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AND we're back

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So that was fun while it lasted, but in truth it did not take volatility very long to realign itself right back to where it was.  Take a look at the curve today and take a look at where it was 6 days ago on Wednesday the 16th.

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www.vixcentral.com

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Just a Bit of a VIX Squeeze

Today the SPX finally broke its streak of not closing up or down 1%.  While that is certainly important to note, it is not the most important thing that happened today.  What most important is how flat footed a few trader got caught.  While the S&P moved, the VIX exploded.  The VIX moved from the low 11's to almost 15% in one day, in what turned out to be an exceptionally short period of time.

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LivevolX (r) www.livevol.com

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GS Vol Over Sold

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Goldman blew the door off earnings today and now is starting to threaten 170 again on move of about 1.5% today.  On the heels of this, traders absolutely demolished GS implied volatility today.  While GS is not at its all time high,  the IV of the options is at its lowest level post 2008 crisis:

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Livevol (r) www.livevol.com

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Guess the Volatility Chart

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The following shows a vol chart of a high dollar stock,  The Stock has been a high flier and has had wicked moves.  The IV has been extrememly bid relatively consistently, yet over the last two months the undelrying stock volatility has changed.  The stock has no longer been moving around as much and has become somewhat range bound.  take a look and see if you can guess what the stock is:

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VXN is Cheap, VIX is Not

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The VIX is trading around 12, which implies that the market is going to move about .75% a day, if it is priced perfectly.  In the last two days, the SPX has moved about .66% and over the last 10 and 20 days it has moved less than 7%

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LivevolX (r) www.livevol.com

Meanwhile the NDX moved more than 1% today and had moved on par with the SPX prior to that.  

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VIX POP or VIX MEH?

Tomorrow option headlines will talk about how the VIX 'popeed' almost 10% to over 11.33% today.  This will be a complete miss representation of what happened today.  Let us talk about a few important things to notice:

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Livevol (r) www.Livevol.com

1.  We were coming off a long weekend where the market closed for 3 1/2 days,  a normal VIX adjustment coming off that long of a break should be about 1-1.2% depending on how much Vega is in SPX options at the time.

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VIX Not Going Anywhere But Down

Currently the VIX futures are trading at a premium of less 1 point relative to the cash VIX.

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www.VIXCENTRAL.com

With more than two weeks to expiration, this is a pretty light spread.  When taking into account that the cash VIX is in the 11's and the Future is 12.45 this is incredibly low.  Basically, traders think that a cushion of about .95 and a VIX future of less than 12.5 is plenty of spread to handle any upside risk in VIX.  Why?

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There IS some Underpriced Vol

I spent most of the day trying to find places where one could buy premium and have a reasonable chance of success.  The answer was not in equities, metals, or even in crude.  But there is an area where risk seems to be appropriately or even underpriced:  credit.  Take a look at this chart of TLT and its IV 30 vs HV 10 and 20.

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LivevolX (r) www.livevol.com

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Don't Hold VXX to Track VIX EX# 1000505

Just about every source has written about how, the VXX is what we thought it was:  a good way to day trade volatility and a terrible vehicle for tracking the VIX.  We have written  about it multiple times.  , Bill at VIXandMore has, Jared at Condor Options has, actually just about everyone has.  However, very rarely do we get such a clear example of how the ETN fails as a multi-day VIX tracker than we saw over the last two days.  Take a look at this chart:

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SPX HV Near Historic Lows

If one were to look back at the last 20 days of trading and compare it to the previous 10 years, one would be looking at just about the least movement over that 20 day period over the last 10 years.  In fact it would be one of the slowest periods ever.  Once today is included in the number,  expect realized volatility which in TD has measured around at 3.4% and in Livevol at around 5.4% to drop to about 3.25% and near 5% respectively.  Regardless of the HV measurement,  both would have to be considered just about the lowest measured level in the last 10 years.  The only period that comes close was around January of 2010.  Take a look at how things have fallen off:

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