VIX skew getting a little lift
The market is falling off today mostly as a result of the chatter on the “taper talk”. With economic data improving, the reason for the Fed to become a bigger holder of debt is looking less and less like a necessary idea. From a volatility point of view, how is the market starting to absorb the fact that the easy money days are soon to be over? The answer to that is the upside in VIX is starting to pick up.
Market volatility is near the year lows so it was hard for it to get much cheaper. VIX below 12 printed only a couple of time this year. Volatility generally responds to an impending move by making skew jump up a bit. We are starting to see that this morning. Note the upside calls in the VIX are picking up some volatility as shown in my OptionVision™ landscape. The OTM options are picking up volatility faster than the ATM options. This is just a little caution creeping into the market.
The interesting thing is most of the IV blip is concentrated in the two near term option months. The volatility is reacting in the short term, but there is almost no activity in the 3rd month. If the rise in IV starts to fade it would make sense to buy a VIX strangle around the 13/14 strikes for a $1.00. If VIX prints like it did yesterday below 12 the intrinsic value of the strangle would be at least $1 so there is low risk. If the market starts to really fall on the taper talks VIX is back to 16 in a hurry.
OptionVision™ – data from ORATS
Read more from Andrew at Option Pit
Posts
No comments:
Post a Comment