SPX Vol is Probably Too Cheap

When I look at a day where the S&P moved about .75% and has moved more than 1% in a lot of recent days,  then see 60 HV higher than 30 day IV I start to think one thing:  vol is too cheap.  Think about it, one could have bought an ATM straddle at just about any day over the last few weeks and hit a complete homerun.  Take a look at movement realtive to vol in the last few weeks.  Its not like movement has backed off:

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When Volatility Does Not Tell The Story

Today, the SPX settled down .49 points. This will show up as essentially as a 0 in realized volatility terms as measured by GARCH which is what most brokerage firms use to measure HV.  But does that tell the whole story?


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VIX Might Finally Break

As I look at VIX, I believe it might finally be ready to break.  There are a few historical things that point toward a drop:

1.  We are entering the holidays, always a time when things tend to drop

2.  There are very few economic data points coming out till next friday.

3.  And finally there is this:

Chart - ^SPX_window_screenshot_0.png

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Bond volatility is still cheap but the HV is not

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Argentina devalued the peso today along with China providing less than stellar manufacturing data.  It all added up to a mad dash for Treasuries and other safe havens like the Euro.  What a difference a year makes.   It was not too long ago that the run to above 3% in T-bills was a sure thing.  At least, over the last few weeks coming into 2014 that is not the case.

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TLT IV's Seem Too Cheap

It appears that the movement in the 10 year note has stopped being completely crazy.  However, this does not mean that movement has stopped all together.  In fact the 10 year and 30 year are both moving at a nice clip on a daily basis.  The 14 day ATR on the 10 year is still WAY above where it traded before the ‘taper talk’ began.  Looking at ETF’s that ATR of TLT is about 1.25 a day over the last 14 days.  Yet, take a look at the 30 day IV chart of TLT

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Why Won't the VIX Fall?

As the SPX continues its rally though 1630 and toward 1650, may a novice is asking why the VIX isn’t touching all-time lows.  The answer is simple: volatility

When the VIX got to its recent low realized volatility was in the toilet.  We had been through about 2 straight months of nothingness.  10 Day HV was near 5 and both 20 and 30 day HV were near 10%.  Looking at HV now we can see a clear difference.  10 day HV is closer to 10% and 20 and 30 day are actually trading at a premium to VIX.

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VIX, VVIX, Price and Volatility

One thing that is really interesting is how high realized volatility is in the VIX right now.  While VVIX might be elevated, it actually pales in comparison to where realized vol on VIX cash is (even if the futures haven't been moving):


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