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Despite the headwinds of the Shutdown and the rollout of Obamacare, employers are hiring again. An economy that is growing and creating jobs is a good thing. While there was some concern about the Taper, that does not look like it will happen soon. That could change next week, but the soft landing is what the market is looking at.
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As of 3:30 EDT the market is flat lining just down about ¼ of a percent and VIX is up .33 with the VIX futures just flat on the day. For the most part, stocks have been leaning on a few things since the last blowout NFP.
There is a small sigh of relief in the ongoing Syria Crisis. Who would have thought that Mr. Putin steps in to be the humanitarian in all this? Starting the clock two weeks ago almost nothing has been to script. While the wags will parse the latest out of the State Dept. I want to look at something where the IV was actually up today instead of down.
There is nothing like a day to throw a monkey wrench into the works. Just as sure as we were (at least me) that somehting was going to happen with Syria it now looks as though something might happen with respect to Syria. The difference between will happen and maybe happen has a big influence on how the market prices volatility. What it means is that in the short term nothing really moves while the market prices for the fact that it might.
Right now with 20 Day HV trading around 10.88% the market is just not really moving. Tuesday was a big selloff but even with Fed minutes last week stocks just don't have much push one way or another. Today the market notched .65% up intraday. Still a small change move but not a 17% VIX.
Today just felt like a continuation of yesterday. Market down on possible tapering with some emerging markets joining suit. If you are a bull the good news is that we did not tank a lot. If you recall in the late spring/early summer the change in stimulus direction brought the market and especially emerging markets to a sharp drop. The sense of the end of easing is starting to bake in now though. The TLT was even up a bit today. The flight to quality must be the only reason if higher rates are a foregone conclusion.
Since the QE program started every Fed meeting has been met with a combination of shock and awe. Most of the shock going into the IV before the announcement and a lot of the awe is the sound traders make looking at the market with their mouths open waiting for news. I cannot blame anyone for waiting as we were doing that ourselves. Normally we try to position some sort of long gamma, which we did at the last minute, with some short volatility, which we avoided for the most part. The reason being this was a strange FOMC reading according to the IV changes throughout the day.
The last few days are if anything a sign that all good things must come to an end. The market has now gone from the proposition the Fed will stop buying paper to the realization that the Fed is going to stop buying paper.
The news on the networks is that this is the 1st down week in some time for the SPX. All told the SPX gave away a touch over 1% and was down over 2% at certain points. Yet the VIX has barely rallied and the June VIX futures haven't moved. Take a look at this graph from VIXcentral.com:
With the underwhelming ADP report the private sector is just limping along but improving slightly. At some point here now that stocks are near all-time highs the residual of the financial crisis ending can only propel things for so long. I mean that as earnings have climbed back up over the last 4 years stocks have had just fits and starts depending on larger macro issue (US debt rating, Euro, US Fiscal Cliff, Europe, Europe, etc) . 2012 was nice but 2011 was a wash as investors worried about the Euro. Now lower interest rates are powering stocks globally. For some reason that is not enough to jumpstart hiring by companies. My only guess at this point is the continuing government dysfunction is worryin
One topic that consistently confuses people is VIX curve structure. It’s not just the level; it’s the slope that matters. Let’s look at two curves with very similar underlying VIX prices. I the difference might be more clear.
On March 21st, 2013 the VIX closed at 13.99, a mere .30% lower than where the VIX is trading. Also a very similar number of days to expiration across the different contract months relative to where we are trading today. Notice the slope of the curve in the front two contract months: