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There is little doubt that stocks are a different beast at the start of 2014.? As we look at the VIX tank from Friday, the index is getting to the magic number of 16%.? That is a 1% move per day for the big SPX index.? For 2013 the 360 day average realized volatility, take a guess, was 11.6%.? The 10 day HV right now is almost 20%.? Stocks have been smoking, mostly in the down direction.
On Thursday, we had a nice relief rally on the decent short term jobless claims.? Most of the data will be skewed from NFP because of the weather.? At least that is what the rally Friday morning seems to be saying. ?I think, the hope that the Taper will be cut short is a dead issue, so any rally on that is short lived.? However, IV did act violently on Thursday and the volatility traders were right.
The inverted scale OptionVision landscape has IV down all across the curve in the SPY.? This is what I call a fast shift down.? Save for the very OTM puts on left, the IV got torched Thursday as traders started looking past the NFP number from Friday.
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The volatility traders were right, as VIX notched below 16% Friday afternoon.? I think with the panic exit from the EM?s subsiding VIX could get to 14% easy in a week.? The smart volatility traders were there already.? I like buying March dated OTM put time spreads in the VXX to ride the IV down.??
The Trade
Look at buying OTM VXX put time spreads around 5% OTM that generate decent theta. ?If the EM issue rocks again, the short put will provide some cover.
Disclosure: VXX positions