Thursday, June 13, 2013

Aqumin Volatility Newsletter 06/13/2013 - $SPY

The Orderly Decline of the Market

The last few days are if anything a sign that all good things must come to an end. The market has now gone from the proposition the Fed will stop buying paper to the realization that the Fed is going to stop buying paper. The BOJ is declaring success and no need for further stimulus as the debt there got to 140% of GDP. Lucky for them it is domestically held. A big part of our rally, at least I thought, was the semblance of some fiscal order in the US after the Fiscal Cliff tax hikes and the dreaded Sequester. The market flew all the while knowing the Fed would taper when the unemployment picture got better. My thought here is that the lack of budget talk by Congress after the results of lower spending and higher taxes has knocked 500 billion off the deficit is removing what was a positive catalyst. Anytime the market sees clarity it rallies and when things get murky we selloff. The two big pins of deficit reduction and low rates are unsettling folks. Is it a panic selloff?

Below is the OptionVision™ Landscape with the SPY using just a change in IV on the close Wednesday. Ignore the first term because it expires in two days. The rest of the market for volatility is moving in a very uniform way. This happens when the market slowly sells off and the index creeps down skew curve. Note how there is no increase in the OTM puts strikes. If anything, the upside calls are catching more of a bid as the skew flattens there but overall a uniform selloff.

6-13-2013 11-50-04 AM

Is this a sign of the bottom short term?  Nope. It is not a sign of a panic either. The market for volatility is going up because it is supposed to. The market is taking a breather as it gives back most of the 1600 and above level since the two good reasons for being there are going away. Take the volatility where it is and look at a downside and upside butterfly in the SPY with about 6 strikes apart. Let the market go to where it is going to go.


OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

No comments:

Post a Comment