Monday, December 9, 2013

Aqumin Volatility Newsletter 12/09/2013 $VIX, $SPY

This could be the big one

Overall today is a quiet day after the big NFP report on Friday. Stocks are still moving in a positive direction with the SPY just .40 or so from an all-time high. That begs the question if it is time for the FOMC to take the punch bowl away from the party?

There is never a good time to say the gig is up to a dependent party, but the Fed has to at some point. If Congress can get a deal done like normal folks, that would go a long way to softening the blow. VIX is up just fractionally today, about .07 which is normal on a Monday with the Weekend Effect.

As you look at the 3D OptionVision™ landscape below, the bid is starting to rise in the downside puts for the SPY. Paper is just starting to nibble again at the thought of the Taper happening in December. This is shaping up for the 1st bond buying pullback by the Fed. If the downside curve continues to expand, that is a sign money is getting more nervous. Note how the downside strikes are just picking up a bit more bid than the ATM strikes below.

12-9-2013 2-49-59 PM

Even with the higher market, the VIX is not making new lows. That is usually a sign IV will not retreat in the very short term at a minimum. If that is the case long volatility positions will work out, at least until Dec 17th, the day before VIX expiration.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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