Is VIX Pricing In The Fiscal Cliff?

Tyler Durden's picture


Much is being made of the drop in VIX today - with some suggesting it indicates confidence that investors believe the fiscal cliff resolution is closer. This could not be further from the truth. Investors had bought short-term VIX across the election and are unwinding that protection in the November futures contract but at the same, they are actively bidding for protection across the event-horizon of the fiscal cliff - out to Fedb 2013. The options market is absolutely not pricing in a fiscal cliff resolution and in fact is just beginning to price in the expected rise in realized volatility as the market becomes increasingly headline-sensitive once again.

The shift across the fiscal cliff barrier explains why short-term VIX looks more complacent as the medium-term VIX is bid...


As realized vol is on the rise so there remains plenty of room for implied vol to run higher...


Chart: Bloomberg

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Mon, 11/12/2012 - 13:37 | 2973136 francis_sawyer
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 "with some suggesting it indicates confidence that investors believe the fiscal cliff resolution is closer"...


The Monday humor continues... unabated... undeterred...

Mon, 11/12/2012 - 13:40 | 2973162 jal
jal's picture

Do nothing is the solution.

Mon, 11/12/2012 - 14:11 | 2973294 Fuh Querada
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...and do that aggressively.

Mon, 11/12/2012 - 15:22 | 2973586 tsx500
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VIX is a barbarous relic

Mon, 11/12/2012 - 15:38 | 2973633 walküre
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VIX is just another tool to scalping the players who still think they can outsmart the other guys.


Mon, 11/12/2012 - 13:36 | 2973138 TruthInSunshine
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VIX is clearly being manipulated by "evil speculators."

Mon, 11/12/2012 - 13:40 | 2973161 Cheesy Bastard
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Sigh.  Just another story about screwing muppets.

Mon, 11/12/2012 - 13:41 | 2973172 TruthInSunshine
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Bernanke is urging curbs on the VIX.

Mon, 11/12/2012 - 13:59 | 2973253 LawsofPhysics
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And here comes the gold supression.  Show me the physical.

Mon, 11/12/2012 - 14:05 | 2973271 francis_sawyer
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put your scuba gear on...

Mon, 11/12/2012 - 13:37 | 2973147 PUD
PUD's picture

vix does not predix. there is no viable t/a. myth

Mon, 11/12/2012 - 13:38 | 2973152 buzzsaw99
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too bad charles ponzi didn't have the gubbermint and fed backing him

Mon, 11/12/2012 - 15:27 | 2973602 Metalredneck
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His face will be on the new $20.00 coin.

Mon, 11/12/2012 - 13:41 | 2973174 ziggy59
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Is the VIX historically accurate?

Mon, 11/12/2012 - 13:43 | 2973186 jcaz
jcaz's picture

Yes it is- at pricing what happened 10 mins ago.....

Mon, 11/12/2012 - 14:31 | 2973369 SheepDog-One
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We'll definitely be good-to-go for another few $trillion in debt in no time, soon as they shake a couple million out of the 'rich millionaires' pockets!


Mon, 11/12/2012 - 15:06 | 2973509 vote_libertaria...
vote_libertarian_party's picture

In early Sept 2008 it was in the teens.  4 weeks later it topped 100.


Only a handful of people saw the tsunami before it hit.

Mon, 11/12/2012 - 15:41 | 2973654 walküre
walküre's picture

Sure and this "tool" was hyped just in time to suck in more idiots who thought they were protecting their long positions from a further and steeper collapse.

I don't know when and I don't know how but eventually we're going to see INFLECTION POINT of RUNNING OUT OF SUCKERS vs. NEW SUCKERS BORN EVERY MINUTE.

Calling PEAK SUCKERS here first!

Mon, 11/12/2012 - 13:42 | 2973176 SemperFord
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lucky for us, our great leaders wil fix this on the last minute, like in the movies!

Mon, 11/12/2012 - 13:41 | 2973178 LawsofPhysics
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Please, there is no "market" for true price discovery anymore.  What garbage.  "Mark to fantasy" is stronger than ever.

Mon, 11/12/2012 - 13:42 | 2973183 Clowns on Acid
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Just Bernanke selling Puts again. If they finish way in the money....Bernanke doesn't care. Print, baby print.

Mon, 11/12/2012 - 13:42 | 2973184 slaughterer
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Too bad all of those OTM VXX  Feb 13 calls will expire worthless.

Mon, 11/12/2012 - 13:45 | 2973197 Alpha Dog Food
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My clothes fell off a cliff and makes more interesting reading than this (bitchez!) on :-)


Mon, 11/12/2012 - 13:52 | 2973225 falak pema
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food and women in the nude : now thats poetry  for u. 

Mon, 11/12/2012 - 13:48 | 2973213 mewenz
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previously, you've alluded to the Central Bank as a seller of volatility, several times.  Any way to provide more information on this?  If not, understand, but would be very interesting to know more.

Given the rather obvious lack of belief by the Fed in fair and free markets as the arbiter of price discovery, it would seem the most obvious places they would go to manipulate would be selling volatility (making insurance cheap for going long) and selling oil futures, as "that stuff goes in everything".

