You're now on the archive server. Commenting has been disabled.
"Get Ready to Sell Stocks/Buy Vol" Setup
While I am not an options trader—I
have spent most of my career as an analyst on the buy side—I have
done some options. And I have learned to mind the VIX.
Much has been said by Tyler & Co.
that someone is “selling vol” wholesale, while the market is
meandering. But, if the market chops around sideways in a tight
range—like it did in May and June—implied vol (a forward-looking measure) will decline as
realized vols (backward-looking) decline. No way to arb between the two, but typically
that is how it works. This is why we saw the VIX decline from 90 in the fall,
even though stocks kept going lower as the rate of the decline was
not as severe as it was in the last two weeks of September and the
first week of October.
So it is not all that irrational that
the VIX was in the 50s when the S&P was at 666. 50s VIX was the
typical panic spike/high before the 2008 crash...
So...what is that VIX saying now?
You have to see it on a log scale (above), but
this is still making higher lows at major turning points. In my
opinion, a decline below 20 that sticks will negate that trend, but that
should be difficult to deliver...
Also, the VIX is approaching the old
"look to buy volatility/sell the market" magic number of
20. The chart is for the VXO (the old VIX) but S&P 100 and 500
implied vols are very similar.
Anyway, the permanent sub-20
VIX is history—in my opinion—as the excessive leverage used to
support that false sense of security is also history. Unless it was the
rise in HFT that caused it...
I seriously doubt we'll see a substantial sub-20
VIX here, seriously! So the risk/reward is not on the bull side at the
moment, especially given the anemic volume on the latest
levitation.
It does not mean to short everything in sight, but
"look to sell" is a better description of that setup. And it's only a setup, not a guarantee.
»
- 6161 reads
- Printer-friendly version
- Send to friend
Thanks very much Andy. I have enjoyed your thoughts in the comments section and it's great to see you as a contributor.
Seems like volatility is bound to be permanently low forever, because of the myriad number of hedging strategies available today to lay off risk.
After the 2008 crash, nobody, I mean nobody, is going to take any chances of suffering through a huge drop today without having some form of protection in place.
Seems like the only time the VIX really spikes is during once in a lifetime crash events like 1987 and 2008.
I get the feeling that every money manager and hedge fund trader has their finger right next to the "Buy Puts" button every day, just in case the market rolls over.
In fact, Friday we saw the index put/call ratio spike up to 1.75 as we approached the 38.2% retracement point from the March crash low.
Here's what the put/call ratio looked like on July 22, the day before the SPY broke out over the 200-day EMA:
For a longer term view, here is the 600-day moving average of the Total Put/Call ratio, going right into the teeth of the Bear Stearns collapse in August 2008.
Now you can see what has happened since:
Just some useless trivia I've been following.....
When we see a headline 'Obama says Jobless figures may show worst is behind us' we know he's just running with whatever pack of lies his Chicago and Wall Street buddies are feeding him. No initiative there to do anything admirable by anybody.
You won't be seeing Obama on TV speaking the harsh truth and being a real leader.
He's another Stalin or Hitler if you ask me.
Sorry I voted for him.
I get a feeling that if the guy I voted for had won instead, we would be looking at a similar scenario.
The faces change, but the rent to own plan has yet to.
Thanks Andy. Enjoyable read...
I don't. I think Alan Keyes would have done better than the blue/red mannequins to which we are accustomed.
I felt almost a little embarassed that I voted for Alan Keyes. Knowing what I know now about Obama, think you're right... Keyes would have done better with this crisis.
I think you really need to go beyond Stalin and Hitler and go to Mao and the cultural revolution and re-education camps where if you weren't enough of a Maoist, you could get your head bashed in with a 2x4!
I hope Obama unleashes them thar ACORN people to go door to door. As a firearms instructor I could bring out the artillary that is usually at my side for a wing-job who gets in my face on my property and won't leave, but a truncheon made from a Louisville Slugger with a dozen six inch spikes (the kind used to nail railroad ties together) coming out from all angles in the top 8" causes much more trauma. ;)
After all, if they are going to call us Nazis they better be prepared for the consequences. Nothing good is going to come from this election, and I'm glad you have repented. I can only ask,
"WHAT THE %^&# WERE YOU THINKING?
