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VIX Expiration Nearing as NYMO shows 2nd Highest Level of the Year

Scott Murray — Mon, 18 Aug 2014 23:12:10 +0000

VIX expiration is clearly playing by the book this month, and it certainly appears that 2 million calls will expire worthless. With markets trading on minuscule volume, a pin of 13 is looking almost easy which would burn another 500k+ puts under 13 as well. What happens after Wednesday and as September approaches is anybody’s guess, but here is a clue about what could occur:

The next two days I will be moving things around to prepare for the next cycle. (This week’s newsletter will be out tomorrow at around 10pm.) If the market wants to march higher in a straight line tomorrow, that will make things easier and offer the best prices.

Meanwhile, the NYMO is showing short-term overbought levels:

The NYMO is the black line plotted against the SPY. The high for the NYMO in 2014 was 68 in February (just before Feb’s VIX expiration, shocking), and while it does not portend of a drop in the S&P 500, it does usually mean that some sideways action is in order at a minimum.

If the market does turn lower after Wednesday, it will be interesting what the media invents for a reason this time….

VIX Plummets – Drags September Future Down To July Levels

Scott Murray — Wed, 13 Aug 2014 23:02:56 +0000

In four trading days, the sentiment has gone from “the correction is finally here, the world is totally unstable”, to “the Fed can’t raise rates because the consumer is in trouble”. Is one of those supposed to be good news? Here is the truth: Retail sales rose 3.7% over last July. (month on month results are great headlines but miss the point) The economy is doing fine and nothing has changed. Meanwhile, historical patterns and typical 3rd week OPEX cycle volatility occurred, almost as if it was by script.

The VIX September future dropped by 6% to levels seen before the sell-off:

As the VIX fell to 13:

The VIX futures curve steepened, and contango magically reappeared:

The SPY has retraced 50% of the drop, making Fibonacci fans excited:

So for the bulls, it appears to be all systems go for now. Our short positions on long vol have evaporated in a couple of days, and it is time to start looking at the other side of the coin. I started nibbling at selling premium on short volatility today, knowing that these bull moves can play out for a while. If nothing more, I’m establishing some hedges.

The middle of August into OPEX and just beyond historically sets up bullish, so lets see if this year continues to play by the book.

This week’s newsletter was published last night and the link to subscribe is above.

VIX Falls to Near One Year Low

Scott Murray — Thu, 03 Jan 2013 18:53:36 +0000

The VIX spot price near 14 is offering another opportunity, as the futures gravitate lower following spot. Only on a few short occasions did the VIX fall below 14 in the past year, and those periods could have been missed if you blinked. While it is possible that the VIX can sustain low levels for protracted periods, it is fairly obvious that the DC theatrics for the spring are far from over. Therefore, there will be memories of last August’s debt debacle, and another round of hedging against politician stupidity that threatens the U.S. economy. All this to protect their political funding and ensure their careers. Ironic, no? (In the sense that to ensure their job, they prevent or damage many other job prospects.)

Regardless, we have to love these folks. They crank up the volatility so we can take advantage of price dislocations. On our performance page, you can see how we used recent event risk to trade volatility. Some of our positions gained over 100% in just a couple trading days. Our proprietary Volatility Wave aided to our conviction in putting these positions on.

As we close out our short volatility positions, we are starting some longer dated long positions. We will post these as they occur.

The futures are still showing a considerable premium to spot VIX, and a significant roll yield:

VX F3-CF	S&P 500 VOLATILITY	January2013	13:41:56	15.35	-0.25	15.75	15.95	15.30
VX G3-CF	S&P 500 VOLATILITY	February2013	13:41:52	16.50	-0.25	16.90	17.02	16.50
VX H3-CF	S&P 500 VOLATILITY	March2013	13:41:52	17.75	-0.35	18.25	18.25	17.70

New Trade:

Long Feb 16 VIX calls @ $1.75 – 1:10 PM

Trade Update: Long Feb 15 VIX calls @ $2.15 – 12:51 PM