End of the Dog Days of Summer
The Fed rose to the occasion again today and decided to be ready to act. I thought that was a fitting end to August as this month passed relatively quietly, unlike last year. The market got a little rally today along with gold and the Euro. Players are thinking it is better to go home long a little of everything than the other way around. The same can be said of the market implied volatility. For just about all financial assets, the volume is very light, so it’s really tough to gauge any path, but I will try below.
The Option Vision landscape below shows the VXX options. The little spikes are showing above average volume for the option class today. The VXX is trading right at average volume for most of the spikes except for September downside puts and upside calls. The Sep 15 calls are catching a small bid with the volatility up around 3 points. But the Sep 13 calls have the volatility down less than 1 point. The implied volatility in the Sep out of the money puts dropped as well (little red buildings) after the post-Bernanke volatility fire-sale did not really happen.
Really what we have is the near term movement driven by the European schedule over the next two weeks. The buying is in the upside volatility potential given some Euro surprise as most of the positive US news is swept under the carpet. I think players are just adding to their mix of assets and a little volatility won’t hurt. The calls they are leaning toward would need a big surprise downside move to generate any return. Ultimately though I think they are just hedging all of the other assets they own for the next couple of weeks. And like we have seen most of the last year, all the angst usually ends up being for nothing (with a couple of scary days in between).
OptionVision™ – data from ORATS
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