Bed Bath and Beyond had earnings on Wednesday and completely killed it. The options were also killed in a complete bloodbath of option volatility (thus the catchy title). However, I think this is the case of option traders getting a little overzealous in their attempts to sell premium. Take a look at this chart of BBBY stock and BBBY 30 day IV. What do you notice?
The market had its biggest drop in months. It below through the 50 DMA, and if things keep going it could threaten the 100 DMA if things keep going. Today, on CNBC I am sure the anchors are panicked. Yet, the VIX was up less than 3 points at the end of the day, despite the SPX closing on the lows. Why? Take a look at this chart of the SPX, 30 day IV and 20 day HV.
The VIX got creamed today as traders realized that the Fed is probably not going to be that big of a deal. Additionally, if the Scotts do what they should do, the VIX is probably going to go even lower. Looking accross the board IV got creamed in the SPX, NDX and DJX. It did not get smoked in the RUT which was the big underpeformer on the way up. Those that follow RUT know that underperformance is unlikely to last and that the index will POP higher if the SPX stays high (which it probably will). Thus, I think there mgiht be some real oppotunity to sell premium in RUT. Take a look at the price action of the RVX vs the VIX today:
Today, while the S&P was mostly unchanged, the VIX was up more than .80. When taking into account for weekend effect a little better than unchanged. Yet in many respects it should have been absolutely destroyed by the market. Why? Well take a look at where movement has been, in and out of meetings, in and out of economic announcements, and wars. Yet for some reason this Fed meeting is being treated as if there is some fundamental change occuring. Take a look at the HV/IV spread:
I spent a little time looking at VIX vol today. I have to say, it is about as low as it gets...but could go even lower. Take a look at how much HV has plumpted in VIX over the last few weeks. But, taking a look at 30 DAY HV, it is possible things could get worse.
I understand there is a major difference between straddle price and actual movement, because most pricing models assume dynamic hedging. The SPX is now 2000.00, does anyone see the disconnect in the weekly straddle price? Take a look at this trade ticket:
The blog post that really broke out our blog was this one involving Time Decay and the Weekend (we will always have a special place in our hearts for Bill Luby pushing it out). To sum up the post, we explained how market makers 'moved the clock' on their machines to bring implied volatiltiy down with out screwing around with their actually vols they were running. The basic point is that market makers take weekend decay out over a few days at the end of the week which causes VIX to drop on Thursday's and Friday's and to rally on Monday's.
Yesterday I made a comment on how I thought VIX futures were maybe oversold. I was right, but not in the way I thought. Today, despite the VIX threatening 11.5% and the SPX hitting an all time high, the VIX futures curve barely moved:
The reason they didn't move was because the VIX futures were oversold. They were anticipating today's move and were pricing in the cash VIX adjusting to the futures, not the other way around like I thought. Notice how on top of eachother the curve yesterday and the curve today are, then notice the difference in VIX.
While I believe that the VIX is not going to 20, I think today's move below 13% might be over done. The VIX has not just eased off the last few days, it has borderline crashed. Take a look at how it looks incomparison to the S&P: