An old saying goes, “there is always a bull market somewhere.” What is notable for me as a volatility trader is the size and speed of how that new bull market materializes. On a day like the February 22nd when most of the equity market went to pot what sprouted among the ashes?
For a look at the 3200 or so stocks, indexes and ETF’s that have listed options the market looked a lot like this (see below) on the close. This is a snapshot of an Aqumin Landscape View, Cheap Implied Volatility 30 Day, showing both Percentage Price Change on the Day and the Ratio of 30 Day Implied Volatility to the lows of the year (note the chart of the VXX 30 Day Implied Volatility for the 25 delta call in the lower right chart). Essentially tall, red buildings are very near their 30 Day Implied Volatility lows of the year and had a banner day on February 22nd. (www.aqumin.com)
What was the standout? That old victim of the perpetual VIX future roll the short term VIX future ETF, the VXX. The solid selloff caused the biggest move that ETF has seen in a longtime; more than a 10% jump in price and option Implied Volatility. The other giant building on the far left of the landscape is the EDZ (Direxion Daily Emerging Markets Bear 3x ETF) in the Asset Allocation Subsector.
The Bull Market for February 22nd was in Volatility Assets and Inverse Index Funds (well most of it). This jump in these names was just the first shot of two financial products coming off of near 1 year lows in both Price and Volatility on a day when world events took center stage. The real question is whether these are sustainable new mini-bull markets in these products. If the addled Mr. Gadhafi gets the hook like the much more genteel Mr. Mubarak, the bull market in these two names will be short indeed.
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