VIX Pulls 180 Reversal, Breaks Correlation in Opposite Direction
VIX Pulls 180 Reversal, Breaks Correlation in Opposite Direction
When the market was down almost 14 points something odd struck me, the VIX barely moved. It was at that moment that I got long intraday. The reason: intraday, the VIX and SPX completely broke correlation. While some of that might have been due to weekend, the VIX was OVERLY soft. Take a look at what happened by dayís end:
Livevol www.livevol.com
Notice that the SPX was still down on the day, but so was SPX implied volatility. That is a SUPER bullish sign in the market. It points toward fear moving out of the market. This sets up a likely rally tomorrow morning and what appears to be a trip back to 17 for VIX. What makes this so strange was that up until today, VIX was trending higher, not lower. Why is did the VIX act this way? It could be a few things:
1. Anticipation of earnings continuing to be positive this month
2. The successful Spanish Auction
3. It came in conjunction with a BIG sell off in the bonds
4. US banks continue to outperform and companies keep beating earnings
The truth is, I do not know exactly what drove money Options, but it was something important. The bond market, confirming the VIX (or the other way around) also sold off heavily. Bonds are another major insurance product. Money is pulling out of insurance products, look for a big up day tomorrow. This in the face of AAPL, which seems to be a major drag on the overall markets.
The markets have been in a transition over the last few days. This is the cause behind all of the weird VIX movement, however, today's events could point toward an end to that occurance
The Trade:
If you can get into them, a short time spread in the overnight futures options makes a lot of sense. I would also be looking to hop in early. It also looks like TLT is due for a rough one tomorrow. That might be an interesting call sale.
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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 is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
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 is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
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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