Well, like the Greek referendum in 2012, they came, they voted and stocks rallied. I am talking about the Crimean’s who don’t seem to want anything to do with the rest of Ukraine. How it all shakes out is a bit of a mystery, but some very select Ukrainians and Russians will not be able to go to their ATM machines anymore when they fly to London or New York. That message hit loud and clear as both Russian and US stocks rallied back a bit today.
At the money volatility got hit in all the big indexes as you can see from the Livevol Term Structure slice below.
Near the end of the day we have a pretty solid bounce in the broader market with stocks recovering all but 6 or so handles from the previous day’s highs. The reason for the selloff was kind of uncertain, so with just so-so retail sales, things are back up to nicer levels. As Mark discussed yesterday, the IV only made a tepid response so the bounce is not too surprising. The quick rally and inability to make new highs over the last 2 weeks has shaken up the upside skew a bit.
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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.