I like working at Option Pit with Mark Sebastian and I like our clients. Well one it is fun, most of time, and we have great clients. From time to time we get some solid observations from them. That is another thing I like. Having a different perspective from traders you have helped educate usually means some interesting stuff know the foundation is solid. So I am giving one of our clients some props here for this one. He knows who he is.
Note that when realized volatility dips below 5% on a short term basis it usually does not stay there for too long. I have 10 day RV down around 5.41%. Right now the first 3 Weekly terms in the SPX are all below 9%.
Close but not quite there yet. SPY traded 199.75 today as the 200 level hangs like the Sword of Damocles over the market. Everything is feeling good and long equity positions are kicking butt. In short living the good life like Damocles envisioned. However, the sword is poised to drop if Janet Yellen cuts the horse hair on rates and down the market drops. There is some weird tension on that tenuous horse hair of volatility.
Another day another rally in the good old USA as America Inc. keeps delivering the goods. More solid earnings and home start data got us off to another good start today. Market players are waiting on Yellen to report some lower to stabile rate news, which could send stocks even higher. I see that 200 number on the SPY and can’t help but think that is the next round number to cross the line.
Yet another rally on no bad news as stocks love the lack of action overseas. That was kind of a mouthful. There is no doubt that the gravity is pulling stocks up overall. The rally to all-time highs in the face of overseas unrest is just another reason to believe in the rally. Another reason to believe is the lack of a bid in IV. The VIX cannot hold a bid for anything even as a near panic hit volatility of Friday morning. By the end of today it was all forgotten.
Stocks are shaking off just about everything at this point such as Iraq, Iran, Ukraine, Syria and of course that paradise on the Med, the Gaza Strip. Slow growth in Europe, who cares. WMT swamped in health care costs, take it up. Volatility, well just sell the crap out of it. VIX is now deep into the 12 handle and we might sniff 11% tomorrow.
The Option Pit Boot Camp is BACK: Sign Up Here! We start tomorrow.
We all know the story. Troy is finally sacked by the gift of an enemy-impregnated horse the size of a house. Browsing through the WSJ online I see an an Orthodox Priest blessing a fleet of aid trucks. I half think there might be some Spetsnaz Commandos lying in wait in those bad boys. With the gimpy stock market today I am not the only one. I am all for Putin giving aid to the hungry but it is still tough to believe.
I started trading options as a floor trader in 1991 right about the same time as Gulf War 1. The runup to the war was characterized by gloom, volatility and really weak stock prices. I think the Dow was 2300 or so. Not much has changed in the 24 years since then through several other political crises and GW2. The one constant has been after the USA goes in and starts shooting, stocks rally and the VIX cracks. Until today that is, or maybe.
Thankfully you are not a Russian IRA holder right now. Normally when the USA invades stocks are in a state of suspended animation and then they pop. Historically that is what happens. If the Russians invade Ukraine I am not so sure the same thing will happen. The RSX will probably sell off another 2 or 3% easy. Stocks here will sit in limbo to slightly lower. We have recent history of the RSX and SPY to confirm that.
I won’t call today a turnaround day but it was noteworthy for the selloff that wasn’t. The 2 min ceasefire in the Gaza strip did not help. The sideways motion in the Ukraine did not help. The ok jobs report did get stocks back to even at one point but there is still some sadness in the air.
That sadness has helped propel volatility to 3 month highs in many areas. The VXEEM is making a near term high this week even when there has not been a whole lot of movement in the EEM with the 20 day realized volatility just hitting the high 13s.
The EU and USA are starting to hit Russia with some bigger sanctions now as the international community is pressing the Russian leadership to end the turmoil in the Ukraine. Both bonds and VIX are rallying but the volatility futures are not really reacting too much near the end of the day. While I think this is bad for Russia short term it is much better that this is finally happening now.