The earnings season has been a mixed bag so far. Mark commented about it on CNBC yesterday morning and the fact that IV is not really taking off. VXX is making year lows today and the IV in the SVXY (Pro Shares Short VIX futures ETF) is making a 52 week low today. Even with VIX cash up the VIX futures compressed a bit. The only thing cheaper than the IV is the realized volatility clocking in a at 7.27 for the SPX. The low volatilities seem to set a table for something higher down the road but we will need a catalyst. The earnings season has not provided one and the muted movement is having an effect on the skew in FB.
Besides a slight scare from the Speaker of the House today, the market rallied in fine style. It could not break out over 1422 on the SPX but most of the market did well. Volatility did come down a touch too as the short end of the market started to catch up with what the longer end of the volatility market has been doing. It looks like we are setting up for a rally to the end of the year as long as some sort of something comes out of Washington. We would have a nice Hollywood moment if the politicians got it together before Christmas. Wishful thinking anyway and I won’t bet too heavily on it.
Two years into the Euro Crisis and the only thing I have to show for it is a joke. How long does it take a Euro Finance minister to screw in a light bulb? Two years and counting…. Anyways, the strange state of the equity markets usually spill out into the volatility markets, and today was not a whole lot different.
The market is getting the flush this evening, as JP Morgan announces trading losses coming out of their CIO (Chief Investment Office). It was widely reported that this group was, pretty much, single-handedly crushing the insurance market for name CDS and other similar securities in the 1st quarter of 2012. Now it appears that the risk management office in the bank sold a little too much prior to the recent upswing in volatility. This is probably a good time to review “synthetics” (what JPM said they had on) and “selling volatility”, which, somewhere, it is assumed they are long.
After hours, JPM stock looks down around $3. In an iffy market like this, it won’t take much to have that crater- like opening market participants are getting used to.