Options Education

MU Call ITM Buying

Sometimes customers do really weird things.  Sometimes its because they have a strange stock position.  Sometimes its because they ahve been given bad advice by a cruddy broker.  There are cases where the customer just has a strange idea on how to trade or has no idea how to trade.  To be honest I do not know what this customer is doing in MU.  Check out the volume and open interest in MU ITM call options in september.


Livevolpro (R) www.livevol.com

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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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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.


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:


Livevol (r) www.livevol.com

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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:

Tick chart - ^VIX - CBOE Volatility Index_window_screenshot_1.png

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.



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.


LivevolX (r) www.livevol.com

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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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Utility Volume Not Showing Up in XLU...Yet

There has been an astonishing ammount of call option volume in many utility stocks over the last few days.  Traders have bought upside calls in SO,  ED,  AEX and many other major utilities.  Where we have not seen the same action has been in the ETF for utilities.  Check out today's action and overall open interest in XLU.

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VIX Creeping Higher, Vol, Not So Much

The FED has its next interest rate announcment coming up on Wednesday afternoon.  While it is likely to be a non-event, that does not stop the market from pricing in some risk (as it should).  Thus, over over the last few days we have watch the VIX slowly creep higher from a low below 11 to now approaching 13%.  The pattern is clear


Livevol (R) www.livevol.com

Notice the clear pattern higher.  The funny thing is that the patern in realized volatilty is the complete opposite of the pattern in the VIX.  Notice how both 20 and 10 day HV are now hanging around silly low levels.

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