Earnings season kicked off on Monday, along with new “limit up/limit down” rules and with an hour left in the trading day, the market response has been kinda “meh” as the Dow is up is almost 6 points.?
But one market that is placing its bets on a selloff for earnings season is the derivatives markets, according to Barron’s Brendan Conway. Yep, the VIX products are painting a different picture.?
Citing a Bloomberg story,?the ratio of bullish call options on the VIX?versus bearish puts ended last month at its highest level last seen in March 2010.?
From the?10 most-owned VIX options, nine placed bets on volatility increases. For April $20 calls with their exercise level 44 percent higher than the last close, it is the owner of the greatest open interest.?
Ioan Smith, a Knight Capital Europe Ltd. strategist said on Friday to Bloomberg, “This earnings season isn?t as cut and dry as previous quarters. Expectations are being reined in somewhat, which may explain to some extent the continued demand for volatility. Given the increasingly uncertain macro environment, then there is a genuine concern that earnings beats may not be as frequent.?
But it’s not all gloom and doom. Conway cites some good news for holders of the following volatility ETFs:?VelocityShares Daily 2x VIX Short-Term ETN?(TVIX),?ProShares Ultra VIX Short-Term Futures ETF?(UVXY), and?Barclays iPath S&P 500 Short-term VIX Futures ETN?(VXX).
Investors nervous about current market conditions have been adding assets to these funds even though they’ve seen drastic declines in the first quarter. Look for this to continue for awhile.
The VIX is currently at 13.51, down 2.95%. Its Friday close was 13.92.