One of the frequent questions we take in the daily pit report during earnings season is if premium is a sale into the earnings announcement. Usually we take these on a case by case basis, but one of the best ways to evaluate this is by taking the front month options and turning them into a pure play on the event.
We are constantly correcting our option mentoring students about the state of the volatility. The VIX is NOT cheap. It is expensive, not on a historical level, because from that perspective it’s about normal. But it is on a relative level. Check out the continued spread between 10 Day HV and 30 day IV.
Generally speaking, I think my take on which direction the market has been heading is about as good as anyone else's(and by that, I mean worse than a monkey throwing darts). However, there are times where I feel certain about my market inclination. Right now, that inclination is up, and I will tell you why.
One of the important factors that I follow is the price of the VIX relative to the SPX. When the VIX is in decline, but not at a low, while at the same time the SPX is right at an all time high, my general belief is that the SPX is going to go higher. We are in one of those scenarios right now. Take a look: