Friday, February 7, 2014

Aqumin Volatility Newsletter 02/07/2014 $SPY

Volatility traders are smart, sometimes

There is little doubt that stocks are a different beast at the start of 2014. As we look at the VIX tank this morning the index is getting to the magic number of 16%. That is a 1% move per day for the big SPX index. For 2013 the 360 day average realized volatility, take a guess, was 11.6%. The 10 day HV right now is almost 20%. Stocks have been smoking, mostly in the down direction.

Yesterday we had a nice relief rally on the decent short term jobless claims. Most of the data will be skewed from NFP because of the weather. At least that is what the rally this morning seems to be saying. The hope that the Taper will be cut short I think is a dead issue, so any rally on that is short lived. However, IV did act violently yesterday and the volatility traders were right.

The volatility traders were right as VIX notched below 16% today. I think with the panic exit from the EM’s subsiding VIX could get to 14% easy in a week. The smart volatility traders were there already. I like buying March dated OTM put time spreads in the VXX to ride the IV down.

2-7-2014 11-08-05 AM

The inverted scale OptionVision™ landscape has IV down all across the curve in the SPY. This is what I call a fast shift down. Save for the very OTM puts on left the IV got torched yesterday as traders started looking past the NFP number today.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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