vxx

Embrace the SPX schizophrenia

We open this morning with another launch of .5 to .7% depending on where things get to.  I thought last week that 2015 was the year of the Iron Condor in the big indexes because there is lots of daily volatility but not really a follow through in any particular direction. That still looks to be the case. Mostly we have trading ranges that resemble a tempest in a teapot.  The Fed keeping things steady (Mark called that several times over the last few weeks) puts another sword into the volatility.

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VIX-VX Spread is A Gapping Hole

Today the Fed announced that they are dropping the word patient from their statement,  at the same time they announced they are patient.  The net result was a pop in both short and long term bonds and a strong move in long term interest rates.  In addition the Fed Fund Futures are now picking September or October for a rate hike (that might not even come then).  The net result was that every 'crowded trade' got smoked except one,  the VIX futures.  Take a look at the curve:

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NFP is NBD

 

If January was the month or realized volatility March is turning out to be the dud central for realized volatility.  HV 10 is clocking in around 5% so stocks are barely able to make move from close to close.  The skew is pretty steep keeping VIX higher but for the most part ATM volatility is low.  30 Day IV  is in the 11 handle ATM so there has not been a total collapse but it is getting there.

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IV goes into High Orbit

Stocks ended the week in an ugly fashion with the SPX down about 1.25%. There was enough in the bad sentiment train with Greece, Euro Area deflation, poor GDP and Russia annexing another part of the Ukraine. Not the stuff of rising markets with earnings only tepid this season. So far most companies that are reporting are doing better than estimates. Not 80% to blow it out but just ok.

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Spotting the SPX Reversal Using VIX

In Tuesday's webinar Options for Stock Traders I discussed how I can use VIX to spot intraday trends.  One of the strongest signals for a reversal is when the market is hitting new lows, but the VIX is failing to hit new highs and/or is actually declining in price.  We saw a clear example of that this morning.  The chart below shows a tick chart of SPX and VIX on the day.

 SPXVIX.png

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Stocks drop on good news so beware the realized vol

Stock got pasted again today despite the good consumer confidence numbers and retail sales.  Oil prices are going even lower and that should be good for the consumer too.  The retail index is holding up pretty well despite the 1.5% selloff into the close.  What has gotten the VIX futures in such a funk?

By the end of the day VIX cash has shot way up as players are avoiding the risk on the weekend.  Maybe there is not a budget bill and folks are nervous.  Something is definitely afoot.  Maybe the oil drop is too much of a good thing?

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Graphic Evidence of UVXY Crudiness

Over the last 3 months both VIX and VXX are actually up (albeit slightly for both).  You know what is not up on the year,  UVXY and TVIX.  The combo of levering and contango make the product pretty great in a market where the VIX is exploding (see mid October)  but pretty awful the rest of the time

Chart - UVXY - ProShares Ultra VIX Short-Term Futures ETF_window_screenshot.png

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Risk takes the Weekend off

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VIX Pointing Toward More Selling

Generally speaking, when the VIX is high, its a sale and when its low, its also a sale.  However, there is one time where the expected pay out of selling VIX futures or options is not that great, when the VIX curve starts to do this:

VIX_35.PNG

www.vixcentral.com

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