SPX IV Back on Track

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SPX IV Back on Track

I have been commentating over past few weeks about the whippy nature of the SPX and SPX IV.  I have made mention that the SPX has been driving me nuts as it keeps breaking correlation one way or another.  Well after today, I think we are finally seeing some sort of 'tell' from the market, and it appears that a trip back to 1400 is in quick order.  Take a look at the SPX and the pattern of the IV:

Livevol (R) www.livevol.com


Notice that the currently price is higher than where the SPX was after its first trip down to 1390 from 1414.  If we look at the red line we can see that IV is down even harder than it was a few weeks ago.  What was worrying me was the orange circle.  Notice that the SPX hit the 1390 level just last week, but we saw IV much higher than it had previously been at that level.  That is typically a sign of confusion or transition in its nicest form, and at its worst, a major crash.

Now that the market has normalized, I think we might see another trip down to 15.50 in the VIX, which is the level I am looking for if this rally is going to break the old highs.  VIX term structure and falling Option IV, although its still elevated also point toward a potential rally.

The Trade:
I am loving short time spreads here, and I think Iron Condors make some sense as well.



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