option trading

14 is the new 10 for VIX, or maybe 15

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As 2015 draws to a close on low volume and kind of ugly action, I try to figure out what the next year is going to be like in terms of volatility and the VIX.  Some general observations from this year:

VIX as of today is up a point with stocks around the same place from last year.

We had another Flash Crash in August for no real reason.

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Massive Contango Looms in VIX

It sounds scary but it is not.

The Santa Rally is in effect for now.  SPY managed to eke out gains for the year helped not one wit by AAPL.  The late in the year commodity rally is not hurting either.  OPEC says oil will be back to $75 in 2019 or whatever and that was enough to lift crude a buck or two.  The story is still volatility as most of the headline volatility products are still showing signs of life.  That means the VIX futures have yet to collapse.

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Massive Vol Implosion in TLT

Janet Yellen pushed up rates in one of the big moves in rates in 9 years.  Namely the up move as market volatility into the event went up to the mid-20s in VIX just last week.  What is a bit strange is that even with the rates raise well telegraphed TLT volatility was in the middle of the range.  Now that the news is out they are killing the volatility that is there.  TLT is barely moving today.

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Time for Iron Condors

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As we wind into Thanksgiving the liquidity providers have done a good job of squeezing out the holiday premium.  Nov 27 volatility in the SPY, from LiveVol Sigma, is a round 9.43 and will be lucky to hold the 9 handle as Thursday approaches.  Why?  Well the only easy to get the time premium out of the options is roll the days forward.  That will read as lower IV today.

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Energy Stocks buck the trend

Kind of an ugly day in the market or make that an ugly week for the longs.  For the first time in a while I am seeing the move up in VIX outpace the drop in stocks.  Yeah we had a 1% move but 20 VIX seems like there is something to worry about.  The two biggies are rates and oil.  Let’s talk the oil producers.

XOP is up on the day on a down day for oil and stocks in general.  Granted the ETF has been hit with the ugly stick but even AMZN is down today.  The craptastic names should be doing worse.  Lo and behold take a look at the volume in COG.

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Oct VIX asks if China will open already and .....

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I seem to remember this time last Wednesday when the SPX was trading just below 1900.  Chinese markets were closed for a holiday week and the weak jobs number on Friday created the whipsaw we had for the last week and a 100 point rally in the SPX.  Like we saw twice already since the late August debacle, the rallies were as vicious as the selloffs. 

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Market still cares about Greece, sort of.

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The morning looked solid today as stock ran on GOOG, FB and AAPL rallies.  Financials look good as BAC is finally getting out from the constant deluge of fines from the financial crisis.  All was going just fine until reports of unrest in Greece started rumbling through the markets.  Treasuries spiked even into Yellen's hawkish rate tones.  Something happened and it had nothing to do with the USA.

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FB makes all-time highs

Stocks had a hard time today jumping up to all-time highs.  The SPX started the day down and never looked back as the better than expected GDP revisions caused some rate concern.  Greece’s PM also started back on the crazy train so that unsettled European markets after they were anxious to get to higher levels.  FB is not feeling that right now.

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Fed leaves things alone

Yet we have another FOMC announcement with the Fed choosing to do nothing.  I don’t know how far the economy has to grow before rates start to normalize but we have to be getting close now.  We had the 90’s and a government surplus and higher rates and no one was complaining.  Once again post-meeting the VIX dropped even with near sure 25 basis point rises in 2015 mapped out.

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The market starts to worry

The euphoria of Thursday is now over.  The rally we had on concessions from Greece now give way to the fact that the Syriza party is running for its next election realizing it cannot deliver on any promises besides sending Greece into the economic stone age.  Volatility traders love this because it is, well, some volatility to trade.  Volatility wants to move, but only at the pace of a 3 legged race.  The will to move out is not there yet.

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