(sung to "Maneater" by Hall and Oats"
Oh, oh the truncheon comes,
Look out boy she'll chew you up,
Oh, oh here she comes,
She's a flesh eater!
American Thinker
"Obama: The Modern Day Plebian Tyrant"
http://www.americanthinker.com/2009/08/obama_a_modern_day_roman_plebe.html
The man who was beaten and stomped outside the town hall was a black conservative who was selling and handing out the "dont tread on me flags."
Maybe Obama will invite him for a beer since it was the SEIU thugs who assaulted him. I am waiting for the media to declare it a hate crime since they called him the N WORD when they beat him. Wierd, SEIU supports Obama LOL.
Oh nevermind, hes too busy saying how great 2 trillion dollar deficits, 10 trillion more debt over 10 years, and millions losing jobs is.
The victim wasn't a personal friend of BarriO, was He?
If not, I hope he isn't expecting a White House phone call.
....and he doesn't have health insurance.
Oy....the irony.
Andy, appreciate your comments and the contribution.
All Good.
As far as being an over-poster, i wouldn't worry about it. Others have those positions fully occupied.
Welcome to the jungle Andy... as echoed by others, I also enjoy your comments. Not to mention, the character of Dufresne in Shawshank was very entertaining. :-)
Keep it coming.
Good read... always enjoyed your comments...
Greedscam -- assuming his line of 'thinking' is still prevalent within the FEDs -- laid it all bare in his article published two months ago in the FT: <capitals mine>
"The rise in global stock prices from early March to mid-June is arguably the PRIMARY CAUSE of the surprising positive turn in the economic environment.
… huge unrecognised losses of US banks still need to be funded. Either a stabilisation of home prices or a FURTHER RISE in newly created equity value available to US financial intermediaries would address this impediment to recovery.
Global stock markets have rallied so far and so fast this year that it is difficult to imagine they can proceed further at anywhere near their recent pace. But what if, after a correction, THEY PROCEEDED INEXORABLY HIGHER?
A PROLONGED RECOVERY IN GLOBAL EQUITY PRICES would thus assist in the lifting of the deflationary forces that still hover over the global economy.
I recognise that I accord a much larger economic role to equity prices than is the conventional wisdom. From my perspective, they are not merely an important leading indicator of global business activity, but A MAJOR CONTRIBUTOR to that activity, operating primarily through balance sheets.”
http://www.ft.com/cms/s/0/e1fbc4e6-6194-….
Given the low vol, and given the mark-to-market accounting: The FED giving/loaning for free to IB's (now called 'banks') has created out of thin air a lot of wealth effect already for themselves/pension funds etc.
From the above cited FT article, I got the impression that they really aim to prop up the balance sheets to pre-crisis levels.
How long do you think they will be able to prop up the markets?
Thanks. Good information presented well is like finding an oasis these days. I'll have that new pin up girl over to your place as soon as possible.
And any experienced trader with a bit of technical bent also knows that:
1.We have an uptrend support line in place
2. ADX on weekly is showing increasing possibility of a strengthening uptrend
3. 40-week exp moving average is beginning to turn up
4. 10/40 exp m.a. 'golden cross' just occurred this past week
JMO, only when #1 is broken will #2, #3, and #4 be negated, and will there be a reasonable shorting opportunity
The earlier comparisons of Obama to Mao, Hitler and Stalin are absurdly
unhistorical...not to mention hysterical. He's the new Reagan... smiling,
and waving, telling cute jokes, playing with puppies... generally making
the sheeple feel all warm inside, while they pick our pockets and ream
the old poop shoot.
Reagan!?? Please. Obama and his handlers are cut from an entirely different cloth.
$NDX topped out in March 2000; it failed its test in August.
Traders make money on price moves, not volume readings; veteran technical shop Lowrys has been warning its investors about low volume for several months now, and its latest weekend report, they no longer mentioned this as a bear market rally (they didn't coin it a new bull market either) - which is a major first for their reports since the bear market began, so they seem to be confused about it.
August 2008, $SPX:$UST ratio was giving serious warning signal, and wella, look what happened in September & October
August 2009, same ratio looks quite bullish
IMO, as this has been a very strong bull rally, best thing to do is to gauge momentum and detect deterioration in some other indicators besides $VIX; fundamentals and news aren't doing it.
