Vol of Vol getting whacked
The market is continuing its rally this week into the FOMC meeting on Wednesday. What I find odd is there is no solution in Syria, no confirmation on QE and Congress is about to get into Cage Match III with the POTUS on the next round of budget talks. And we continue to rally. That is confidence.
The bond market is lingering near the bottom with not a lot of movement today. The only real movement is in the VVIX, or volatility of the VIX. I have VVIX down 1.54 today but a good picture is in my OptionVision™ landscape. Paper is pounding the Sep 15 puts on pretty heavy volume. The big spike is just heavy volume on lower IV.
What does that mean? Well the market thinks the VIX is not going to drop a lot going into expiration on Wednesday morning. Considering there is still $.60 of premium in the VIX futures paper is betting IV catches a bid into Wednesday. I think that is perfectly reasonable since the weekend is still in the options.
The market is expecting higher IV so we might as well wait for it. You could buy a nearer term ATM straddle in the SPY on Monday morning or buy a VIX Oct 15 level put on Tuesday before the close. From there see where the prices take either trade. There is a lot of confidence out there in stocks but I bet we see some higher IV in the very short term.
OptionVision™ – data from ORATS
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