SPX Volatility Is Ramping Up
SPX Volatility Is Ramping Up
Traders, I have two points to make today. First, I see little to celebrate in yesterday's market movement. The SPX closed up over 2%, and the DOW was up almost 3%, but the VIX did not move in the same manner as SPX.
If one takes the time to quickly review where implied volatilities were the last time we were trading 1165 or so, one will notice something quite drastic. The green line below is drawn from where SPX vol was 4 trading days ago when the SPX was at 1166. Just visually, it is apparent how much higher implied volatility is relative to where it was only a few days ago. I think this is a major head fake.
To further prove things, VIX future has some interesting movement.
Futures were down across the board, but the term structure hardly moved. This implied there is still a massive amount of near term fear priced into the futures and an expectation that things are going to continue to be bad. It is one thing to be backwardated; it is another to be backwardated by almost 3%. That is a major amount of immediate fear.
Basically, any small bad news is going to send the market right back south and moderate to really bad news could absolutely clobber the market. I think many are waiting for another shoe to drop, and it could, if the Europeans donít clean up their house.
VXN-VIX Update
On a more interesting note, I pointed out several days ago that VXN was trading at a major discount to VIX. It traded as high as 2.75%, lower than VIX. Anytime we have seen that type of spread form, things have righted themselves pretty quickly. Today we saw that happen as NDX had a pretty rough day most of the day, and VXN actually popped back over VIX today. This could signal that some of strength. We have seen in the NASDAQ stocks are over (that means you AAPL). My thoughts, I think it might make sense to sell NDX and buy SPX here, or possibly even one of the NASDAQ Alpha Index trades (AVSPY) anyone?
Images courtesy of Live Vol.
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Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
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