Who knows maybe we'll get a Hindenburg Omen and that will be it
A Hindy would be a gift. If I remember correctly there were two in the Fall of 07'.
They also occurred in June 2008...
As of Friday, NYSE NH: 130, NL 0, McO +38
Oh well, back to Led Zeppelin's 'How the West was Won'
no thanks guys. i think i will pass on the stock market maneuvers. last week i joined the jeff paul organization and after just a week, i have made over a million dollars. take it from me, jeff paul, instant internet millionaire,....really works. it did for me and it has done so for many more. just watch the infomercial on cn bullshit......:)
Jeff Paul Ripoff Report
All-righty then,
So you're going to sell the shit out of it with the fast & slow stochastics already flattened out ?
Tyler's .382% retracement is right HERE.
Do you get short AFTER it closes above the Fibonacci .382% retracement so you can let the fast & slow stochastics get pumped up to overbought first?
Doesn't that allow a 50 % or a .618% retracement that is a result of the close ABOVe the Fibonacci .382% retracement?
the only problem with shorting the .382 is that every elliottician on the planet (majority of who are very bearish) is trying to short that number.. the market will likely take them out before a correction of any magnitude.. and i don't think there is any "rule" about surpassing a fib level which then portends a new level, it might not be retracing, we might be in a new bull market trend... i think you are better off looking to short UNDER the lower parallel of what looks like an ending diagonal - 995 looks like a good make or break pivot to me or i should say i wouldn't want to be short above that number - as my good friend used to always tell me, "there is no top tick trophy"
but as Andy says no trading advice, just an opinion
Market behavior in 2002 and 2003 was not concordant with statement --
"Also, the VIX is approaching the old "look to buy volatility/sell the market" magic number of 20."
Don't forget that when they repealed the uptick rule in '07, the VIX doubled overnight. As in: literally doubled. Overnight. So, with that in mind, don't forget that they're bringing back the uptick rule and what that'll do for volatility. (Even though the SEC just announced that they're pushing it back to allow for more public comments, and we're probably looking at an end of year time-frame. But it IS coming back, make no mistake.)
http://www.bloomberg.com/apps/news?pid=20601103&sid=aBzXLWWp0U3s
Will we see a big correction? The fundamentals say yes, but ppl keep buying anyway. That's why I'm also in the buy & hold camp, I admit.. I've observed too many time where a stock trades lower while on balance volume
hat tip to good finance articles..
His message was being spread and gaining even more support...therefore he needed to be censored.
Until we have guys like Black back as regulators nothing will change. We just can not compete with the vast amounts of money being used to influence decisions. The Rich article says"
one of favorite new websites..
GS says to sell frothy base metal.....something something, jsut caught a snippet on bloomers headline
they must be getting short the market if they are issuing sells
Risk as it pertains to ... ? Backstop behind the SLPz? So, conceivably, a "past ball" (not seen coming, i.e. flashed in a dark pool) thrown in the dirt could get by the catcher and roll how far (without a backstop)? There is no risk when Bernanke is the umpire behind the plate.
His message was being spread and gaining even more support...therefore he needed to be censored.
Until we have guys like Black back as regulators nothing will change. We just can not compete with the vast amounts of money being used to influence decisions. The Rich article says"
recommended; one of my favorite new finance sites http://www...
Good call! Bloomberg is running your story this morning.
And they keep mentioning it on tv.
Which to me is a problem for any "non-bulls."
About a month ago Bloomberg ran story after story (TV) about how the market is due for a pull back, mentioning head and shoulders formations, necklines, vix, etc. The market is up 140 S&P points since then.
I think they want to be ahead of the rest of the MSM and other fin tv networks calling the next sell off which to me means it will happen only when they stop talking about it
I'm not an experienced trader and still learning finance and economics, but I am pretty well versed on systems theory and pattern matching. Everyone is talking about the rules of the market and this or that and blah blah blah...Well, if you look at the results we are living in a market with a new set of rules. Blame it on robot traders or whatever you want, but we aren't in Kansas anymore.
Lending is down, corporate profits might be up (but unemployment will continue to rise), our national debt is rising and we aren't alone. Oh yeah, the stock market went through the roof since last October...I don't see how it can keep going up and when the worlds fund managers get back from the August vacation they'll get jittery and take profits...the momentum will fade and a wave of shitty news will knock the market right back down.