IV Crushed in SPX, OEX
1st things 1st, if you haven't read my article on Term Structure, take a look, I think it is quite interesting.
I had a former student of mine call to discuss weekend decay today. She was explaining to me that they must not have taken out the whole weekend, because when she came in on Monday her OEX butterfly had made money. I explained to her that in a weird way she was right, but for the most part not. What happened today had nothing to do with weekend decay it had to do with healthcare. Even though most people believe that the healthcare bill is nothing but a blip in the market (save the hardcore conspiracy theorists), there was some implied fear that the market would sell off after the vote went through. When that did not happen, implied volatilities got absolutely slaughter in the major market indexes. Especially the OEX which is at the lowest point it has been since July 2006. One thing I am paying attention to is the 1-5 IV spread. It is getting pretty wide. And the OEX is starting to look like it might be worth a gamble here or there.
FYI- In July 2006 I was living in a cruddy apartment, trading GM because there was a lot of speculation that the stock might go bankrupt. That was also when the VIX and VXO were hanging around their all time lows.
The point of this rambling is twofold:
1. Weekend decay did come out on Wednesday of last week, what we saw today was a full on volatility crush. If we look at weekend decay the VIX was down about .5% the oex was down around 1.25%!
2. some of the indexes are starting to look like somewhat interesting long gamma plays. I was debating whether to throw on a short time spread.
3. One more time, let’s say it all together calendars look scary right now. Calendars are really weird, the front-back month spread continues to widen. This has allowed calendars put on last week to MAKE money as the VIX fell. I just hope traders out there that have made money since Thursday are smart enough to take the 7% and hit the bricks because I have trouble imagining the spreads widening further. This can only lead to one of two things
-the front month IV increasing
-the back month IV decreasing
Both of these are bad for calendar traders, my thoughts, take the gift and go by the wife dinner (yes she's reading over my shoulder again:-)
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