Move in VIX lacked punch
The IEA came out and said the bounce in oil was only temporary. That caught a lot of the oil market by surprise as many producers and drillers found new lows today. Now we are dealing with a short term, could be long term, gut in oil supplies as OPEC puts the squeeze on competitors. That was enough to foil the bank rally Thursday. The sell-off was half-hearted at best from a volatility point of view.
Note how the IV in the SPY closed Friday. Much of the downside IV actually showed red today. That means that per strike volatility declined on a day when VIX was actually up. Another way to put it was that skew flattened on a down day in stocks.
If you look at SDEX, which is a volatility index that measures 30 day IV on the ATM and 25 delta put options, it had a drop of .56 to 61.04. The SDEX is running in the same directions as the per strike IV, which it should. The general trend, when skew gets pretty flat and with IV in a middle tier, we should see a rally in stocks at some point. Usually that rally will give us a further drop in IV.
A decent idea would be to sell iron condors 60 days out into this. Stick with the bigger indexes and keep the delta flat since there is usually a bit of a lag.
OptionVision™ – data from ORATS
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