Is the market giving conflicting signals?
Looking at the rally Thursday, on what I would say is so-so news, I am reminded of the fact that over the last year most of the melting has been to the upside. The market has tended to take off like a shot with Fed easing and the BOJ declaring war on interest rates. The US market with a decent dividend yield is starting to look attractive all of a sudden. While I am still mild bullish, it pays to take a look at how the market is viewing volatility in the near term.
The 10 day volatility in the SPY is 18.5%. That takes into account the Boston bombing tragedy, but the market still had plenty of near 1% moves since then. What we have had is a market marching back up and the realized volatility has stayed firm. Note in the OptionVision™ Landscape below that most of the front month VIX options yesterday (when they opened) were slightly higher in the near term.
Implied volatility was increasing all across the board too, going into the close on Thursday. Those are the green option series below.
Normally I see this and then I think the open will be a bit weaker. This morning we opened down around .4% and it looks like we are treading water most of the day. The key is the action of Thursday. If the volatility gets bid into the close, that usually is a sign of a weaker tomorrow.
With the VIX still bid this afternoon this might be a good case of selling some premium into the weekend. Maybe an ATM time spread in the SPY in the first two weekly terms. I think the realized volatility holds up the back month and we should see the weekend wash out by Monday.
OptionVision™ – data from ORATS
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