The Fed is not going to Raise Rates in 2015

I know there continues to be some speculation about whether the Fed will raise rates in the 1st half of 2015,  right now the answer is a resounding NO.  In fact I think the Fed Funds rate stays at 0 for all of 2015.  Here is why they have TONS of cover.  Lets look at why:

1.  Employment.  The unemployment rate.  While the heavily reported U-3 rate is back to normal, the more important U-6 rate is still at levels from October of 2008, no where near normal levels.  Check out the spread between U-3 and U-6.

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A New VIX Cycle

As option mentors we do a lot of teaching on VIX.  When explaining the VIX one thing we like to discuss vol cycles.  The idea that the VIX has cyclical levels from low to somewhat low, to somewhat high, to high.  Clearly when the VIX was in the 10's and 11's the VIX was in a cyclically low level.  However, that appears to have changed (despite the sudden drop in realized volatility).  Even throwing out last months vol pop one should be able to see that the VIX pattern shifted

Chart - ^VIX - CBOE Volatility Index_window_screenshot_5.png

LivevolX (r) www.livevol.com

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The no Bueno volatility move


OPTION PIT 4-Day Boot Camp

Stocks had a ho-hum day today unless your name is AAPL.  The late afternoon bid for BHI by HAL might be a sign the oil services business is not dead yet.  The Russians are making lots of noise in the Ukraine again but that did not stop the SPX from making yet another new high.  It was a small high but a new high nonetheless.

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Yet another upside volatility crush

 Boot Camp is comin in Dec!  Stay tuned.

This is the 3rd or 4th recent record for the S&P 500 as I cannot remember because we have had so many.  Stocks are seeing renewed buying interest after the election and for now the wind is at the markets back.  There is not much wind in option premiums.  All the bears got their time in mid-October and for now that is all they have to hold onto.  The bump from the BOJ and ECB has put the kibosh on the bears hopes for now.

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Options on an Options Exchange?

The CBOE is at an all time high.  As I stated multiple times in the last few months,  for those who might be afraid of things like VIX or even 'options' stock on CBOE itself can be a hedge on the market.  Why?  Because when the market is tanking CBOE is breaking records in VIX and sometimes SPX.  In addition to a the stock likely rallying in a down market, it has a dividend and listed options.  So even when it sits there is a chance to collect some income.  

The stock is at an all time high and I think it could make some sense to buy call options on the exchange.  Take a look at the chart below:

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Front Running VIX

Ahead of nonfarm payrolls the general belief is that implied volatility will increase.  This is true,  where consus is wrong is when IV peaks.  General consus is that it will peak on Thursday just before payrolls are announced.  While historically this is true, it has not been true over the last few years.  Look at the graph below, what one will notice is that IV has a pattern ahead of Nonfarms.

1.  IV starts to rise Monday

2. It rises all the way until midday on Wednesday

3.  There is a push to lower IV's, somewhat aggresively on Thursday morning

4.  They catch a small bid (lower than Wednesday mornings high) on Thursday night

5. They plummet on Friday

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SPX 2017 and All Is Well??

Anytime the market hits an all time high I typically expect to see either a near low term or at least close a near term low.  This is not the case with the SPX and the VIX right.  SPX is at an all time high but the VIX is about 2.5 points higher than it was the last time we got up here.


livevolX (r) www.livevol.com

The Trade:

Straddles continue to be too cheap in my opinion,  when the SPX is at an all time high and VIX is still elevated, the underlying is going to keep moving

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Graphic Evidence of UVXY Crudiness

Over the last 3 months both VIX and VXX are actually up (albeit slightly for both).  You know what is not up on the year,  UVXY and TVIX.  The combo of levering and contango make the product pretty great in a market where the VIX is exploding (see mid October)  but pretty awful the rest of the time

Chart - UVXY - ProShares Ultra VIX Short-Term Futures ETF_window_screenshot.png

LivevolX (r) www.livevol.coml

The Trade:

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Next Week's ATM Straddle is Too Cheap..AGAIN

Last Friday we wrote how the SPX ATM straddle was pricing in a level of around 34 bucks a spread,  this after the SPX had just ripped up 70 points or so.  At the time VIX was around 16.  Since then the market has ripped up higher a little over 35 points.  The straddle is worth close to 40.00 a spread.  Today, the VIX is down to below 14.50 after moving 35 points in 3 days.  With 8 full trading days to go, the SPX straddle expiring next week is pricing in under 33.50 dollars a spread.

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VVIX Remain Sky High

Do you have questions about the options markets, how options markets work (or how options work) tweet questions for the blog @optionpit

While the S&P 500 has recoverd to its 100 Day Moving Average (we shall see if it gets past their)  the VIX and VVIX remain high relative to where they were at the beginning of the month.  For the VIX this makes some sense as Friday and Monday were the first back to back less than 1% movement days in the SPX in sometime.   VIX options also continue to have extrodinarily high vols.  The VVIX, the VIX of VIX has remained above 100 for a long period of time.

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