Happy New Year to all the Option Pit faithful! We started off with more of what we saw last year; the inability of VIX to hold a spike and then yet another rally. Not so long ago naysayers thought we would never see the highs again in the NASDAQ and yet it pushed through 7000 today for an all-time high. Whatever VIX thought was going to happen, it was right, just not in the direction implied by the sharp rally.
For the most part today was a sleeper. Most everything sold off after tremendous runs to all –time highs in SPX and NDX yesterday. You know things are nuts when TWTR, yes I bought more juice in there last week, is the market leader for a day. Much of the action in VIX this year, when there was any, has been around politics. DJT seems to keep the volatility around himself and somehow it does not translate to equities except on Russia news snippets. The month of December has been ruled by Congress and I predict that is how the month will end.
9.29 VIX and it feels like we are putting the holiday in to the SPX IV already. 9 VIX does put me into a bit of a buying mode so I started going through my list of names that should be at lower IVs over the next 90 days. And low and behold I did not find what I thought I would find.
My best trade idea was early in the week with the SPY/QQQ pair. After talking with Mark we think the big end of year tech rebalance is over so that idea could have some legs as that sector recovers. Congress could still provide some fireworks as Dec 15 looms but nothing is really sinking the market for stocks. Maybe all the volatility is going to Bitcoin (BTC) so that could be a dampener. After all BTC is worth more than WMT so we got that going.
Stocks are stuck to the vicissitudes of Congress until the recess on Dec 15th. I don’t see how much can propel us higher or to touch the ATH’s we reached earlier on Monday. The nagging bid for Treasuries is a bit disconcerting as well. Today we had the ultimate “What the Hell!” signal out of SPX, meaning VIX down, SPX down.
VIX managed a .17 up move near the close today as the SPX turned in a .01 percent move. After a near 4 day holiday I would have expected the VIX to be up a bit more today but it was not the case. The weekend is usually good for bump in VIX but today is not the case. Why?
The big reason is that the liquidity providers took down IV in SPX early in the cycle last week and that pretty much killed it. 11.37 to the mid-9’s in 2 days so there was a bit of haste early in the week. This is setting up for some interesting trade in VIX futures into the end of December.
2600 looms large. We discussed some trade ideas in our Gold Lab today and as much as I love some downside put spreads I can‘t help but think 2600 is soon. As we roll into the close VIX could not hold the 10 handle and the VIX futures could barely keep their tiny gains. Maybe 2600 by Friday since rallying is really all we do.
With all noise on taxes the slide in GE is quietly going under the rug. Just last week I wrote here it would be more sensible to price GE at $20 on a reduced dividend. GE is cratering on a downgrade now of all things before the big dividend cut. Downgrade it at $35, but at $20? Many don’t think the yield can hold at the near 5% level. If it does get cut, we should see lower prices.