Friday, October 4, 2013

Aqumin Volatility Newsletter 10/04/2013 $VIX $SPX $SPY

Watching the weekend jump out of the options

The countdown is 13 days away and the big question now is if the two sides can come to an agreement early. So far Congress and the POTUS have pushed negotiations right to the last minute each time. Defunding the government is relatively small potatoes after the Downgrade of 2011 and the Fiscal Cliff of 2012. The arguments are still the same; they revolve around spending more money than we take in. Newt and Bill at least were fighting about how to balance the budget. Our current politicos are miles from there.

What the sentiment saw this morning was more IV. Index volatility rose on the open since another day passed with no news.

10-4-2013 1-53-43 PM

Fast forward 2 hours after the open and some cooperative statements had IV plummeting in the index. This is an OptionVision™ snap of the SPY. If there was any doubt the market is 95% driven by events in Washington DC lately, these 3D charts will corroborate that.

10-4-2013 1-56-03 PM

Recent history says this budget debate will be bitter and to the end. A small drop in IV today is just a stop on the road to October 17th. Buy the juice when you can. Use the drop in volatility to buy VIX call spreads and some VIX OTM puts. The Nov cycle with expire after the debt ceiling date so that is probably the best bet.

The weekend might be out of the options but no budget deal has been inked.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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