VolatilityAnalytics.com

  • About the Volatility Analytics Newsletter
  • Contact
  • VIX 101

Volatility Awakens as Stocks Pause

Posted by Scott Murray on May 1, 2013
Posted in: Uncategorized. Tagged: futures, Options, VIX, Volatility, VXX.

Short post today, as I’ve pretty much made it clear for a while where I think things are headed and what our positions are for the next two months. The focus today is squarely on volatility; if you can’t figure out what is happening by now to the global economy, then you aren’t paying any attention. All you need to know:

http://www.investing.com/economic-calendar/

Fear is not really a part of the game yet, as the VIX futures ticked a bit higher:

Symbol Contract Month Time Last Change Open High Low
VX K3-CF S&P 500 VOLATILITY May2013 16:44:38 15.15 0.67 14.45 15.30 14.40
VX M3-CF S&P 500 VOLATILITY June2013 16:44:37 15.95 0.52 15.40 16.05 15.30
VX N3-CF S&P 500 VOLATILITY July2013 16:44:37 16.70 0.41 16.20 16.75 16.12

By now, after months of mini false alarms, the market is going to have to prove it to the downside to get the VIX charged up. That probably means getting the S&P below the 50 day and failing to get back above it. A drift downward is certainly possible. The VIX front month (VIN) and next month (VIF) month moved far more relative to the futures, but the S&P options weren’t pricing in vol like the futures were, so they were playing catch up today:

Trade Date Expiration Date VIX Contract Month
5/1/2013 3:14:47 PM
18-May-13
14.35 1
5/1/2013 3:14:47 PM
22-Jun-13
14.55 2
5/1/2013 3:14:47 PM
20-Jul-13
15.19 3

The VXX is holding roughly 50% of May and 50% June futures, so with the back month already at nearly 16, VXX holders are going to need a real move in VIX over the next two weeks to see a real spike. It is in no man’s land in my opinion to do anything with it. If the VIX back month could get to 18 or so, then VXX puts would come into play.

The worst days for May historically are next week, so the selling got  off to an early start. Usually, the market treats the first two days of May with kindness, yet a confluence of events on the calendar this year are making that difficult. The ECB tomorrow is expected to do more than just a rate cut, which is probably a useless tool anyway due to the under-capitalization of the banking sector there. If they stand pat, the markets could get more turbulent. Commodities took a serious beating, and like I’ve said in past columns that has some meaning, especially with the dollar not exactly a headwind today.

Outlook/Action:

Put calendar in FB for .18 at $26 for May1/May. When you have an IV spread of over 50, it just begs for this kind of trade.

Sold a DIA bear call spread at 145/146 for May for .77. The risk/reward on this is roughly 1 to 8. Looking for more of this type. Still holding IYT, QQQ, IWM, DIA, SPY, XRT, XLF, OIH puts for June. And short UTX and UPS bear call spreads. Of course, short VXX against all that.

Like I’ve said in past columns, it is very, very rare for May to be a good month when no negative month preceded it in the current year. In 1985 it occurred, but then again, GDP that quarter was 7.1%. We’d be lucky to get 1.7% this year. Who knows, the trend is not broken.

Posts navigation

← VIX Sleeps, Economy Worsens
Volatility Retreats as Complacency Reigns →
  • Subscribe to the VA Newsletter – $30/mo

  • Follow us on Twitter

    Follow @VolatilityWiz
  • RSS Volatility Analytics RSS Feed

    • Volatility Analytics Newsletter Samples
  • Recent Posts

    • Volatility Analytics Newsletter Samples
    • Summer Volatility – Will it Vanish?
    • Creative Volatility Trading (Part 1) – Calendar Ratio Spreads
    • Trading Volatility in a Low Vol Market
    • How Much Short-Term Downside is Left in VXX and UVXY?
  • Archives

    • May 2021
    • May 2018
    • May 2017
    • April 2017
    • November 2015
    • August 2014
    • May 2014
    • March 2014
    • November 2013
    • October 2013
    • September 2013
    • August 2013
    • July 2013
    • June 2013
    • May 2013
    • April 2013
    • March 2013
    • February 2013
    • January 2013
    • December 2012
    • November 2012
  • RSS VIX and More Blog

    • The Latest on VXX and Additional Creation Unit Suspensions by Barclays
    • SPX Weekly Options Will Soon Be Available with Expirations Every Day of the Week
    • UVXY Dominates VIX ETPs By Dollar-Weighted Volume
  • Categories

    • Uncategorized
Proudly powered by WordPress Theme: Parament by Automattic.