butterfly

VIX up and SPX up so is a crash imminent?

Submitted by atg on Tue, 05/14/2013 - 5:27pm

Memory is a funky thing in the market. Right now many new investors and traders have the 2008 crash in the forefront of their minds. I don’t blame them. What we have had since then is mostly a declining volatility environment that has reared its ugly head on the big macro issues that faced us, namely the Euro and the US deficit. Remember it was the 1-2 punch that set things backward in the summer of 2011 since it looked like a total failure by leaders to get a handle on the problems of the day. Right now the trajectory appears to be better. How do we know? Every advance in fiscal prudence, even higher taxes, has been met with market rallies. Bernanke was QE’ing back in the Fall of 2012 and the market did not really take off until the Fisca

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Getting creative with BBRY

Submitted by atg on Wed, 04/24/2013 - 4:04pm

We were closing a position in the SL today and it was a ratio put spread turned into a very cheap (.04) butterfly and my feeling was BBRY is not quite done. Earnings are coming out in the July cycle and some trades that have been working very well lately are the modified earnings plays. What do I mean by that? Well the idea is to own gamma and pay very little in theta for duration of the trade. It is what Mark Longo calls on the Option Block “juice for free”.

VIX is backwards again and it feels like 2001

Submitted by atg on Wed, 04/17/2013 - 5:22pm

This was a weird day. As weak as the market looked all day it felt more like a lack of buyers than an over- supply of sellers. That did not stop the VIX from riding a roller coaster. This reminded me of the 2001 after 9/11. There are a lot of strange vibrations coursing through the market picking up the news bites. This is re-enforcing the tragic and generally gloomy news that we have had since Monday. Mediocre earnings do not help. The earnings were not awful from BAC but there was a sense of baggage on them. Add a Ricin letter and that was enough to keep the buyers away. There a sense of gloom hanging over everything.

STZ May Not Be a Done Deal

Submitted by msebastian on Thu, 02/14/2013 - 6:06pm

STZ was up very hard on the InBev, Modelo Deal rallying 37%. But, I question whether the deal is 100% a go based on the option trading today. Traders were jumping over themselves to buy puts in STZ today. Check out the volume in March:

livevolX (r) www.livevol.com

STZ typically has a larger call to put ratio, one can see in the open interest. Yet, here we are on a day when volume was 20 times normal volume, puts were 1.5 times as active as calls.

livevolX (r) www.livevol.com

SPX IV is Higher, Points Toward...a Rally?

Submitted by msebastian on Fri, 02/08/2013 - 4:21pm

Last night in my webinar for RCM I discussed how I will use the VIX as a multi day indicator for trading. One of my key points, is that if the SPX is higher over several days, and IV is also higher, or not falling over several days, then IV is pointing toward a possible sell off. If we look at what has happened over the last few days, we can clearly see that IV is not really dropping and SPX is rallying.

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Was the VIX Accurate Today? Hint: NO

Submitted by msebastian on Mon, 02/04/2013 - 4:35pm

After the bell, no matter where the VIX ends up closing, the news on the closing bell will be how the VIX was up 10% or more today, which is some kind of huge move in the 'fear index'. However, there are some things we have to remember about the VIX. It has distortions. Most notably, it is price sensitive, and weekend decay will throw off the calculation. In truth, vols felt heavy all day, and here is why:

VVIX Had a Nice End of Day Pop

Submitted by msebastian on Wed, 12/12/2012 - 6:25pm

While the VIX may not have exploded with the markets meltdown, we did see something interesting at the end of day in the vol of December options. Take a look at the pop we saw in December options around 3:40 with the VIX pop as well.

Livevol (r) www.livevol.com

Notice that, over the last 2 days, we have seen the VIX have pops, but the IV of the options hasn't moved. It's interesting that this VIX pop, which was AFTER the fed announcement, is what got VVIX to move.

Where was the movement:

Mideast Kerfuffle

Submitted by atg on Tue, 11/20/2012 - 4:43pm

My first option trade was in 1990 on a crude oil contract leading up to Gulf War I. I was convinced oil prices would rise and I was right. I don’t remember how high crude went at the time, maybe $40 or $50 a barrel, but it was a nice win. That was my start trading options and I was a market maker a couple months later as the coalition forces invaded. That is another story. As exciting as the pop in oil prices was at the time the more amazing thing is what happened once the allies invaded. Oil dropped by a huge amount per barrel in one day. It was 22 years ago and the exact number is still a little fuzzy. That began the way I approach trading oil most of the time which is essentially wait for something to happen in the Middle East. We

The State of Volatility in the SPX 10/29/2012

Submitted by msebastian on Mon, 10/29/2012 - 5:05pm

With no trading today, I was a little worried I wouldn’t have anything to blog about. Then an option mentoring student mentioned that we haven’t done The State of Volatility in the SPX in some time. It is incredible how the last time I was writing this, I was writing about realized volatility levels were in the high teens and sometimes threatened 20%. Now, we are in a situation where realized volatility levels are ‘elevated’ when we threaten 15%. While a week ago we did see the 1^st movement on 2 days back to back in some time, it has been 4 months and counting since we had a real down day in the market. Add in the end of earnings season and the election next week and HV could be headed for another dive.

Was that the SPX Bottom?

Submitted by msebastian on Mon, 10/22/2012 - 4:34pm

For those of you that do not read VIXandMore, Bill Luby, someone I do a lot of work with wrote a great piece on the ratio between VIX and SPX realized volatility. It falls right into what we have been discussing on this blog. The market is hedged.

Even with Friday's move realized volatility is still really low relative to the VIX. Including Friday's move we are looking at a whopping 10 day HV of 12.5%, 20 day is about 11.5 and 30 day is 10.5.

Livevol (r) www.livevolpro.com