While most coverage in the media is done on SPX and DJIA, the really interesting index over the last few weeks is actually the RUT. Take a look at the upward momentum in that index. Also, take a look at how fast that movement has been. It's incredible. At the same time the RUT IV is going no where. Take a look:
Every so often, typically a few weeks after AAPL earnings, traders go a little overboard in selling AAPL option premium. Well, it's been a few weeks since AAPL earnings, and traders have sold AAPL IV down to stupid cheap levels...again. Take a look at a chart of VXAPL (the VIX of AAPL).
Yesterday, SPX down 12, VIX up 1.6 points. Today, SPX up 11, VIX down .6. This points toward a continued ramp up in volatility and fear in the market that is complex enough that the media aren't picking up on it, but simple enough that most traders see what is going on and are not wondering if, but when. Well, based on the action today, I would say soon. Below is a chart of VIX and SPX. Concentrate on the 50 DMA (the red line)
As we have stated, the SPX and the VIX are acting quite differently than the last time around. Previously, when the SPX was near 1840 the VIX was below 13, closer to 12.50. Now, with the SPX back at 1840 (getting there in a hurry), the VIX is between 13.75-14, and has not been able to break 13.50. In fact, adjusted for underlying price, SPX IV has basically stopped falling over the last 25 points or so. Take a look:
In the last 3 days, the market has rallied about 30.00 dollars in the SPX. Knowing that, traders would expect the VIX to have gotten completely pasted as traders dumped volatility. Take a look at how S&P has moved and how VIX has moved.
Looking at how volatility has moved in the last couple of days, one would think that tomorrow's non-farms do not matter and that the markets are signaling all clear. Take a look at where March IV is relative to the SPX now, and where it was last Friday.
One thing to recongnize about volatility is that with out look at levels in the S&P 500, it doesn't tell the trader very much. However the simple numbers over the last day should be striking. Yesterday, the S&P sold off about 40 points, the VIX rallied about 3 points. Today the S&P is up about 14 points, the VIX is down just under 3 points.
I think this points to two things:
1. It makes clear how poorly the VIX performed yesterday. If the VIX was up 5 or 6 points yesterday (as it should have been) a 2.8% sell off would make sense.
2. Relative to the move, the recovery in the SPX vol is being sold aggresively.