One of the interesting things to watch, and one that I think shows how jittery this market is despite the rally, is the actual volatility of the VIX. ?Over the last 10 days, the Vol of VIX (not VVIX) has been near 220%. ?
LivevolX (R) www.livevol.com
That is an incredible daily swing. ?Yet the market climbs higher. ?Now, as my option mentoring students ask me what I think of option prices here, I have to ask myself: ?”was today’s VIX sell off overdone?” ?Take a look at 10, 20 and 30 day HV on SPX as of today.
LivevolX (R) www.livevol.com
10 day is near 16%, ?20 is near 13% and 30 day is near 12%. ?If we consider that the IV usually trades at a 2-4% premium to realized volatility, how does VIX trade 14% today?
While I think VIX will eventually settle back toward 12.5% I do not think the time is now. ?The market is simply moving around too much. ?Heck 10 day vol is not only higher than VIX, its higher than the March future and near even with the April future. ?Both futures appear not to be a great sale. ?We have a few major announcements coming up this week (non farms) and we have Europe and China. ?I am not looking for a big market sell off, but I am looking for continued market volatility.
The Trade:
We continue to think day trading volatility is the best approach. ?It has been very easy to go long or short options on an intra-day basis over the last 2 weeks. ?We expect that trade to continue. ?VIX probably got oversold today, it might be a good time for one to stick his or her toe in the water on some long SPX vol.
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