option education

VIX up and SPX up so is a crash imminent?

Submitted by atg on Tue, 05/14/2013 - 5:27pm

Memory is a funky thing in the market. Right now many new investors and traders have the 2008 crash in the forefront of their minds. I don’t blame them. What we have had since then is mostly a declining volatility environment that has reared its ugly head on the big macro issues that faced us, namely the Euro and the US deficit. Remember it was the 1-2 punch that set things backward in the summer of 2011 since it looked like a total failure by leaders to get a handle on the problems of the day. Right now the trajectory appears to be better. How do we know? Every advance in fiscal prudence, even higher taxes, has been met with market rallies. Bernanke was QE’ing back in the Fall of 2012 and the market did not really take off until the Fisca

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Will the Fed change course?

Submitted by atg on Thu, 05/09/2013 - 5:02pm

The good thing about the stock market is that it is just like the weather in Maine. Wait a day and it will change. We wrote earlier this week that bond volatility was in the toilet and low and behold the market has changed course a bit. Why, the underlying assumptions can always change. There were rumors floating that the Fed might curtail purchases of bonds and that sent the TLT down from 121.25 to 120.10 by the close.

How low can the volatility go?

Submitted by atg on Fri, 05/03/2013 - 3:59pm

Somewhere between the ADP report on Wednesday and today’s NFP report the nation found a bunch of jobs. The broader markets also found themselves in record territory with NASDAQ making at least multiyear highs. What I find heartening (for bulls like me) is that the Treasuries are finally weakening with a near 3 point drop today. If the rally has to continue folks need to stop running to no-yield bonds. With better jobs news the need for the Fed to buy more is a much tougher case to make. The thing is we have .75% gaps in the SPX still and while the realized volatility has tailed a bit we are getting one to two days a week of bigger moves.

So how is the VIX going up?

Submitted by atg on Wed, 05/01/2013 - 4:38pm

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

What no weekend effect?

Submitted by atg on Fri, 04/26/2013 - 3:05pm

Looking at the rally Thursday on what I would say is so-so news I am reminded of the fact that over the last year most of the melting has been to the upside. The market has tended to take off like a shot with Fed easing and the BOJ declaring war on interest rates. The US market with a decent dividend yield is starting to look attractive all of a sudden. While I am still mild bullish it pays to take a look at how the market is viewing volatility in the near term.

VIX is backwards again and it feels like 2001

Submitted by atg on Wed, 04/17/2013 - 5:22pm

This was a weird day. As weak as the market looked all day it felt more like a lack of buyers than an over- supply of sellers. That did not stop the VIX from riding a roller coaster. This reminded me of the 2001 after 9/11. There are a lot of strange vibrations coursing through the market picking up the news bites. This is re-enforcing the tragic and generally gloomy news that we have had since Monday. Mediocre earnings do not help. The earnings were not awful from BAC but there was a sense of baggage on them. Add a Ricin letter and that was enough to keep the buyers away. There a sense of gloom hanging over everything.

So AAPL is deciding what to do with all their cash?

Submitted by atg on Tue, 04/16/2013 - 2:54pm

With the market recovering some of the sell off yesterday, we look at more mundane features in the market. Redistributing some of AAPL's cash hoard comes to mind. AAPL rallied to the $480’s earlier this year on the new cash payout hype so here we are again looking for another excuse to goose up the stock into earnings.

Let’s review the rules for dividends as it pertains to options.

First- Call values do not like dividends and put values do. A dividend increase will decrease call values and increase put values.

That does not mean that a big cash payout is not BULLISH. It can be, but the dividend will affect the relative movement of call and put options.

Does the skew tell us we will bounce back?

Submitted by atg on Fri, 04/12/2013 - 2:12pm

Thursday was another record for the SPY. If you listen to the folks on TV each person on camera is trying to pick a top or look for another reason for the market to crack. That well may be as some kind of selloff is inevitable. The market looks down about .5% so maybe the pundits will have their day. Looking at the trade on the close yesterday I saw a slight change in the SPY skew. That is telling a different story.

Liking FB Again

Submitted by atg on Wed, 04/10/2013 - 4:34pm

Trading this market successfully has been about avoiding being too bearish. For the most part I have succeeded in that, but as far as trades go we are getting thin with the volatility products. All of the indexes are up 1% at least, which is keeping with the theme over this last year that the majority of melting has been on the upside. With 1% moves the VIX will not go through 12. Volatility cuts both directions and with the lack of suitable global assets all of the sudden the USA is winning the contest for cash. Explain the rallies in INTC and MSFT. What is different than last wee

Bird Flu Spreading to the Option Vols Near You in YUM

Submitted by atg on Mon, 04/08/2013 - 5:02pm

The market has thoroughly shaken off the jobs report from Friday. While I watched for some headline news today, there did not seem like a lot out to cause us to rally and press the VIX down to 13.19. Mostly a lack of bad news, and we rallied. A failed merger in Greece of some big banks, and the TLT actually fell off by a good clip today. I guess we have two days of bizarro action (see Friday’s blog).