While the big news around Option Pit Mentoring is the VIX closing below 12 again, SPX is not the only major product with IV in the toilet. GLD IV is getting crazy cheap. The GVZ is trading at 6 months lows and near all time lows.
One of the things most options traders watch is what the VIX curve looks like. It's not just the overall shape that matters, it's how steep the curve is, much like skew. Last month at this time, the VIX was trading at 13.7. The Feb future was trading 14.35, a premium of about 5% to VIX cash. This is about normal, and points toward a market that is somewhat efficient and comfortable with VIX levels. The VIX futures ended up settling 13.07.
Today, the VIX settled 12.25, while the VIX future settled 13.20, a premium of near a full point. This is a premium to cash of closer to 10% than 5%. In fact, the enter curve is trading at huge percentage premiums relative to the norm. You can see the two curves next to each other below.
Our COO was on Bloomberg TV discussing BA option trading ahead of an upcoming NTSB decision on the 787 Battery. You can watch the video here:
Boeing continues to rally ahead of an important NTSB decision on the safety of its battery system within its new 787 Dreamliner, but why? Considering BA is nearing an all-time high, it seems likely the market has already “baked in” the idea that the NTSB will eventually approve the system.
The entire Consumer Cyclical sector is killing right now. PG, CL, CLX and KMB are all at or near all-time high stock prices. The industry is doing great as a whole; KMB in particular has had a great run higher. Yet, something a little screwy is happening with Option IV in KMB. Take a look at the 30 day IV from LiveVolPro of CL, CLX, KMB, and PG. KMB is the green line:
Today is a clear example of times where the VIX is misleading. Yes, the VIX is down today, but that does not mean that IV is necessarily lower. We are going to look at a chart of SPY options from Option Vision. When IV is up on a strike, the strike will turn green. When IV is down the strike will turn red. The deeper the color, the more IV is moving. Take a look at the color that SPY options are turning today.
One of the interesting things to watch, that I think shows how jittery this market is, despite the rally, is the actual volatility of the VIX. Over the last 10 days, the Vol of VIX (not VVIX) has been near 220%.
Yesterday, on Bloomberg TV I discussed an iron condor trade on PCLN into earnings. Very rarely to I like playing earnings moves. It can be a mess (see my AMZN trade). But, I thought the IV was cheap and that sometimes IV is cheap for a reason, and that the market was expecting PCLN to move like EXPE which did almost nothing. Watch the Video here:
1. The Market is about to tank and smart money is covering their butt
2. The large stock funds are scared, and hedging their portfolio's
Lets pull up a 1 year chart of VIX. On the top are the levels of VIX and on the bottom is call and put volume. I thought it would be interesting to look at past volume spikes to see if they are a potential leading indicator.
It is news when the VIX cash settles at a level that is higher than the VIX futures. I think it is an even bigger deal when the VIX settles above 6 futures contracts like it did today (almost 7, actually). Yet, there was something that was also interesting about today, the movement in the VIX futures themselves. While the futures certainly reacted to the news, the entire curve really didn't flatten up very much.
One of the things we concentrate on in our option mentoring is trading indexes. There is plenty to be made in the index space, typically on the short premium side. In the case of all the indexes IV has been overpriced for so long, all the way down to these levels, and continues to be overpriced. Index IV has been overpriced for going on a year and half and there is no end in sight. Perhaps the worst offender is NDX, especially in the past few weeks.
Take a look at the way the Index has moved since the beginning of the year, or more...HASN'T moved.