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.
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.
So as 2017 gets off to a raucous start let us compare and contrast with the start of 2017. VIX was around 19.50 at the beginning of 2016 and quickly moved to the 30s as traders let the potential calamity of rising interest rates and possible Chinese meltdown rule the day. We got the rate rise but China is still chugging albeit at exactly the same spot it was last year. The only thing really different is that there is a new man in the White House come Jan 20th. VIX is 11.85 going into the transition.
Stocks have lost their way lately and can't really make a move anywhere. Mostly that has got VIX moving with VIX cash moving to the mid-13's. Yes you heard that we rallied hard to the mid 13s. VIX Jan futures are getting close to 15. This in a market where 60 day realized vol is still in the single digits. VIX is pricing something that will happen next week. Maybe around a surprise in rates to go along with the higher volatility in the rate complex.
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.
That was quite a week and 2 days. Before Donald J Trump stunned the media with his election win, he was a power user of TWTR. Various reports about what he will tweet in the future are unknown to me as I write this but it is safe to say TWTR will keep buzzing with the social media malestorm he helped create. The fact that TWTR is now stuck in the popular culture is pretty hard to dispute.
There was a bit of a rally today on Fed jawboning and a tepid APD payroll number. The economy is growing just not as much as anyone would like. But is it growing enough to raise interest rates? The action in the bank stocks seems to say yes. VIX was marginally lower but the backdated futures did not move too much. If the NFP number is going to be a nothing VIX Oct futures should be dropping more but they are not.
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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.
Stocks are staring at the 2200 SPX level and blinking. Since there is no real impetus to drive things higher buyers are content to sit where they are and wait. For some reason the Yellen at Jackson Hole speech is starting to take on meaning. With a market lacking meaning anything is a reason to move us. Gold and gold related names like the miners are getting hit hardest.