The big Debt Crisis ended with a thud. Now it is up to a committee and the next election to decide if spending 8% or so of GDP on yearly deficit is a good idea. I will leave that for the pundits and voters to decide. What happened in the equity and volatility markets gave a more telling vote. The stocks sold off and VIX increased since my last post from 20.55 to 23.38. The worries are more about the economy and possible recession even with corporate profits (and global growth) currently very strong. Really just bad sentiment and uncertainty that is driving the market and the debt vote did little to change that. Since AlphaVision for Bloomberg has a historical function I thought it would be instructive to compare my last post to the volatility pricing on the close of August 3rd.
First as a review, last week I looked at 3 month Implied Volatility (IV) relative to 2 year lows (for color and position). If the building is red and at the bottom of each GICS Industry plate, the names are within 10% of 2 years lows (for the 3 month IV) and lowest relative for the group. I use height for 1 Day Price Change to isolate any gaps from the volatility read. I thought the Gold Stock (highlighted) volatility looked too cheap to me last week.
Now take a look at the same landscape this morning.
This is the nice thing about using visual cues in a landscape. The Gold Stock group that I have been following is less red (we were right from last week’s post) so the 3 month Implied Volatility has popped a bit. Also all the Gold Names became more bunched at the bottom from last week too which means they are staying closer to their 3 month Implied Volatility lows relative to the rest of the group (although not as low as before). It appears the market is relegating these names to the bottom of the volatility (less uncertainty about direction which I take to mean gold is not falling off a cliff any time soon) heap even as gold makes new highs.
I also had a broad quoted landscape of the volatility market last week (same view as above but panned out).
Notice there was a lot of red in it. Even going into the Debt Crisis vote plenty of names were trading within 10% of 3 month Implied Volatility 2 year lows. Now look at the close yesterday and what do you see?
Where did all the red go? Save for 10 or so names most of the 3 month Implied Volatility in equity market is well off their 2 year lows and much of it is 50% higher (dark green). After the Debt Vote, the 3 month Implied Volatility is higher in individual names then before which does not make sense to me. Yes we had a slide down but on balance the uncertainties have declined slightly (at least in the US). The Volatility market is not buying it for now so I will sit on the Gold Premium and start looking to sell some of the expanding volatilities in the ETF’s as opportunity and pricing permits. These sentiment driven markets can change in a hurry.
From last week- “the GLD and GDX ETFS’ are trading 19% and 14% of 3 Month Implied Volatility two year lows.”
The print from this week- the GLD and GDX ETFS’ are trading 26% and 20% of 3 Month Implied Volatility two year lows so we got a nice little move up in 3 month IV but not as much as the market overall.
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