As the SPX tilts to all-time highs again, VIX is meandering down to the 11 handle after getting oversold last week into the holiday. What was strange was the action in the VIX future term structure. VIX futures lifted on a day when there was scant market activity and close to close volatility was even lower than the posted 10 day 4.28%. Every future in the VIX term structure was higher.
Rumors or facts are circulating outside of DC for once. It looks like a midsize hedge fund had to close a short contract position and helped the VIX to a nasty settlement on Wednesday by helping up the IV in SPX. The Total Tuesday Vol Crush gave way to the VIX pop on Wednesday and early Thursday. What it did set up was a strange dynamic in the VIX futures.
So yes you say IV is low but the realized vol is lower. 20 day realized vol is only 6.02% as the SPY and big brother the SPX extend the 80+ day run without a close to close 1% down move. At this point the market is loving the DJT administration, tweets aside. Straight up rallies are hard to diagnose but it appears that the steady mantra ofearnings, less regulation, lower taxes and more infrastructure is having quite a bubbly effect that the buy algos find quite tantalizing.
My general rule trading TWTR is don’t get long without puts. After learning the hard way on the 2015 trip from mid 30 to the low 14s in 2016 the only thing that kept it from being a disaster was rolling my put protection down. The near takeout in Oct/Nov gave me an exit which I took. Now here we sit around 17.09 with Jan IV in the 30 handle. Noone cares for the Dirty Bird anymore.
With VIX grabbing all the headlines for lower volatility at the end of the year it is easier to forget about what help drive volatility at the beginning of the year, namely oil or the proxy USO. Oil IV in the Jan cycle is around 27% which is a level not seen since USO had a 20 handle and is now trading 11.5. It's as if the market decided oil can"t move .50 a day for a barrel. That sounds too cheap given some of the recent movement.
Come register for our Daily Option Class here
The market for volatility, the VIX, got a one, two punch for the BOJ and the Fed. They basically said they will do things in the future. BOJ to target rates, possibly less QE and the Fed for a likely Dec and 2017 rate rise. They bought time and they bought space to take out some of the lingering doubts about rates in the mid-term and certainly before the election.
Look for our daily calendar webinar soon! Sep 24th is the day.
As I look at the underwhelming iPhone launch, and my phone, I keep thinking there is an app for everything. There is an app for tides, sports, music and just about anything under the sun. My problem is a I need an app to tell me what to do in a market on Quaaludes; lots of delusion and nothing going anywhere. As there is an app for anything, there are positions for every market condition, even markets punch drunk with Fed indecsion and sound bites.