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VIX Option Premiums are Juicy

Submitted by msebastian on Mon, 05/20/2013 - 4:05pm

We all know the VIX has been in a range for some time.  This blog has on several occasions argued that it may be that way for a while.  Yet, even with the relatively stable and lower VIX traders have been pointing toward the 'vol of vol' for high option premiums.  This is a somewhat flawed argument.  Yes the VIX options do expire into a cash settle, but the real underlying is the VIX futures which are less volatile than the cash market even some of the more advanced programs look at HV in terms of cash VIX instead of the futures.

Based on how much things are moving around in the cash,   VIX option premiums are at some of the most expensive levels I have ever seen.  Take a look at the relationship of 20 day HV and 30 day IV in VIX options.

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Bond Vol Has Rebounded: HARD

Submitted by msebastian on Fri, 05/17/2013 - 5:48pm

10 Days ago we posted on this blog that bond volatility was completely in the toilet.  In fact, it was the lowest level we had seen in 2 years.  You can read the piece here.  We thought that the TLT might simply continue to drift lower.  In fact just the opposite happened.  Take a look at the pop in TLT Vol that we have seen in less than 10 days.

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Livevol (r) www.livevol.com

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Crunch Time for May VIX Futures

Submitted by msebastian on Mon, 05/13/2013 - 6:35pm

When traders see a wide spread between the VIX and Front month futures they often get confused or even worried.  When in fact the opposite is usually true.  Last month with 8 days to go to VIX expiration the VIX closed at 13.19, the April VIX future closed 13.60.  A mere .50 premium to the cash.  The VIX future ended up settling at 15.64.  The month before that the VIX closed 11.56 (it’s lowest since 2006) the March VIX futures closed 12.95 on their way to a settle near 12.50.  Today the curve looks as such:

 vix_15.PNG

www.vixcentral.com

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Why Won't the VIX Fall?

Submitted by msebastian on Wed, 05/08/2013 - 3:55pm

As the SPX continues its rally though 1630 and toward 1650, may a novice is asking why the VIX isn’t touching all-time lows.  The answer is simple: volatility

When the VIX got to its recent low realized volatility was in the toilet.  We had been through about 2 straight months of nothingness.  10 Day HV was near 5 and both 20 and 30 day HV were near 10%.  Looking at HV now we can see a clear difference.  10 day HV is closer to 10% and 20 and 30 day are actually trading at a premium to VIX.

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LivevolX (r) www.livevol.com

Bond Vol Getting Smashed

Submitted by msebastian on Tue, 05/07/2013 - 3:32pm

We have the market flirting with all-time highs again today and investors should be beginning to wonder if the financial crisis is over.  Asia looks ok, India ok, Latin America ok and the US recovering but in a pokey big government way.  Europe is still a basket case but that is mostly due to the reluctance of a good chunk of the population to work for a living and for the governments to stop paying for it.  At least short term the Euro should stay intact while the drudgery of budget discipline starts to happen.  While I won’t declare the financial crisis dead there is plenty of anecdotal evidence for that.  TARP was a success, Fannie and Freddie could pay back what they owe and home mortgage payments are now cheaper than rents

VIX Term Structure Finally Normal

Submitted by msebastian on Fri, 05/03/2013 - 3:37pm

The last two weeks have been interesting for VIX and VIX futures watchers, for several reasons.  In relation to the VIX, the realized volatility has been above implied for about 2 weeks and appears that it might stay there for a while. 

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Livevol (R) www.livevol.com

The market seems to be okay with HV higher than IV as long as the move is higher.  This makes me uncomfortable, with overall VIX levels and has me convinced we do NOT see an 11 handle anytime soon.

Guest Post: Option English by Justin Braun

Submitted by msebastian on Fri, 05/03/2013 - 3:25pm

I wrote the first installment of this series over two years ago, promising to explain the practical ramifications of the the basics that I’d covered using the tools of the trade. After enough procrastinating, I’ve finally gotten around to doing the second installment.

Classic Example of An Earnings Vol Crush: FB Edition

Submitted by msebastian on Thu, 05/02/2013 - 4:05pm

One of the most followed stocks on the NASDAQ, FB, had earnings last night.  There was HUGE volume yesterday ahead of earnings and May3 weekly volatility got to 150% ATM.  FB actually made a decent move by the end of the day today, moving up to near 29.00 a share.  But, those who bought upside calls are probably NOT happy.  Take a look at a shot of the FB May3 29 calls from yesterday.

 FB_1.PNG

LivevolX (r) www.livevol.com

Notice that high IV of near 140%.  Notice the price of the calls is above .50 a contract.  Take a look at what happened to FB volatility today.

Trading TWX Ahead of Earnings

Submitted by msebastian on Tue, 04/30/2013 - 4:43pm

Today on Bloomberg TV I discussed an earnings trading in Time Warner Entertainment (TWX).  While I am not an expert on cable entertainment, I am an expert on paper flow.  You can watch the video here:

 

My main point revolved around how large customer money was flowing today.  Take a look at time and sales for option traders larger than 100 contracts today:

BAC IV Probably Too Cheap

Submitted by msebastian on Thu, 04/25/2013 - 4:41pm

IN the last few days, since Bank of America took a dive on its earnings, the stock has found some real strength.  BAC is now just a few cents from its 52 week high and threatening a 2 year high.  The move has not been a slow grinding move like we see sometimes out of banks.  It’s been a nice quick move.

This is why I am so confused by where BAC IV is trading.  Take a look at this stock chart, IV graph (the red line) and 20 day HV chart (the blue line).

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LivevolX (R) www.livevol.com

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