term structure

The Next Internet Craze

Well, maybe not the next internet craze, and no this is not the title of the next Michael Lewis book.  The craze has already come and gone.  I like looking at new products and this KWEB (KraneShares CSI China Internet Trust) is interesting in that it has flown under the radar for a while.  No options trade on it, (hint: CBOE list them!) but the product moves around pretty good.

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Quien Es Mas Macho? NFLX or EEM

So the Friday rout in volatility did not materialize.  Stocks dutifully opened higher with VIX marking lower, and then everything went the other way.  Today the big premiums we saw in VIX futures got chewed up as VIX Apr closed just about flat with the VIX cash.  The VIX line in the sand at 13% is holding much better than Kaddafi’s Line of Death, and seemingly for months longer.

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Someone called the top in the growth stocks

Following up on Friday’s action we did get a little pull back in the index skew today.  VIX is in a touch and most of the vol. ETP’s might be even or down a touch with the market rolling in down .3%.    There still feels like something is brewing out there, but I cannot put my finger on it.  Gold is getting trounced since Ms. Yellen is looking more hawkish than dovish.  Who knew?  T-bonds are still clinging to some near term highs and that always gives me the heeby geebies until the shoe drops.

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This time the Fed ain’t saving you

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The Fed is continuing the modest tapering of bond purchases and thankfully ignoring the machinations in Turkey and Argentina. A stronger statement of course would be that they taper 20 billion instead of 10 billion.  There were some hopes that maybe with stocks lower that they would ride to the rescue.  That did not happen.

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VIX futures pick up a bid

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VXX short term IV is hitting lows

As 2014 continues with the not much happening award, there are some big mark downs going on in the volatility markets.  Stocks are sitting around, but volatility in the volatility products are hitting some very low levels.

Take VXX turning in 38% implied volatility with NFP still to come on Friday.  It feels like paper has all but taken out the possibility of a move in VXX for this week.


LivevolX (r) www.livevol.com

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Is the world less risky going into 2014?

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2013 was a blockbuster year for owning stocks.  It was a good, old fashioned bull market that we haven’t seen since the mid 90’s or 2007.  The most interesting thing is the bubble talk in stock prices.  Folks forget where stocks came from.  2011 was essentially a flat year and combined with 2012 the move up was just average.  In 2013 stocks started to pick up multiples as investors look for growth and specifically global growth.  In 2011 and 2012 stock just did not get a growth multiple.

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The pressure on VIX is building

Suffice it to say that the pressure on the market usually leaks out in various ways.  We are not going the Jello route today but continuing on a theme of building pressure.  Last week a lot of air went out of the volatility balloon and today it is running back in.  If you bought the VXX straddles we mentioned yesterday you would be hedging the upside deltas by now.

The front 3 months in the VIX futures are backward.  That is a sign of a move in VIX to come.  We noted yesterday that the market for volatility was very thin.  VXX Oct IV is up 17 point and Nov is up 12 points.  The move in VIX is far and away over pricing the current move down in the SPX.  Volatility is in another runaway situation.

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VIX curve in the near term is pancake flat

Today was just a good old rollercoaster ride in both the SPX and the VIX.  There was poor unemployment and ISM reports and that added to the gloomy Washington slime that is coating stocks.  The good news is that bad news is bad again.  The market is starting to look at bad economic data as bad for stocks as opposed to bullish for more QE

Livevol (r) www.livevol.com

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VIX volatility is wicked low

More fumblygook, new word, out of the Fed where there is a little he said/she said over the direction of the taper.  As I write this, the House of Representatives passed a spending bill without funding for the new health law which should shake things up a bit in the Senate.  All of this has some consequences for volatility.

Look at the IV30 for VIX this morning.  It is pretty much trading at a year low.  Look at the volatility spikes during the last two budget debates.  I think  IV is going higher and the volatility futures think so too.


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