VIX put in a new low yesterday and seems like it wants to get back there.
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.
The euphoria of Thursday is now over. The rally we had on concessions from Greece now give way to the fact that the Syriza party is running for its next election realizing it cannot deliver on any promises besides sending Greece into the economic stone age. Volatility traders love this because it is, well, some volatility to trade. Volatility wants to move, but only at the pace of a 3 legged race. The will to move out is not there yet.
I toss that out there of course and I don’t mean VIX. What I do mean is the ATM volatility for the SPX. With the Greece deal on and off again the one thing that has been consistent over the last two days is the total immolation in implied volatility. The 9 handle for SPX ATM IV is a tough barrier to break because it means traders are actively hitting option bids on the downside to drive the ATM lower. We are almost there.
The best course for Option Income Trading Coming Feb 28th
I don’t know what the rally was from, a pop in oil, AAPL to the moon or a de-escalation in the Ukraine but a rally we had. Stocks fallen into a pattern of rally and retreat and today was no different. The last downturn was a mix of Greek elections and 10% of the market cap of the SPX going into the ash can with oil. Tech is leading now and the market loves tech leadership. NDX 5000, a sop to swinging 90’s is now a realistic target.
The NFP number was pretty good by most accounts. If we did not have the Euro issues, one would almost think the USA was getting back in the swing. Lower deficits, low rates with job and wage growth is looking pretty good right now. The problem is almost too good.
VIX expectations versus the Roll Yield crushing VXX options
I feel like that title is worthy of a WWF Cage Match special. But really folks, there is something else going on. With the VIX cash closing 21.48 and the VX/F (Jan VIX Future) closing 23.75 there is a solid upward expectation that volatility in SPX is going to pop in the January Cycle. Look at the CFE home page at www.cfe.cboe.com.
Setting up for 2012
As we get ready for the New Year at Option Pit I thought it would be nice to get traders in the mode by setting up their calendars (the real thing, not the spreads) and touch on some issues for 2012.