options trading

VIX Term Structure is Tipping the Market's Hand

Submitted by msebastian on Tue, 01/08/2013 - 5:34pm

As I listen to traders belly ache about the 'low VIX',  I ask them,  "why should the VIX be high?"  They will usually point to a bunch of reasons, none of which are in the near term.  Right now, the VIX is trading near 13.5 and for good reason.  Despite last week's moves, realized volatility is in the toilet.  With the market moving nowhere, traders are selling SPX premium in the near term.  Does this mean the market isn't cognizant of the coming risk?  No, not at all, the market is already pricing in a lot of risk after Feb expiration.   Take a look at the VIX futures curve:

vx.PNG

www.vixcentral.com

Reminder NEVER BUY VXX

Submitted by msebastian on Mon, 01/07/2013 - 6:06pm

Yet again, I spoke to some unknowing trader that is worried about volatility rallying in the next few months.  The trader suggested he buy VXX to hedge his portfolio.

Traders:  NEVER BUY AND HOLD VXX.  It is a piece of junk.  This is a one year chart:

vxx.PNG

Livevol (r) www.livevol.com

Since inception, the ETP is off about 99% and will continue to go lower as long as VIX futures term structure looks like this:

OTC3.PNG

The VIX is Low Because It Should Be

Submitted by msebastian on Fri, 01/04/2013 - 4:45pm

Our COO Mark was asked by several different media groups why the VIX was so low today.  After all, the VIX was just over 22% last Friday (a 52 week high); now it is trading at a 52 week low only one week later.  Our answer was simple, the VIX is so low because it should be this low.

In the chart below, I point out when the VIX hits its peak on December 28 2012 (the yellow circle).  I also point out that IV was 'predictive' of the movement that we saw on Monday and Wednesday (also in Yellow), when the S&P futures rallied 75 points in 2 days.

spx_10.png

Livevol (R) www.livevol.com

Explaining A GM 1 by 2 Front Spread seen on Bloomberg TV

Submitted by msebastian on Wed, 01/02/2013 - 3:48pm

Our COO Mark was on Bloomberg TV discussing GM options trading.  A report from Nikolaj Gammeloft from Bloomberg news discussed how skew levels in GM puts were at the highest levels we had seen in some time.  Mark was asked to develop a trade based on GM put skew, and his outlook for GM.  You can watch below:

 

Understand Fiscal Cliff Straddle Risk in SPX

Submitted by msebastian on Fri, 12/28/2012 - 4:30pm

It's been interesting to watch this fiscal cliff debacle develop.  A week ago, I had the market pricing in a 92% chance of a deal getting done.  Yesterday morning, the market was pricing at about an 80% chance of a deal getting done.  Today, that number remains close to 80, although slightly below that now, near 75%.  In fact, we can clearly see in this list of SPX weekly option vols what is driving up the VIX:

spx_9.png

Livevol (r) www.livevol.com

SPX HV vs VIX is Absurd

Submitted by msebastian on Wed, 12/26/2012 - 6:03pm

I said on Fox Business News today that I thougth we were setting up for a big one day move.  I said this because the conditions that existed the last time we blogged about SPX.   

The Spread between SPX HV and VIX is absolutely insane:

SPX_5.png

Livevol (r) www.livevol.com

I would point out that the last time the spread got this insane, the VIX went UP, not down.  The other piece of data is the VIX term structure, which is still normal but barely.  Cash is is trading all over the place due to holiday's and the fear of the immediate:

Option Pit's Readers Choice

Submitted by msebastian on Mon, 12/24/2012 - 11:45am

As it is going to be a slow day today, I thought readers might be interested in reviewing some of out most read blogs of the year.   Here are the top 5 blogs, in terms of total number or readers, on the year.  I hope you enjoy them:

1,  Calling a Bottom

2.  Is  A Hedged Market a Bull Market

3.  FB Going hard to Borrow?

4. The Greek Alpha

5  How the VIX Stays Flat on a Rebund

Not Bullish Call Action but a Div Play

Submitted by msebastian on Thu, 12/20/2012 - 5:05pm

Every quarter around this time, I get a call from at least one or two option mentoring students asking about all the call volume.  "Mark, have you seen all of the call volume going up in the ETF's?"  Then they send me a scan that looks like this:

highcallscan.PNG

LivevolX (R) www.livevol.com

At that point, I call the client and point out where all the volume is coming from.  Take a look at the call volume in SPY today:

 div.png

LivevolX (R) www.livevol.com

When the volatility don’t do what you think…

Submitted by atg on Wed, 12/19/2012 - 6:15pm

Not the best grammar but I wanted an attention grabber.

Did anyone catch the volatility markup at the end of the day today?  We had fairly solid preopening activity this morning, but news of the budget standoff sent the market into a small tailspin.  The volatility players are in the serious business of trying to handicap the outcome of the Fiscal Cliff talks.  Yesterday players were pricing in a much better shot of things going through earlier than not.  VIX traded as low as 15.57, as it sold off most of the day yesterday.  After an aggressive print on VIX settlement this morning, volatility traders started buying options in Jan cycle for the big indexes.

Is a Major Move in the SPX Upon Us?

Submitted by msebastian on Mon, 12/17/2012 - 3:53pm

Traders there are two very strange things going on in the option world right now.

1.  The HV IV spread is insanely insane.  With SPX IV trading at nearly 3X, realized volatility the market is pricing in options for a VERY big relative move in the near term.

SPX_4.png

Livevol (r) www.livevol.com

If we consider that, in order for the VIX to be this high and HV this low, expectations of a 1 or 2 day major realized vol spike must be the culprit.

This is further proven by our second strange thing, VIX term structure.

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