Two days in a row of small moves is enough to give the most die hard juice buyer indigestion. The volatility of VXX options is now sub-50, 30 days out. For VXX, peaking around $46 a few days ago, the vol ETP is sliding toward $40. A level it has not been able to stay below since January, before the emerging markets crisis. Do you remember that?
It looked real ugly this morning toward noon. From what I could tell there was enough decent news to push stocks higher pre-open and then the flood gates of selling opened, hitting the momentum stocks particularly hard. The on again/off again saga of the Russians camping out in the Ukraine is putting the market into a tizzy. A near term weak market gets downright ugly when the liquidity dries up after countries start shooting at each other.
Today was a serious test: was the market going to completely give it away, or was what we saw today the bottom. In clear order, it seems that, all other things being equal, we hit a bottom on Friday. Watching the relationship between S&P and VIX intraday, one could see earlier in the day, even as the SPX was hitting new highs, the VIX was climbing. We quickly sold off.
As vol rallied earlier this week, it was noted by a few people that the spread between SPX vol, the VIX and NDX vol, the VXN is at its widest point in years. One might think that with the NDX calming down and VIX moving back to the sub 14 level that the spread would have tightened significantly...it has not. Take a look:
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.
The stock market looks like it has had enough of tepid job reports. There were big hopes of 275k plus jobs, but all of those hopes were dashed today. The happy number was private payrolls are back up to the pre 2008 crash highs. I guess that means government payrolls are not, but somehow we are spending a whole lot more money than we were back then. Either way stocks were a bit grumpy about it.
Stocks made a little rally today on the good economic news in the morning. Much of the early gains went away as the day wore on. For what seems like the 5th time this week, the VIX cannot hold the lows of the day into the close. As I write this, with 30 minutes to go today, the sub-14 VIX came and went with the slow deterioration of sentiment.
Where did it come from? To keep with the story of the last couple weeks, the OTM puts continue to attract the attention of premium buyers. Maybe the Russian’s massing on the boarder has something to do with it but there is still a bid for OTM IV going into the weekend.
It has been about a month since the VIX broke from its highs. Since then the S&P has crept higher and/or floated around 1850-1880 somewhat consistently. While there has been some gyration of prices for the most part, SPX vol has been stable. At the same time, VIX has been so stable and range bound at a level that remains stubbornly above 14 and more like 14.50-15%. However, I am wondering whether that time may be ending. Take a look at the VIX futures from Today and two days ago.