The Fed will release some information by Wednesday that most likely will tell us that they are going to stay the course which isbuying bonds for now with an eye toward easing in the future that is now approaching faster than the last time they commented on it. The market has picked up all the losses from last week on what I cannot quite figure. Maybe for the USA a Fed taper is good since that means the economy can roll on its own. I agree with that but the markets keep selling off every time there is a whiff of that. Let’s see if there is something in bond volatility that can help us.
There was a lot of touchiness this week waiting for the NFP. As it turns out the number was ok even with the unemployment rate making a small uptick. Stocks caught a bid and are starting the slow grind back of possibly regaining some of the highs we saw just a couple of weeks ago. What is hard to believe is that VIX hit 18.6 yesterday early in the morning and it is now trading 15.49. That is a more than 3 point drop from the highs. It also says a lot about near term implied volatility.
The market did a big reversal today. Actually I am surprised that the VIX came in as much as it did but my only answer for that is that put holders had to bail once we started to rally. Whatever set the market to making the 1.5% move from the bottom made traders dump their juice. Another place traders have been dumping juice is in TSLA.
I want to characterize today with movement. AAPL trades from 441 to 422, GOOG trades from 894 to 916 and PCLN from 789 to 808. Stocks are moving again and I alluded to that yesterday that the realized volatility for names is starting to pick up. VIX managed up .04 but really the story is that stocks are moving and the reason is money is coming back into the market. I think this means that things that really were not possible with positions most of last year are possible now. You can buy some options and have a shot at making money. Let’s look at a stock in the basement, ZNGA.
Memory is a funky thing in the market. Right now many new investors and traders have the 2008 crash in the forefront of their minds. I don’t blame them. What we have had since then is mostly a declining volatility environment that has reared its ugly head on the big macro issues that faced us, namely the Euro and the US deficit. Remember it was the 1-2 punch that set things backward in the summer of 2011 since it looked like a total failure by leaders to get a handle on the problems of the day. Right now the trajectory appears to be better. How do we know? Every advance in fiscal prudence, even higher taxes, has been met with market rallies. Bernanke was QE’ing back in the Fall of 2012 and the market did not really take off until the Fisca
Somewhere between the ADP report on Wednesday and today’s NFP report the nation found a bunch of jobs. The broader markets also found themselves in record territory with NASDAQ making at least multiyear highs. What I find heartening (for bulls like me) is that the Treasuries are finally weakening with a near 3 point drop today. If the rally has to continue folks need to stop running to no-yield bonds. With better jobs news the need for the Fed to buy more is a much tougher case to make. The thing is we have .75% gaps in the SPX still and while the realized volatility has tailed a bit we are getting one to two days a week of bigger moves.
We were closing a position in the SL today and it was a ratio put spread turned into a very cheap (.04) butterfly and my feeling was BBRY is not quite done. Earnings are coming out in the July cycle and some trades that have been working very well lately are the modified earnings plays. What do I mean by that? Well the idea is to own gamma and pay very little in theta for duration of the trade. It is what Mark Longo calls on the Option Block “juice for free”.
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%.
The market had a bit of a reversal on Thursday for what reason I cannot quite figure out. Maybe politics but the economic news all week has been ok. Today there is the big shrug on the Sequester so maybe the politics will start to seep out of the market. One could hope. One name that took off on the close yesterday was Facebook (FB). FB spent most of the day in the mid-26 level only to ignite on the close to close 27.25. It was like all the sellers went home after the whatever deal was announced with MSFT. What it left at the end of the day was a really flat term structure.