Looking at the action today the VIX and VIX futures had a decent range, as did the SPX. However, while the SPX threatened its recent lows today, at no point in time did the VIX get close to the highs we saw in the middle of last week. See the SPX vs the VIX below, notice how the highs from today get no where close to what we saw last week, this desptie possibly more uncertainty.
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As I write this Greece defaults on debt to the IMF and sends its citizens into some uncharted waters. The SPY is up .25 from the close so it is a safe bet for now that US stocks don’t care anymore. The game is ending and is about to play out with a referendum this weekend. It would not surprise me to see stocks start a rally again and end up at new highs after the labor reports this week. Another surprise was the jump in AAPL IV on a down volatility day in the market.
The euphoria of Thursday is now over. The rally we had on concessions from Greece now give way to the fact that the Syriza party is running for its next election realizing it cannot deliver on any promises besides sending Greece into the economic stone age. Volatility traders love this because it is, well, some volatility to trade. Volatility wants to move, but only at the pace of a 3 legged race. The will to move out is not there yet.
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.
The old saying is complacency kills, to which I would say...unless one likes to sell premium. In that case complacency rules. All kidding aside, the market appears to be in an odd spot: On one hand we have the VIX cash market, the market derived from index options. its trading at about 15.30 or so as I write this and is currently trading slighly above the June future (which still has a 9 days until it settles.
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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.
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Apparently the Greece deal with the Troika is imminent. That was enough to send VIX lower as it re-finds the 12 handle with the volatility futures hovering and not ready to make any major breaks today. We might rename this Semi-Wednesday as traders bid up all sorts of semiconductor names on the BRCM takeover news. I think there is a simpler trader out there.
It looks like the Greek Drama happening overseas ended up being a comedy more than a tragedy. That is good for investors and good for the Greeks. We will revisit the issue in June but for now that looks like the only thing that was holding up implied volatility.