One thing that I always find interesting is how much the Chairperson of the Fed can drive no activity for an entire day. Today, with Janet Yellen speaking 15 minutes before the close, the market held a 5 point range for over 3 hours straight. Yet, before she even began speaking the VIX started to drop. In fact, buy the time she started VIX had essentially priced itself, and any vol selling that was done was quickly recovered. Notice the movement after yellow circle where Yellen starts talking:
In the last 2 days the market has given away about 45 points, a nice move north of 1% a day in terms of movement. Yet, take a look at the price action of SPY and VIX over the last 5 days (since Thursday).
But Boy was our Founder Spot on:
It should say BINGO!
Today the Fed announced that they are dropping the word patient from their statement, at the same time they announced they are patient. The net result was a pop in both short and long term bonds and a strong move in long term interest rates. In addition the Fed Fund Futures are now picking September or October for a rate hike (that might not even come then). The net result was that every 'crowded trade' got smoked except one, the VIX futures. Take a look at the curve:
If the last week has taught us anything its that the VIX might have itself a price whether the SPX goes up or down. Yesterday on the heels of a huge rally, the VIX barely moved. Today, in the middle of a decent sell off, the VIX was much the same. This basically means that traders feel like they have the vol of SPX options priced ahead of the Fed. Which also means that after the announcement the VIX could go back to the circled area below
One of the things that has been throwing off the VIX, VXX and XIV contango traders has been how the VIX has been moving. Where in October and December we saw VIX swing back and forth some, since the beginning of January VIX moves have not involved alot of backwardation. Instead we are seeing moves in parellel: esentially the whole curve is moving as one unit. Take a look at the movement we have seen week over week in VIX:
The Sheryl Crow song says the 1st cut is the deepest. This is not true with equity markets and the VIX. Thus, while the VIX has not had huge reactions in response to the sell offs of Friday and today, that doesn't mean that we should assume the market isn't buying the sell off. Over the past year, the VIX spent ALOT of time in the 11's and 12's. Durring this period of time a large sell off led to an immediate jump in VIX. But now, it is taking the second or even the 3rd move to make IV really pop:
After what ammounted to a 2011 type explosion out of the Oil VIX, OIV, it appears that option premiums are starting to back off the highs. After topping out as high as 66% in Feb, OIV has been not traded above 50 for 3 days in a row. The last time OIV was below 50 for 3 days in a row with out a tick above 50% was in DECEMBER. This points toward what I feel could be a real bottoming in Oil vol premiums.