So much for that 34% spike in volatility. Much like the market shook off a case of the Mondays, so did the VIX, dropping from 19 to 14.6 in two days. Being short this market is an incredibly nimble affair. It’s almost as if you have to guess right on the entry point, and have a hair-trigger finger to cover. One would almost have to expect that this kind of action portends of more volatility, yet we just witnessed seven straight weeks where volatility was virtually absent. My guess, (and I emphasize the word guess), is that we cool off for a while entering March. Yet if the S&P surges back to 1530 without wasting time, you could certainly see another reversal at a failure there. A slow grind higher for a while would be the recipe for lower volatility and lower VXX.
The futures did not completely forget about Monday though; the front month now has a significant 6% premium to spot VIX, as the futures have traded in a much tighter range than the VIX itself. They didn’t buy the highs on Monday, and they’re not feeling as sanguine yet either. But, this is the way they normally act, with expiration being eons away at this point, March 20th.
Our April $19 VXX puts are performing; the plan now with a month and a half to go until expiration is to take what the VXX gives us. If the front month futures want to fall, then we’ll start taking profits at around .60. ($1 buck lower on the VXX should show us .70 on the 19’s) If the VIX futures want to remain at a premium to spot, then we’ll gladly wait. If volatility reemerges, then we will be glad to add. In the meantime, it will have to roll up, and that’s fine with us.
But this right here is no man’s land, volatility-wise.
Sidenote:
It’s amazing to me how little Congressmen/women on the finance committee know about finance. It is quite shocking frankly. The least they could do would be to read a little about how the Treasury and Federal Reserve work before they ask stupid questions of Mr. Bernanke. Here is Bob Corker, demonstrating complete ignorance with regard to Federal Reserve policy and operations. Guys like Senator Shelby and Elizabeth Warren are worse than Mr. Corker, but this is a solid example of these guys getting a paycheck without doing any homework.
http://finance.yahoo.com/video/corker-fed-punishing-people-whove-161000349.html
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