Fiscal Cliff

Mario plays Three Card Monti and wins

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The ECB had their big announcement today and, drumroll, they are going to do nothing else.  I think after watching QE in the USA and the never ending printing press in Japan, Mario Draghi is content to let Europe limp along and figure out a way to pay off its bills.  He will keep hinting at stimulus and  support but will not do anything.  He does not have to since the promise of liquidity is enough to keep the credit wolves at bay.

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Did VIX volatility peak too early?

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One last move for 2012

The last post of 2012 is a little bitter sweet.  Overall a good year for equity returns but I can’t shake the feeling that we missed something and the market is holding back.  Most of the big issues of 2012 are not on the front page anymore.  Much like the end of 2011 a few loose ends are hanging around.  One thing I find telling is that the bond prices (measuring by the TLT) did not continue their move to outpace equities.  The Fed is going to keep buying but that rally looks like it is coming to an end.  The most crowded trade of 2012 is ending up around nowhere as I have TLT up around 1% YTD before dividends.  Here is my last snap of equity volatility going into 2013.

Understand Fiscal Cliff Straddle Risk in SPX

It's been interesting to watch this fiscal cliff debacle develop.  A week ago, I had the market pricing in a 92% chance of a deal getting done.  Yesterday morning, the market was pricing at about an 80% chance of a deal getting done.  Today, that number remains close to 80, although slightly below that now, near 75%.  In fact, we can clearly see in this list of SPX weekly option vols what is driving up the VIX:


Livevol (r)

SPX HV vs VIX is Absurd

I said on Fox Business News today that I thougth we were setting up for a big one day move.  I said this because the conditions that existed the last time we blogged about SPX.   

The Spread between SPX HV and VIX is absolutely insane:


Livevol (r)

I would point out that the last time the spread got this insane, the VIX went UP, not down.  The other piece of data is the VIX term structure, which is still normal but barely.  Cash is is trading all over the place due to holiday's and the fear of the immediate:

A screwy day for VIX

While there is posturing that normally goes on in Washington, then I guess there is another level of POSTURING when things get serious.  I am now beginning to think that Beltway politicians are the most overplayed relative to their work output.  I have not seen a lot of work output and they are all leaving for vacation.  I hear Nero’s fiddle playing in the background.

Long Term Risk Coming In?

This morning we had another continuation of the Cliff Dwellers saga.  This is where the market participants watch and see what the Executive Branch and Congress are going to say and then hit the sell button.  It played out it in great fashion this morning on the leftovers from the hardening position talk on both sides in our esteemed government.  Note the brisk selloff in the SPY this am.  The SPY touched 139 and then proceeded to rally 1.7%+ to close 141.54.  What happened?


Chart by ThinkorSwim   (

The Street and Option Pit: Trading Options into the Fiscal Cliff

Tuesday, November 20, 2012 - 4:00pm

With the fiscal cliff approaching, many traders are wondering the best way to approach the markets.  Join Mark Sebastian of Option Pit,  Jill Malandrino of The Streets Option Profits, and David Peltier as they discuss the fundamentals of pick stocks into the fiscal cliff and how to develop option positions against those picks.  This is a must see webinar for traders looking to learn how to best manage event risk

The banks are toast for now

There is a pattern beginning to shape since the election and for the most part it is not good for equities.  The day before the election was a near time high for stocks and the market has not sniffed that again. The European situation is mostly the same so I don’t think it is there.  The problem is here and what all market participants fear which is the total inaction of the government to get its house in order.  Mind you I don’t think it is a 1250 SPX type problem but more of a slow melt until a resolution and most likely a rally.  The morning economic news is a little brighter each day followed by a steady selloff after any politician opens their mouth. 


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