Traders, something HAS to give in this market place. As many of you know, realized volatility has been in the toilet. This means that the market has been doing little to nothing for sometime. Today, 30 day Historical volatility is going to close at under 13%! That is unbelieveably low. We can see the slow move in the SPX, and its HV falling off a cliff in the chart below:
Graph from livevol (r) www.livevol.com
Getting to a number in stocks and indexes is important: AAPL at $500 (oh sorry, not yet there, but are there doubts?), the Dow when it first crossed 10,000 (the second and third time not as fun), and the VIX below $20. When the VIX is below 20, the market is entering a lower volatility environment, and fund managers get to rejoice again as they try to beat the S&P 500 up. That is a far cry from the opportunities in the 4th quarter of 2011. The step sister of the VIX is the VXX ETN, which is made up of the front two VIX future months. We watch it pretty closely at Option Pit in Option Pit Live. It is a nice trading product. What I am waiting for is a close and drop below $26. Why you ask?
It is somewhat common knowledge that I continue to be a seller of option premiums right now. However, that doesn’t mean that traders should be selling all option premiums. There are a few tech names where the implied volatilities have been crushed to levels that we have not seen in some time. Take AAPL for instance: 30 day option implied volatility is at two year lows:
LiveVol (R) www.livevol.com
To show you how great of an effect that the Fed, Europe, and congress is having on the market, I thought I would point out something unique that is currently happening: Here is a quick look at volatility in the SPX
Livevol (r) www.livevol.com
The Jan VIX Future settles 23.64 for the high tick of the day. Who knew?
The VIX settlement price is always a hot topic on the Option Pit Report. The Tuesday before VIX settlement is a little game about how the cash will price the expiring future contract. This expiration was no exception. The January VIX contract settled at the high point for the day at 23.64. Take a look at the VIX intraday chart below in the “burst” of opening volatility. The index was in a real hurry to print up and spent the rest of the day melting down.
charts by www.Livevolpro.com
Don't forget to register for tomorrow's webinar. You can do it here.
I have been saying for some time that I thought we were going to touch 1300. Now that we have, where are we going from here? I'll be honest, I am on the fence. There are a few things coming out of option prices that make me bullish:
1. VIX futures are in a somewhat heavy contango
2. Market momentum
3. The way the SPX has shrugged off bad news on Friday
Then there are a few things that I really don’t like. Maybe they are more of a long term. Maybe they are short term.
1. Today's turnaround was as bearish as Friday's turnaround was bullish
Are the US Equity markets still connected to the Euro mess?
Last year was really two different years rolled into one. There was the Go Go equity climate till late June (NFLX $250 bid anyone?), and then Congress ruined it by passing the buck on a historic deficit reduction package. I still think the market was looking for some leadership and ended up with zip. Anyone with an electronic device knows what happened then, as the VIX became the most quoted index in the land. The European Do Nothings joined their US counterparts, and the fire was lit.
We will be having the second free webinar in our using the VIX to trade series. Go to our EVENTS page to register. Also, make sure to read the Option Pit Challenge below:
As I was looking at the VIX trading relative to the SPX, I was struck by a few things:
1. While the VIX really threatened to break 20, it never did. The VIX rallied toward the end of the day, which shows there are some buyers of insurance that are willing to step in and buy insurance with the VIX at 20.00
