options mentoring

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

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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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A New VIX Cycle

As option mentors we do a lot of teaching on VIX.  When explaining the VIX one thing we like to discuss vol cycles.  The idea that the VIX has cyclical levels from low to somewhat low, to somewhat high, to high.  Clearly when the VIX was in the 10's and 11's the VIX was in a cyclically low level.  However, that appears to have changed (despite the sudden drop in realized volatility).  Even throwing out last months vol pop one should be able to see that the VIX pattern shifted

Chart - ^VIX - CBOE Volatility Index_window_screenshot_5.png

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Our Founder on Fox Business talking SPX and Oil

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Options on an Options Exchange?

The CBOE is at an all time high.  As I stated multiple times in the last few months,  for those who might be afraid of things like VIX or even 'options' stock on CBOE itself can be a hedge on the market.  Why?  Because when the market is tanking CBOE is breaking records in VIX and sometimes SPX.  In addition to a the stock likely rallying in a down market, it has a dividend and listed options.  So even when it sits there is a chance to collect some income.  

The stock is at an all time high and I think it could make some sense to buy call options on the exchange.  Take a look at the chart below:

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Front Running VIX

Ahead of nonfarm payrolls the general belief is that implied volatility will increase.  This is true,  where consus is wrong is when IV peaks.  General consus is that it will peak on Thursday just before payrolls are announced.  While historically this is true, it has not been true over the last few years.  Look at the graph below, what one will notice is that IV has a pattern ahead of Nonfarms.

1.  IV starts to rise Monday

2. It rises all the way until midday on Wednesday

3.  There is a push to lower IV's, somewhat aggresively on Thursday morning

4.  They catch a small bid (lower than Wednesday mornings high) on Thursday night

5. They plummet on Friday

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YHOO BABA Earnings Swap

Tomorrow morning Alibaba reports earnings.  The market is expecting big things because the IV is exploding.  What is interesting is that the IV in Yahoo options is not.  Currently  BABA accounts for about 85% of YHOO's market value.  Thus a pop in BABA options should produce a pop in YHOO options.  But take a look at the two IV charts compared:

Chart - YHOO - Yahoo! Inc._window_screenshot.png

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SPX 2017 and All Is Well??

Anytime the market hits an all time high I typically expect to see either a near low term or at least close a near term low.  This is not the case with the SPX and the VIX right.  SPX is at an all time high but the VIX is about 2.5 points higher than it was the last time we got up here.

VIX_7.png

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The Trade:

Straddles continue to be too cheap in my opinion,  when the SPX is at an all time high and VIX is still elevated, the underlying is going to keep moving

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Loved Stock Trade in FB

I have been discussing what I call the 'LOVED STOCK' earnings chart over the last few days.  This is a pattern where an AMZN, NFLX, or FB rallies in anticpation of earnings.  The stock then gets sold out of earnings as it disappoints traders.  Finally, within a couple of days of the sell off the stock begins to rally again earasing some of the losses from earnings.  The only stocks that are 'loved' that did not show this pattern so far is TWTR.

With FB appearing to create this pattern and FB IV in the dump (See chart)

FB_0.png

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Graphic Evidence of UVXY Crudiness

Over the last 3 months both VIX and VXX are actually up (albeit slightly for both).  You know what is not up on the year,  UVXY and TVIX.  The combo of levering and contango make the product pretty great in a market where the VIX is exploding (see mid October)  but pretty awful the rest of the time

Chart - UVXY - ProShares Ultra VIX Short-Term Futures ETF_window_screenshot.png

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The Trade:

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