Friday, November 15, 2013

Aqumin Volatility Newsletter 11/15/2013 $SPY

A split market

The market is shaking off a few key items:

-A new Fed Chairman that gave nice testimony.

-Uncertainty around Healthcare.gov or the certainty it is a mess.

-The near 0 inflation in the Euro Zone but small growth is better than negative growth.

All of these things are not enough to lift volatility in the short term. As we go into the close the volatility in the near terms are getting pummeled. IV at the money is dropping as you can see in the OptionVision™ Landscape below. Options centered on the next budget debate are remaining bid.

11-15-2013 12-59-00 PM

Note that the IV is picking up in the months after February. Also note the upside calls are picking up more of a bid than the downside puts. Calls are still bid in the SPY. After seeing this over and over again this year, I will make the same conclusion that we are going higher by year end. The market for volatility just seems to have given up.

The one place where IV does exist is in the volatility futures. That future premium looks like it will decay even if there is a pickup in IV. We will probably see the 11 handle in the VIX next week. Buying OTM put butterflies on short duration in the VXX or similar product should be a good low cost way to ride the softening volatility. That might even finance owning some premium in the “budget debate” terms.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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