Friday, March 7, 2014

Aqumin Volatility Newsletter 03/07/2014 $SPY

Where the Vol is

The NFP number is out and it was much better than expected. The US economy is stronger than anyone gives it credit for. After all we were a business before we were a country. Memories take a while to shake off and with early activity showing the SPX up around $9 the memories of the Great Recession, Greek Crisis, Euro Collapse, Fiscal Cliff and Government Shutdown are starting to fade.

That almost sounds comical as most of these issues were caused by politicians, and too loose credit getting levered up in the financial markets. Place the blame where you will. For now, the easy credit will tighten. The market likes it but they are hedging.

We have had several days of rally after the Russian mini-invasion of Ukraine and the VIX has not really dropped a whole lot. That could be from the fact the Russians are still there or it could be that paper is still buying options. It is probably the later more than the former. Note the heavy activity in the options on Thursday, March 6th. Buying downside puts and upside calls with IV slightly up in most of the strikes.

3-7-2014 9-28-41 AM

Options love bull markets and the call buyers think we can get to higher levels pushing the IV up with it. Even an absence of call sellers can keep IV higher. The trades that look best are broken wing butterflies away from the ATM in the SPY/SPX that sell some of the higher skew and let the market float up (or down) to them. If the market runs out of gas or keeps gassing, keep the credit.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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