Don’t miss our webinar in March-?How to sell puts in an ugly market.
After again flirting with all-time highs, intraday stocks took about a .6% dump yesterday afternoon following the Fed Board minutes release.? They are going to continue to the Taper and there were even some hints at raising rates sometime in 2015 although that was just a few hawkish voices. The market had already given back some gains then teetered into the red for good.? The VIX was bid from the morning so IV seemed to have an inkling of a move.
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Note how the IV was bid all along the curve.? Essentially that is how the market acts when we are going to get a move.? The direction is unclear but upside calls this afternoon were jumping a bit versus the downside puts as you see in the upside skew.? The rise in VIX the last few days on the rally had the put buyers already out in force.? Mark had reported early this morning that this was a very nervous market even into the rallies.
The volatility futures closed with the March VIX future hanging just around the VIX cash.? The little bit of contango that existed throughout the day disappeared.? We have seen this time and again where the futures are just not catching a bid for more IV jumps.? The Fed is staying the course, yet again, so buyers looking for a little more accommodation got caught holding the bag.? Let?s see if they all hit the exits tomorrow or like the EM crisis it will be over very fast.
The Trade
If no real selloff in the AM, VXX should get back to 42 and VIX to 14.? A small put buy in the volatility ETP?s might be worth it once the market settles in.? If the market sells off early, hold off until the morning IV reverses all of its gains.
Bonds should be toast but the EM issues, Ukraine Riots, etc. have kept them as a safe harbor.? Maybe some out of the money puts would work here in a longer term time frame since the IV is so cheap.