Trading Gold

Tech is still where it’s at with most of the big names reporting earnings beats.  Even lowly TWTR managed to squeak out a big move up now that profitability looks much more likely.  Long term IV is still cheap in there.  Evaluating volatility and position structure is a learned skill and that is what we teach in our Gold Course.

The Trade

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SPX Vol is Probably Too Cheap

When I look at a day where the S&P moved about .75% and has moved more than 1% in a lot of recent days,  then see 60 HV higher than 30 day IV I start to think one thing:  vol is too cheap.  Think about it, one could have bought an ATM straddle at just about any day over the last few weeks and hit a complete homerun.  Take a look at movement realtive to vol in the last few weeks.  Its not like movement has backed off:

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SPX Vol Has Bounced

In the last two weeks we have seen a few surprizing things out of SPX vol.  We saw a settlement in VIX below 12.50 and we saw 10 day realized vol dip below 5%.  Surprizingly low given how much the market was moving a month ago, and even considering how hard the SPX rallied in April.  Yet there it was.


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Market is Nervous

While the SPX only sold off 1% today, and is off less than 2% from the recent top,  the VIX is sounding the alarm.  On October 22nd the SPX closed 2052, the VIX settled 14.45%.  Today, the SPX settled 2078, the VIX closed 16.52%.  Generally speaking when we see the VIX incrementally hitting higher levels relative to similar levels in the SPX that is NOT a great sign for the market.  The VIX has actually been creeping higher since early last week and appears to be primed to react hard to any sell off....essentially the market is become very tired of this sell off.

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Realize Vol Higher than Implied

While we all know the VIX is the best known measure of SPX volatility, there are some different ways of looking at IV.  Livevol has an IV30 measure that I think tracks VIX quite well, but puts a little less ephasis on put prices as the VIX.  Since we use LivevolX extensively, this means we look at IV30 alot.  One thing we always look for is when realized volatility in the last month passes IV30.  We saw that happen today:

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Say Good Bye to 11 VIX...For Now

There are many people smarter than us calling for a new vol regime.  While we are not 100% sold that is the case, we can say with certainty that a VIX with an 11 handle is going to be very difficult to get to in the next few months.  Why?  Realized volatility.  The market is moving again, something it did not do for months on end.  Take a look at 10, 20 and 30 day HV relative to SPX implied vol.

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SPX Vol Continues to Be Firm

The S&P 500 has blown up higher and is now closer to 2100 than 2000.  Yet the VIX continues to be firm holding above 13.5, even in a somewhat low realized vol enviornment.  It is pretty clear in the chart below:

Chart - ^SPX_window_screenshot.png

LivevolX (r) www.livevol.com

The question is why?  There are two arguements:

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