I know things are goofy when I have a backspread in the VIX for our Strategy Letter going into the NFP and the long side did nada Friday.? With the VIX up around .49 near the end of the session and with the selloff there was zip for follow through in volatility.? We mentioned early this week about the degree of ?boughtness? (I just invented that word) in the protection products, namely index puts, VIX calls and the slow but steady increase in the TLT.? Well the BOJ seemed to change all that.? What the market saw as the light at the end of the QE tunnel in 2013 could easily be cast aside.? The BOJ hit rates with a circus mallet and all the T Bond shorts ran for the hills.? The NFP number just proved how unsteady our recovery in employment is which bodes for a continuation of the liquidity train.
Where was the option volume?? In the TLT the standout volume was in the May 120 put.? And the funny thing was the IV did not budge.? The TLT May 120 puts traded on scattered blocks and it was not enough to move the needle.? Most of the paper looked like they were buying these puts seeing if this big gap will hold.
I understand the rush to safety.? And to be honest I don?t know if it is worth fading this gap in the Treasuries put buying paper or not.? What if the Fed doubles down like the BOJ is doing?? ?A big clue is that the volatility in equities did not take off. Two days of 1% moves and the VIX cannot scare 16.? We even had the cash VIX over the Apr futures this morning as the volatility could not keep up with realized. ?At the close today there is only .20 premium in the futures. ?Hardly a precursor of higher volatility expectations near term. ?That ususally means that more moves are ahead but the IV is going lower. ?My question is lower to where, 12 VIX?? Maybe there is something to all of this easing liquidity and that is keeping a floor on what happens.? The backward cash over future might be a false signal with the IV so low and I will take it at that.? Still feels like a bizarro world.
The Trade
What we have is a market suited for Iron Condors in the indexes.? The moves down seem to bounce and now that employment growth looks stunted the upside like the 1st quarter is in the rearview mirror.? There is a 2 week lull until earnings so I think it best to use it.? Just keep away from the ATM.
We do have a TLT trade but it is in our Strategy Letter.? Sign up for Option Pit Live and you can check it out.
If you want to learn what all this means- ?This is the type of information we will train you to analyze in our?gold course. ?If you needed help following this trade, you should be in that course. ?Call us at 888 Trade 01 and ask for Taylor or Joel.