVE at the close (there was a big TAS trade that ran VIX AUG up after the bell).
Ahead of the big premier of Sharknado 2 tonight, I thought it would be fun to look at a potential trade on Comcast, which owns NBC, which owns SYFY, which is showing Sharknado. Do not be surprized if this showing ends up being the biggest broadcast in SYFY history. While SYFY is not a large part of Comcast, whether it actually has an effect on long term earnings or not doesn't matter. I think the ratings on the broadcast will be so high that tomorrow CMCSA might get a small bounce. Regardless, the term structure is such that I think a sale of bullish front week calls might make some sense.
Sometimes customers do really weird things. Sometimes its because they have a strange stock position. Sometimes its because they ahve been given bad advice by a cruddy broker. There are cases where the customer just has a strange idea on how to trade or has no idea how to trade. To be honest I do not know what this customer is doing in MU. Check out the volume and open interest in MU ITM call options in september.
So that was fun while it lasted, but in truth it did not take volatility very long to realign itself right back to where it was. Take a look at the curve today and take a look at where it was 6 days ago on Wednesday the 16th.
Today the SPX finally broke its streak of not closing up or down 1%. While that is certainly important to note, it is not the most important thing that happened today. What most important is how flat footed a few trader got caught. While the S&P moved, the VIX exploded. The VIX moved from the low 11's to almost 15% in one day, in what turned out to be an exceptionally short period of time.