vxx

Volatility Tension

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With 4 ½ weeks to go in the VIX Aug cycle, there is not a lot of enthusiasm for the August VIX future.   Is it cash too high or futures too low or just a combination of them both?  There was an average mark up in VIX due to the weekend but not much more than that.  Stocks sold off but really did not have a lot of gas to keep going down.

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Don't Hold VXX to Track VIX EX# 1000505

Just about every source has written about how, the VXX is what we thought it was:  a good way to day trade volatility and a terrible vehicle for tracking the VIX.  We have written  about it multiple times.  , Bill at VIXandMore has, Jared at Condor Options has, actually just about everyone has.  However, very rarely do we get such a clear example of how the ETN fails as a multi-day VIX tracker than we saw over the last two days.  Take a look at this chart:

VXXvxVIX.png

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VIX has its revenge

With Syrian warplanes getting into the mix stocks took a slight pause today.  Between Syria and Iran the ISIS militants have found a more able adversary.  Early in the session the NDX was moving into some lofty ground but by the end of the day started to head into negative territory.  The only names still up were Treasuries and the volatility products.

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Did volatility hit rock bottom on Friday?

At least for now VIX hit rock bottom on Friday.  There are several components to the volatility complex and VIX is just one of them.  As far as the volatility futures are concerned they did break lower today for a while.  VXX, which is made up of volatility futures, touched below $30 to record a new low for the year.

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Vol of Vol bottoming out?

I am fresh from a webinar for TradeMonster entitled “Trading in a Low Volatility Environment”.  It was good to have so many questions about the alternative trade setups.  The big takeaway of course is that a trade set up when vol is cheap has a certain character.  With the VIX staying comfortably below the 12 handle we certainly are that.  The surprise of course is the economy can contract and we rally to all-time highs.  I guess paper wanted to buy the recession dip due to the bad weather.  From what I can tell global cooling is a lot worse on the economy than global warming but good for stocks.

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Was VXX invited to the party?

One too many mediocre earnings reports sent stocks swooning coupled with a “tough love” shout by one of the Fed bigwigs.  The simple reason is that stocks have run and the reasons to keep buying them are less compelling.  The big slowdown from the winter deep freeze keeps showing up in company earnings as many folks in the Midwest eastward stayed home and burned fossil fuel.

charts by www.Livevolpro.com

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Who wants to buy the juice?

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The market drifts lower today and nobody seemed to care.  It is only May 14th and Summer is still a month away officially so this is a bizarre kind of complacency, or is it?  The volatility futures did have a little pullback priced in with the VIX trading near 12%.  The premium in the front month was a $1.05 on the close and a shade more yesterday.

 

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UVXY trades at a low for the year

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Stocks have been making small gains over the last two days as the great tech sector rotation has moved from the new tech stocks back to the old tech stocks.  The high fliers in 2000 are starting to fly again and the Young Turks in social networks have taken it on the chin as they drop like Icarus from the sky.

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Volatility is starting to sag

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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?

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Gamma sensitive options get pasted for now

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.

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