Aqumin Volatility Newsletter 09/29/2014 $SPY

Vol buyers looking toward NFP

It is possible we are back to the days when the NFP numbers mean something. Stocks are more edgy lately as the intraday volatility picks up. The 16 VIX right now is justified on the touchy moves over the last 4 or 5 sessions. The bid for volatility today belies something else.

Note on my snap from OptionVision™ today the way IV is up in the SPY. There is some weekend effect in the options from the day reset but note how smooth the change in IV was. Volatility did not jump too much in the OTM option relative to the ATM options. What this says is that traders think IV should be higher all up and down the curve.

IV is telling us the market is going to move. The VIX futures kept up a healthy gain today and are following the change in the VIX cash closely. Normally if the spike in IV is viewed as short lived, the futures will lag the cash VIX by a substantial amount. That is not the case today. The even move in IV all up and down the curve is telling us that.

This payroll number will come and go but will the volatility remain? Stay tuned for Friday afternoon but I think the bid for IV does not last past Friday. I like the idea of flat delta iron condor in SPX or RUT. If worried about a sustained selloff after the NFP, hedge with cheap 4-5 point wide butterflies in the VIX Oct cycle with the Iron Condors.

OptionVision™ – data from ORATS

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Aqumin Volatility Newsletter 09/17/2014 $SPY $VIX $RUT

Where the volatility is

So the Fed is leaning toward 2015 to start raising rates? There is not much different in that announcement as the Fed watchers look to parse all of the twists and turns in the FOMC meeting minutes. I think that after this long in our plodding recovery, market players would be happy to see the Fed exiting. That means things should be getting better, but that is just me.

Slightly strange then today as the usual drop in VIX had more juice come out of the ATM options. Granted the news was more status quo so the ATM IV should drop, but I thought it would take more of the OTM IV as well. The drop in the curve would be more uniform. That is not the case as you can see from the OptionVision™ Inverse Volatility Landscape. IV ATM came in a bunch (tall red buildings are the most) but the skew heavy downside did not come in much at all. There is one more issue on the horizon.

I think the skew is staying bid because of the Scottish referendum. The Euro Zone (or near it) does not need another bird leaving the nest and the dose of instability it will cause is enough to unnerve traders. 2011 is still fresh in everyone’s mind.

At this stage I will go with the exit polls and say Scotland stays in. William Wallace might be rolling over in his grave but he did not have free healthcare and Cool Britannia. The trades that make sense are Iron Condors in the big indexes. RUT or SPX is probably best as the last of the skew should die by Friday. Stay away from the ATM in case William Wallace gets his revenge.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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