Stop Trading

No, really. What's the point?

Even Bloomberg, who is apparently a fervent reader, is chiming in on this observation and providing their 2 cents on the aberration formerly known as a market:

July 15 (Bloomberg) -- The VIX rose with the Standard & Poor’s 500 Index, a sign from the options market that the steepest three-day rally for stocks since June is poised to end.

The Chicago Board Options Exchange Volatility Index, as the VIX is known, added 1.7 percent to 25.44 at 2 p.m. in New York. The S&P 500 gained 2.4 percent. They have moved in the same direction 6 percent of the time since January 2003, according to data compiled by Charles Schwab Corp. The S&P 500 reversed course the next day 66 percent of the time, including seven of the past nine instances.

“That is remarkable,” Randy Frederick, head of trading and derivatives at Charles Schwab in Austin, Texas, said of the tandem move by the S&P 500 and VIX today. “The VIX is expecting something here, either a pull back this afternoon or tomorrow.”

Both indexes rose on July 6. The next day, the S&P 500 retreated 2 percent. The volatility benchmark, known as Wall Street’s “fear gauge” because it almost always increases as stocks fall, reflects expectations for price swings for the next 30 days and is calculated from S&P 500 options that are one or two months from expiration. Higher levels signal more risk in equities.

The government’s weekly report on jobless claims tomorrow may be spurring concern among investors, Frederick said. The U.S. unemployment rate has increased to a 26-year high of 9.5 percent.

“We’ve had some unexpected numbers recently,” he said. “There is probably an anticipation that could happen again.” Consumer confidence unexpectedly declined this month, according to a Reuters/University of Michigan index on July 10.

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This Is A Fair And Efficient Market

In some parallel universe far, far away, this makes all the sense in the world. Probably in the same one where stocks are cheap. And if it is not obvious, the chart overlays the SPY and the VIX. The only way the VIX will retrace back to indicate the current broken market levels, is when the S&P hits 1,000... sometime in the next hour.

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Some More Forward Risk Arbitrage

VIX-VXV hits steepest levels in a long time. Short-term vol being driven down by dispersion traders (selling correlation), cyclical/seasonal pressures, and risk transfer. Then again all these synthetic risk measures are likely screwed up beyond belief.

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Who Is Selling Wholesale Vol And Why?

The chart below indicates that while the market is exactly where it was in early December 2008, the VIX has droped by almost 60%. And traditional theories that suggest that the corporate risk is merely being offset to sovereing don't seem to hold much sway- US CDS is again trading at a ludicrously tight level. So the question arises: just who is selling 1 month forward vol, and just how are they hedging effectively. Granted, one could make the argument that risk was priced at "total chaos" levels in November and December, the market was running even more like a headless chicken in March and breaching lower lows, yet the VIX was unable to even threaten penetrating prior resistance levels.

Alternatively said, even with net option open interest increasing, the VIX shows barely any indication of widening. Who is writing these options? Who is buying these options? Why (for both camps), and what do they know (don't know) that we don't know (know).

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Another No Volume Day, With Quants Lurking In The Shadows Ready To Pounce

As Larry Levin pointed out earlier, there is no volume as usual, a perfect opportunity for the SPARCs and the (In)visible hands to wreak havoc with all the shorts, as per the running script. Volume run rated to end silly low.



In the meantime, VIX is collapsing: just what your friendly next door quant, who has never heard of arcane concepts like EBITDA, leverage or gross margin, but knows all about charts and the only factor that works, to gun the market into the stratosphere. After all, he know he has so many helping hands to prop him up.

hat tip crazy, energetic scotsman

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Forward Volatility Differential Plunges To 2008 Lows

The VIX - VXV relationship has dropped to a 2009 low, implying the 3M forward vol is abnormally high (projected volatility) relative to 1M (VIX), and extreme lows coincide with index turning points.



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Is The VIX Too Low?

The latest research brief from Innovative Quant Solutions, touching on the very relevant topic of whether the VIX has any predictive power left at all, and just how gamed of an indicator has it lately become.

Publish at Scribd or explore others: Career-Job-Search Uncategorizable-Unca

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Intraday Charting

Crikey, the VIX is on fire intraday, and is on the verge of channel breakout.





Curiously, the combined drop in the Dow and Gold, indicate that the market is actually completely unchanged from the perspective of the Dow's weight in gold.



