FOMC

AAPL Watch don’t work

I was expecting maybe more fireworks out of the FOMC but got very little.  The Fed will unwind their balance sheet by the time I am 82.  That reminds me of the old cathedrals that took generations to build where the father passed on the skills to the son.  Now we just pass our debt to the next generation.  Either way VIX closed sub 10 for the first time that I can remember on a FOMC day.  The rate picture is clear for near forever in market terms.

 

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Time for Iron Condors

See  our method to trade options for direction here

As we wind into Thanksgiving the liquidity providers have done a good job of squeezing out the holiday premium.  Nov 27 volatility in the SPY, from LiveVol Sigma, is a round 9.43 and will be lucky to hold the 9 handle as Thursday approaches.  Why?  Well the only easy to get the time premium out of the options is roll the days forward.  That will read as lower IV today.

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Fed leaves things alone

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.

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Embrace the SPX schizophrenia

We open this morning with another launch of .5 to .7% depending on where things get to.  I thought last week that 2015 was the year of the Iron Condor in the big indexes because there is lots of daily volatility but not really a follow through in any particular direction. That still looks to be the case. Mostly we have trading ranges that resemble a tempest in a teapot.  The Fed keeping things steady (Mark called that several times over the last few weeks) puts another sword into the volatility.

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VIX-VX Spread is A Gapping Hole

Today the Fed announced that they are dropping the word patient from their statement,  at the same time they announced they are patient.  The net result was a pop in both short and long term bonds and a strong move in long term interest rates.  In addition the Fed Fund Futures are now picking September or October for a rate hike (that might not even come then).  The net result was that every 'crowded trade' got smoked except one,  the VIX futures.  Take a look at the curve:

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NFLX has competition

We have another day like last week where the rally came from nowhere and is most likely not going to go anywhere.  It feels like the algo driven market catches any new piece of news about the FOMC release and it is off to the races.  The last 6 months has been about macro freight trains, collapse of the Euro, oil and commodity  prices with a rocketing dollar.  Greece isn’t even in the headlines anymore.  As day went most stocks were up and VIX softened a bit before the Wednesday’s release.

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