strangles

Mar VIX on top of VIX with SPX on the Top

 

Rumors or facts are circulating outside of DC for once.  It looks like a midsize hedge fund had to close a short contract position and helped the VIX to a nasty settlement on Wednesday by helping up the IV in SPX.  The Total Tuesday Vol Crush gave way to the VIX pop on Wednesday and early Thursday.  What it did set up was a strange dynamic in the VIX futures.

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More Dirty Bird

 

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My general rule trading TWTR is don’t get long without puts.  After learning the hard way on the 2015 trip from mid 30 to the low 14s in 2016 the only thing that kept it from being a disaster was rolling my put protection down.  The near takeout in Oct/Nov gave me an exit which I took.  Now here we sit around 17.09 with Jan IV in the 30 handle.  Noone cares for the Dirty Bird anymore.

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Buy the Vol but don't buy the Vol

So as 2017 gets off to a raucous start let us compare and contrast with the start of 2017.   VIX was around 19.50 at the beginning of 2016 and quickly moved to the 30s as traders let the potential calamity of rising interest rates and possible Chinese meltdown rule the day.  We got the rate rise but China is still chugging albeit at exactly the same spot it was last year.  The only thing really different is that there is a new man in the White House come Jan 20th.  VIX is 11.85 going into the transition.

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Why is the VIX rising?

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Stocks have lost their way lately and can't really make a move anywhere.  Mostly that has got VIX moving with VIX cash moving to the mid-13's.  Yes you heard that we rallied hard to the mid 13s.  VIX Jan futures are getting close to 15.  This in a market where 60 day realized vol is still in the single digits.  VIX is pricing something that will happen next week.  Maybe around a surprise in rates to go along with the higher volatility in the rate complex.

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How cheap is post QE vol?

It seems since the August Flash Crash this is the cheapest volatility has gotten since before that time.  When I look at a vol chart it seems there is this year and last year.  When I look at BAC it is no exception.  There was last year’s IV and this year’s IV and now we have very low IV going into earnings.  I read this as the market expects little out of this earnings cycle.  Except someone forgot to tell the equity markets as  they have raced to new highs.

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Gold Vol drops like, well, a gold brick

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Stocks got a little lift today on what I do not know.  Draghi made some veiled references but for the most part the Euro kept up it's inexorable climb along with the JPN YEN holding up at year highs.  Who would have thought the dollar would be in the tank and the two most troubled trading blocks enjoy bouncy currencies.  Dollar weakness should equal gold strength and we did not see that today.  The 1 day hold in GLD killed the momentum and the IV.

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VIX futures move like wildfire

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We have one uneventful day and SPX tumbles 13 points causing the VIX futures to get heart palpitations.  3 weeks ago this move would have been a morning romp but the 8% SPX realized vol took all day to squeeze out this dive.  As usual look to what the VIX futures were doing to read the tea leaves.

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Massive Vol Implosion in TLT

Janet Yellen pushed up rates in one of the big moves in rates in 9 years.  Namely the up move as market volatility into the event went up to the mid-20s in VIX just last week.  What is a bit strange is that even with the rates raise well telegraphed TLT volatility was in the middle of the range.  Now that the news is out they are killing the volatility that is there.  TLT is barely moving today.

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Fed leaves things alone

Yet we have another FOMC announcement with the Fed choosing to do nothing.  I don’t know how far the economy has to grow before rates start to normalize but we have to be getting close now.  We had the 90’s and a government surplus and higher rates and no one was complaining.  Once again post-meeting the VIX dropped even with near sure 25 basis point rises in 2015 mapped out.

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