Friday, April 26, 2013

Aqumin Volatility Newsletter 04/26/2013 $SPY, $VIX

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.

4-26-2013 11-14-51 AM

Implied volatility was increasing all across the board too, going into the close on Thursday. Those are the green option series below.

4-26-2013 11-16-03 AM

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

Read more from Andrew at Option Pit

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