For a few moments today VIX went backward and traders decided to worry about a tax plan, ECB rate hikes, FANG earnings and whatever else ails a screaming stock market all at once. I don’t see many backward to VIX cash markets at 13 VIX but we had one today. Usually VIX traders have a reason to let VIX cash fly.
Stocks got a nasty jolt this morning when the ECB took a step into the unknown with a continued push for negative interest rates in the EU. 6 years ago when things needed a jolt I can see the Monetary Priming have a material affect that was so lacking in the 1930’s. Now that we are in round 6 or 7 the diminishing returns are in. Volatility got a massive bid up.
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.
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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.
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“Greece’s Creditors Set to Throw Down Gauntlet With Proposal for Bailout Deal” WSJ
So this is the final hour and Greece is going to get a take it or leave deal to stay in the Euro Zone. The months of time wasting and theatrics by the left-wing Syriza party is set to end. If the selloff in bond prices is any indication, the young Greek government will take the deal.
Today was just a follow through from yesterday. Bond markets get riled, equities are sold, mess ensues, repeat. When VIX gets into the 12 handle (as it did for a while yesterday) the gravity in volatility is still pulling the IV down. Today the selling was more pronounced, like someone needed to sell. Many of the big cap names were slammed, most likely to pay for bond positions that were blowing up. The short Euro trade must be hurting a lot of folks. Those folks should want some juice.
Stocks made a little run down today on bad UPS earnings and some worries about the weekend vote in Greece. If folks are paying up for SBUX coffee, things cannot be that bad so we will blame the Greeks. Even after the ECB made their made policy announcement the Euro continued to sell off. I guess the question is why would you buy European sovereign debt? Spain yields nothing, you have to pay the Germans and Greece is always on the brink of default. The 10 year Treasury is still looking pretty good even after the dollar rally.
In August of 2013, the day the VIX of VIX settlement also happend to be the day of the a FOMC announcment that many thought might be when they would announce the beginning of the end of QE in the US. The night before the VIX cash settled 14.91. With little to no movement in the SPX. the VIX opened up much higher and settled to almost EVERYONE's surprize at 16.42. A huge pop. Check out the intra-day range the index had.
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This is the 3rd or 4th recent record for the S&P 500 as I cannot remember because we have had so many. Stocks are seeing renewed buying interest after the election and for now the wind is at the markets back. There is not much wind in option premiums. All the bears got their time in mid-October and for now that is all they have to hold onto. The bump from the BOJ and ECB has put the kibosh on the bears hopes for now.