options trading

VIX Option Premiums are Juicy

Submitted by msebastian on Mon, 05/20/2013 - 4:05pm

We all know the VIX has been in a range for some time. This blog has on several occasions argued that it may be that way for a while. Yet, even with the relatively stable and lower VIX traders have been pointing toward the 'vol of vol' for high option premiums. This is a somewhat flawed argument. Yes the VIX options do expire into a cash settle, but the real underlying is the VIX futures which are less volatile than the cash market even some of the more advanced programs look at HV in terms of cash VIX instead of the futures.

Based on how much things are moving around in the cash, VIX option premiums are at some of the most expensive levels I have ever seen. Take a look at the relationship of 20 day HV and 30 day IV in VIX options.

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Bond Vol Has Rebounded: HARD

Submitted by msebastian on Fri, 05/17/2013 - 5:48pm

10 Days ago we posted on this blog that bond volatility was completely in the toilet. In fact, it was the lowest level we had seen in 2 years. You can read the piece here. We thought that the TLT might simply continue to drift lower. In fact just the opposite happened. Take a look at the pop in TLT Vol that we have seen in less than 10 days.

Livevol (r) www.livevol.com

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Why Won't the VIX Fall?

Submitted by msebastian on Wed, 05/08/2013 - 3:55pm

As the SPX continues its rally though 1630 and toward 1650, may a novice is asking why the VIX isn’t touching all-time lows. The answer is simple: volatility

When the VIX got to its recent low realized volatility was in the toilet. We had been through about 2 straight months of nothingness. 10 Day HV was near 5 and both 20 and 30 day HV were near 10%. Looking at HV now we can see a clear difference. 10 day HV is closer to 10% and 20 and 30 day are actually trading at a premium to VIX.

LivevolX (r) www.livevol.com

VIX Term Structure Finally Normal

Submitted by msebastian on Fri, 05/03/2013 - 3:37pm

The last two weeks have been interesting for VIX and VIX futures watchers, for several reasons. In relation to the VIX, the realized volatility has been above implied for about 2 weeks and appears that it might stay there for a while.

Livevol (R) www.livevol.com

The market seems to be okay with HV higher than IV as long as the move is higher. This makes me uncomfortable, with overall VIX levels and has me convinced we do NOT see an 11 handle anytime soon.

Classic Example of An Earnings Vol Crush: FB Edition

Submitted by msebastian on Thu, 05/02/2013 - 4:05pm

One of the most followed stocks on the NASDAQ, FB, had earnings last night. There was HUGE volume yesterday ahead of earnings and May3 weekly volatility got to 150% ATM. FB actually made a decent move by the end of the day today, moving up to near 29.00 a share. But, those who bought upside calls are probably NOT happy. Take a look at a shot of the FB May3 29 calls from yesterday.

LivevolX (r) www.livevol.com

Notice that high IV of near 140%. Notice the price of the calls is above .50 a contract. Take a look at what happened to FB volatility today.

Trading TWX Ahead of Earnings

Submitted by msebastian on Tue, 04/30/2013 - 4:43pm

Today on Bloomberg TV I discussed an earnings trading in Time Warner Entertainment (TWX). While I am not an expert on cable entertainment, I am an expert on paper flow. You can watch the video here:

My main point revolved around how large customer money was flowing today. Take a look at time and sales for option traders larger than 100 contracts today:

Same VIX, Different Message

Submitted by msebastian on Mon, 04/22/2013 - 3:20pm

One topic that consistently confuses people is VIX curve structure. It’s not just the level; it’s the slope that matters. Let’s look at two curves with very similar underlying VIX prices. I the difference might be more clear.

On March 21st, 2013 the VIX closed at 13.99, a mere .30% lower than where the VIX is trading. Also a very similar number of days to expiration across the different contract months relative to where we are trading today. Notice the slope of the curve in the front two contract months:

www.vixcentral.com

The VIX IS Back in Contango..Or Is It?

Submitted by msebastian on Fri, 04/19/2013 - 1:31pm

The VIX cash is now trading at a discount of about .75 to the May future. Does this mean all is well in the world of VIX, and that we can sound the all clear?

No it does not, while IV is certainly in today, the VIX cash is actually trading at about parity with the May future. The weekend effect is distorting the current price. You can read about weekend effect here. Thus when we look at a VIX futures curve what is really going on?

www.vixcentral.com

Retail Investors are Getting Killed

Submitted by msebastian on Thu, 04/18/2013 - 4:34pm

I am a firm believer that the mini options are going to be a great thing for the retail trader long term, as long as the retail trader can steer clear of Television. There are 2 trades we hear more about on CNBC than any other trades. Those trades are GLD and AAPL. CNBC chatter is indicative of where the retail trader is investing. I wonder why the retail trader is still out of the market:

LivevolX (R) www.livevol.com

If we want to add in a third media darling, we can add Facebook. Here is a chart of the returns of these two trades:

Our COO Talking VIX and SPX for The Street

Submitted by msebastian on Tue, 04/16/2013 - 11:40am