Lastly, market makers will do everything they can do it seems today to prevent the SPY to drop below its June lows: the white line, which has proven a significant resistance level.

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Implied Vol Ratio At Inflection Point

The ratio of VIX (1 month fwd implied vol) to VXV (3 month) has dropped to a low of 0.92, a level crossed to the downside only 7 times over the past 2 years, and usually as a leading indicator of market downside activity. However, in this environment, where a majority of corporate risk is nationalized, and the only traders are a few tireless SPARK stations, it is anyone's guess whether this metric is relevant for anything anymore.

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More On The VIX - MORE Correlation

In response to a flood of queries, the correlation between the VIX and MOVE (ML's Treasury vol index), is presented below: while the R^2 over the past year is sketchy at 0.585, historical correlation climbs to a sturdier 0.7

Assuming the last metric is relevant, the odd spike in VIX yesterday, despite a sturbbornly persistent lack of negative TICKs in yesterday's market, could be explained exactly by this phenomenon, as whatever correlation desks remain tried to game the relationship. Either way, a pick up in volatility in this much more critical asset class is significantly more troublesome to the US economy as at least with Treasuries we know the Fed is directly monetizing (i.e. purchasing). Heightened volatility is thus a representation of the bond vigilante-Fed duel, and abnormally high vol is likely an indication that the Fed is losing, or just gaming the yield ever higher, to provide a relevant alternative to equity markets if/when it so chooses, at which point the MOVE-VIX relative performance will flip dramatically. And after all, who cares about regressions to the mean anymore.

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The Spiking Vol Of Treasuries

Many have recently been surprised by the spiking volatility in Treasuries and have queried how best to keep track of these daily swings. As Zero Hedge points out almost daily, the 2s10s chart is much more exciting than the boring flatline that equities have become. A good and simple way to keep track of Treasury vol, is through the Merrill MOVE index. The MOVE definition: "yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of volatilities on the CT2, CT5, CT10, and CT30."

I present the 6 month chart of the MOVE index below: obviously the spike in daily Treasury vol has not gone unnoticed: just yesterday MOVE had a 15% one day rise. As traders relish volatility and hate flatlines, is it possible that soon all the intraday action will migrate out of equities and go into treasuries?



An interesting overlay is that of MOVE with the VIX. Curiously while the two have historically correlated with a decently high R, the action over the past 2 weeks is a very distinct outlier. Could there be something more here than simple inflation/China fears? Zero Hedge will inquire further.

VIX - MOVE correlation chart:

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The IMF On Risk-Free Assets, Sovereign CDS and VIX

Publish at Scribd or explore others: School Work Business & Economics Non-fiction 2008 world

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The Vol Of Vol

Not only is the market bouncing like an schizophrenic yoyo, but the vol in the VIX seems to also be now drawn to the market's sociopathic magnetism. Whoever has been buying straddles on the VIX has been making buck. When is iShares coming out with an ETF that tracks the volatility of the VIX (and how many days later will Merrill try to underwrite a follow on offering for the ETF?). After all, the powers that be can not afford one day of respite for the casino.



hat tip credit trader Sphere: Related Content

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More Observations: VIX - Sovereign CDS Divergence

As Zero Hedge postulated a month ago, the VIX - sovereign CDS inverse correlation is becoming more and more evident. Today's action is representative: as VIX continues to slowly trickle lower, US protection is 5 wider. With the G20 pledging trillions to battle every cough and sneeze of the markets, the question becomes what does all this mean for sovereign default risk, and thus VIX, and thus equity markets. With G7 or G20 or Gx debt soon to hit astronomical (this is a technical term) levels, how will all the interest cash flow be funded? How will skyrocketing sovereign deficits be funded? Who will keep on buying UK and German (not to mention US) debt after several failed auctions over the past 3 months?

Many questions with no answers - in the meantime, we either just crossed from deflation into inflation today (which is the most laughable thesis if one actually looks at macro data and the level of consumer wealth: for reference just dial David Rosenberg), or the market is just rallying on the biggest sucker rally in recent years with vanilla, smart, retail and all other sorts of money just hoping for the greatest greater fool effect in generations.

****Update****

Cramer just pronounced the "market depression" that started post Lehman as over. Now we are merely in a recession.

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