Tuesday, November 11, 2014

Aqumin Volatility Newsletter 11-11-14 $SPX, $VIX

The Vol walls are coming down

This may be the 3rd or 4th recent record for the S&P 500 as I cannot remember because we have had so many.  Stocks are seeing renewed buying interest after the election and for now the wind is at the market’s back.  There is not much wind in option premiums.  All the bears got their time in mid-October and for now that is all they have to hold onto.  The bump from the BOJ and ECB has put the kibosh on the bear’s hopes for now.

That brings us to the crush in IV yesterday.  Traders crushed it on Friday and they crushed it Monday.  Even another dustup in Ukraine was not enough to make folks worry.  Note the upside selling in the OptionVision™ 3D volatility chart below.  The scale is inverted so the tall red spikes are more selling.

11-11-2014 9-58-22 AM

Traders are discounting the big rally now.  We can still rally but the crazy QE induced stuff should be out of the way.  Old fashioned economic stuff will have to drive stocks and there is not much of that until after Thanksgiving.  I don’t think there is more than 1 point in the VIX to drop over the next two weeks, if it drops that much, after today.

An idea would be Double Calendars in the SPX (50 points wide) since there is some backwardation and liquidity providers have discounted Thanksgiving options already.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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