Over the last few weeks we have written blogs noting that IV was too low in Bonds, SPX, and FX. We left gold out, but it also could have been included in this list. The good news is that it means that markets are finally starting to recognize how much risk there is in the market place right now. Does this mean we are near a bottom? Probaby not, in SPX, but some names, most notably oil could be getting close. OIV, the VIX of Oil was over 75 today. If it gets into the 80's that would maret it at levels that equitiy markets saw in 2008.
While the SPX closed well off its lows and the VIX well off its highs, I found it interesting that SPX made the much bigger move. In addition it still managed to close below the Jan 20 close (while not toughing the lows from that day). At this point I think as I look at how equities and vol are moving, VIX looks like it really wants to blow out. Maybe not to 40 like in August, but I think we are going to see an intra day high that might be near levels we saw in January, maybe much higher....certainly higher than where we are today.
GOOGLE announced earingis on Monday and blew the doors off. Then after breaking the AAPL strong hold on highest market cap stock it has since completely died. What is interesting is how option traders are playing the move. Take a look at the skew curve in GOOG options in Feb and March ordinary:
LivevolX for Lightspeed
Today FXE which is the best listed optoin on the EUR/USD rate, had a really nice pop in its IV. Even so, its probably too cheap, Check out the the level over the last year relative to where IV ended today.
On Friday the market rallied 50 dollars, and the VIX sold off 2 bucks...into a weekend. Then yesterday the market sold of 1 point and the VIX gave away a little more. Today, the SPX sold of 35 bucks, basically the lows of Friday, and the VIX was up about 2.00 even. What gives? Well I think the answer lies in the futures. While the VIX cash has remained, save .02%, above 20, but managed to fall back into contango relative to the VIX futures and VXV. The VIX futrures have been trading in a backward state out to may the entire rally. Today's did not help.
While the VIX is still around 22, one index that is starting to move seriously back toward its mean is the VVIX, the VIX of VIX. Its finally well below 100 and appears on a mission to reach 90. Why does this matter? While VIX on its own is kind of worthless as an indicator (unless one has SPX to compare it to) VVIX is a great indicator on its own. When it completely spikes it actually can mean a top. When its elevated, like a backward curve it can mean bad thins for stocks. Well, it appears to be heading toward recent lows.