Further information on odd or otherwise behavior in either market would seem to be of great interest and value

Mon, 11/12/2012 - 13:52 | 2973229 Ibird
Ibird's picture

It's important for the Fed to sell VIX calls:
1) it suppresses fear among the lemmings - stocks could never go lower if the VIX is not moving higher
2) selling uncovered calls is a money maker - Fed transfers more dollars the the Treasury

What could go wrong?

Mon, 11/12/2012 - 14:18 | 2973322 mewenz
mewenz's picture

yeah....and no need to cover them if you can just print to make up the difference if need ever be or just hide them on an unaudited balance sheet or just etc...

I just find it a bit frustrating at times that such a large amount of attention, perhaps rightly so, is placed on odd movements within precious metals, large short positions by JPM etc., while beyond an occasional 1 liner out of Zero Hedge, not a peep seems to be of public discourse on the price of volatility.  Even further, all the talk of those "nasty speculators" in the energy markets driving prices "up", but purely fundamental reasons are simply accepted for the once ridiculous notion that WTI oil could consistently cost $20+ less then less worthwhile, from a pure fundamental standpoint, Brent.

Mon, 11/12/2012 - 13:53 | 2973231 q99x2
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Nice graph of VIX 

Mon, 11/12/2012 - 13:57 | 2973242 Bastiat009
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Is this "fiscal cliff" a problem or the solution?

In 2008, politicos and the media claimed that debt was the solution and not the problem. They claimed that a depression was a problem while we all know it would have been the solution. So now, why should I believe that the fiscal cliff is a problem?

Mon, 11/12/2012 - 14:14 | 2973306 OldPhart
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Hegelian dialectic

I'm sure the solution to be 'discovered' will have implications we can only imagine at this point.

Mon, 11/12/2012 - 14:00 | 2973246 JustObserving
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There is no way to resolve the Fiscal Cliff by taxes or spending cuts.  They will simply not be enough.

The Fiscal Cliff will be resolved by hyperinflation or default or by a major war.  My bet is on the war that erases all foreign debts of the US.

Mon, 11/12/2012 - 20:01 | 2974519 Beam Me Up Scotty
Beam Me Up Scotty's picture

Does debt even exist if everyone is dead?

Mon, 11/12/2012 - 14:00 | 2973252 JPM Hater001
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Mon, 11/12/2012 - 14:01 | 2973258 MFLTucson
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Hope we go over the cliff, hope it shuts down all wellfare and hope the food stamp president is held accountable and removed from office for Bengazi.

Mon, 11/12/2012 - 14:06 | 2973280 francis_sawyer
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Been watching Fox News I see...

Mon, 11/12/2012 - 14:15 | 2973312 earnyermoney
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Barry held accountable by the media? LOL


Not going to happen. Barry ran a cynical populist campaing and the 99% bought it hook, line and sinker. Where is Jon Corzine?

Mon, 11/12/2012 - 14:17 | 2973320 crzyhun
crzyhun's picture

What? And get Uncel Joe????

Mon, 11/12/2012 - 14:03 | 2973265 jackinrichmond
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strange that the VXX (the inverse for VIX) is behaving oddly today too.  when the market dropped from +0.25 to -0.25 in an hour the VXX MOVED DOWN to -4.5%.  when the market jumped back up about three quarters of a point, the VXX continued moving down.  this is contrary to it's usual action.   how can VIX and VXX move agressively in the same direction?

Mon, 11/12/2012 - 14:05 | 2973277 SheepDog-One
SheepDog-One's picture

YAY fiscal cliff FIXED we're front-runnin and pricin' it in! $600 trillion found...gonna get it by taxes! OMFG buy stawks!!

Mon, 11/12/2012 - 14:11 | 2973287 jackinrichmond
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..and who's buying all the bonds today ?

Mon, 11/12/2012 - 14:12 | 2973296 scrappy
Mon, 11/12/2012 - 14:18 | 2973300 Quinvarius
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Does anyone actually believe Obama is stupid enough to raise taxes and that this isn't just his bargining piece to get more spending?  This is exactly what he did last time.  He ended up trading meaningless future cuts, that will never happen, for more spending.

They are going to raise the debt limit.  Spending will increase.  Taxes might go up a very tiny bit in a meaningless way.  If anything else happened, the system would implode.  It is as sure a thing as QE3 was to save the banks, and the coming QE4.  There is not really a choice for them to make.  They just have to keep it going same as before.

Mon, 11/12/2012 - 14:36 | 2973391 earnyermoney
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Mon, 11/12/2012 - 21:48 | 2974765 sablya
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Not that it matters but Moodys threatened a downgrade if the best Congress can come up with is to raise the debt ceiling.

Mon, 11/12/2012 - 14:16 | 2973314 crzyhun
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Mere vol surpression courtesy of the NYFed.

Mon, 11/12/2012 - 14:18 | 2973323 The Axe
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coiled spring

Mon, 11/12/2012 - 14:34 | 2973361 virgilcaine
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S&P Reversal to the downside coming...!  <intraday> Though currently Short the Nas doggie.. woof woof.

Mon, 11/12/2012 - 15:04 | 2973392 virgilcaine
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Jr bots are in today so could be good!   Watch this level here..ready to go! Trading the Jr bots lite though via Emini nas.."the puppies".

Mon, 11/12/2012 - 15:22 | 2973590 All_Is_Well
All_Is_Well's picture

What would the VIX be with 60 mil. people on food stamps?

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