We have made a few comments over the last few weeks that the VIX curve was out of whack as the cash index has traded at a steep discount to the futures contracts. We noted that we though a spread of about 2 points was justified based on tthe current VIX level and the days to expiry in the futures. Today, with the small sell off and the weekend effect, we saw the VIX futures essentially unchanged, while the VIX cash picked up .86. Consider the curve normalized
Every time bond vol has gotten this cheap it has been a screaming buy. We are there again, I like owning TLT premium and IEF premium for that matter.
Today in the Pit Report we were scrolling through IV levels that were popping up as cheap and one of the financials hit for the 1st time in a long time. The cheapest financial, by far, is JPM. While XLF and some of the other names that have already had earings have seen their vols back off, none has taken the dramatic drop in IV that hit JPM the last couple of days
The VIX got blasted today, so did the front month of the VIX futures term structure and SPX premiums. VIX premiums on the other hand...not so much. There continued to be hudge demand for both VIX puts and VIX calls in May, June, and July. In fact, while VIX has been choppy, VIX option vol has been pretty firm and rallying. This is likely due to earning season, and the issues in Japan. But, none this less this should be noted as it seems the smart money is less than convinced by today's rally.