Options Education

Oil SPX Coorelation Breaks... The Wrong Way

I have been saying for a few days that the coorelation between Oil and SPX is kind of dumb and non sensical.  Close observation of the coorelation shows that often SPX sells off with Oil, but once Oil stops selling off SPX would rally.

Now take a look at what happened today.  The SPX rallied with Oil mid-morning with a high in the SPX over 18 handles.  Then, as WTI and USO sat,  the SPX dove on Russia fears and maybe the Fed.



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What a Difference a Week Makes in VIX

Henry Schwartz of Trade-Alert passed along a pretty nifty chart that shows the type of move the market has had in the last 3 days.  It is a chart of term strucutre in VIX and implied volatility of VIX options.



The move that the VIX has made on what really amounts to little market movement is astounding. I think it is reflective that despite the VIX being in the 11st last week,  the market is skiddish.

The Trade:

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When Volatility Does Not Tell The Story

Today, the SPX settled down .49 points. This will show up as essentially as a 0 in realized volatility terms as measured by GARCH which is what most brokerage firms use to measure HV.  But does that tell the whole story?


LivevolX (r) www.livevol.com

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Our Founder on Fox Business talking VIX, XOM, RDS and CVX

Our Founder was on Fox Business talking about Div Yields and a Massive Trade in VIX


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Rough Day to Be a Loved Equtiy

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While today's sell off was actually a bit of a 'meh'  there was one group of stocks that really got slapped around today:  Loved Stocks.  I loved stock is a stock that consistently is the most talked about on not only the networks but on Twitter.  Take a look at the performance of some of the most loved stocks:

AAPL: -3%

AMZN: -3%

BABA: -5%

FB: -3%

GRPO: -5%

LNKD: -4%

TSLA: -6%

TWTR: -6%

YHOO: -3%

 Loved Equities have higher jumps in IV today but the volume is light (flat).

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Glitter Bugs


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VIX Might Finally Break

As I look at VIX, I believe it might finally be ready to break.  There are a few historical things that point toward a drop:

1.  We are entering the holidays, always a time when things tend to drop

2.  There are very few economic data points coming out till next friday.

3.  And finally there is this:

Chart - ^SPX_window_screenshot_0.png

LivevolX (r) www.livevol.com

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SPX Vol Continues to Be Firm

The S&P 500 has blown up higher and is now closer to 2100 than 2000.  Yet the VIX continues to be firm holding above 13.5, even in a somewhat low realized vol enviornment.  It is pretty clear in the chart below:

Chart - ^SPX_window_screenshot.png

LivevolX (r) www.livevol.com

The question is why?  There are two arguements:

1.  As we rally longs are hedging.  This is the bull case.  Baseically, those with long positions like being long and are buying hedges with the market at all time highs and the VIX at, relative to longer term trends is somewhat low.

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The Fed is not going to Raise Rates in 2015

I know there continues to be some speculation about whether the Fed will raise rates in the 1st half of 2015,  right now the answer is a resounding NO.  In fact I think the Fed Funds rate stays at 0 for all of 2015.  Here is why they have TONS of cover.  Lets look at why:

1.  Employment.  The unemployment rate.  While the heavily reported U-3 rate is back to normal, the more important U-6 rate is still at levels from October of 2008, no where near normal levels.  Check out the spread between U-3 and U-6.

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