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Goldman Warns VIX Is Priced For Extreme Moves Ahead Of Payrolls
VIX is "searching for a new home" according to Goldman Sachs as the current elevated level of implied risk lies at the high side (around 24) of the current business cycle (~18) and recession-esque volatility (~26) range. Current options prices imply a 7% chance of a 10% crash in the next month and uncertainty is running twice as high ahead of this week's jobs data than on a normal payrolls week...
The VIX is searching for home. An indecisive VIX curve is waiting for data.
Clarifying comments from Fed Chair Janet Yellen, an upward revision to second quarter U.S. GDP to 3.9% and a higher than expected increase in consumer spending were still not enough to hold the market up last week. The S&P 500 was down 1.4% last week and the VIX landed at 23.6. The VIX has averaged 22.4 over the last week and that is an interesting level.
An indecisive VIX is searching for a new home: Relative to the current levels of ISM, employment, and consumer spending we estimate baseline VIX levels of 18. 26 is the median daily VIX level over the last three recessions. An average VIX level around 22 over the last week is therefore midway between our business cycle estimate for the VIX and the median VIX level over the last three recessions. That is about as indecisive as the VIX has been in years. The VIX is searching for a home.
A flat VIX term structure also points to an indecisive vol market waiting for data. Oct-15 to Apr-16 VIX futures are also all within a vol point of 22. In the good times, the VIX term structure is upward sloping. When equities are at their worst the term structure becomes inverted, with the VIX much higher than the VIX futures. A flat term structure with no momentum in either direction signals extreme indecision, in our view.
While the economy may suggest VIX levels in the high teens, a primary take-away is still that baseline volatility levels have shifted at least 4 points higher than average VIX levels in 2014 (14.2). While we wish the VIX a speedy recovery, in our view an indecisive VIX is justifiable. The market is searching for improvement in U.S. and global data. We get ISM and payrolls this week.
What are the odds?
SPX options are pricing a 7% chance the market is down 10% over the next month.
After the drop in implied volatility and skew from a local peak one-month ago the S&P 500 options are now pricing in a 7% chance the S&P 500 declines 10% over the next month
And this week is extremely volatile...
While payrolls may be the headline release this week, if the market is focused on growth, then Thursday’s ISM release may also be highly watched. Consensus stands at 50.5 for the ISM print, our team expects a drop to 50, down from the current ISM level of 51.1. A print below 50 may not be helpful for the bulls.
The S&P 500 straddle expiring Friday October 2nd captures both the ISM and payrolls and is pricing in a +/- 2.4% S&P 500 move over the next week.
The S&P 500 has been down on seven of the first nine payroll release days in 2015. The straddle breakeven of +/- 2.4 corresponds to a fairly pessimistic S&P break-even range of 1885 and 1978. While the straddle price is down from a local high of 4.7% in August, the expected move of +/- 2.4% is 1.7x its median level 1w prior to payroll releases over the last year (Exhibit 3 above). The average daily absolute return on the S&P 500 has been 1.3% since mid-August and 46 bp over the last week, so the options market is pricing in an added cushion, even relative to recent S&P moves.
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Source: Goldman Sachs
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<---------Gold
<---------Red
I can't decide what color Mohawk for the apocalypse.
I pretty much have everything else ready.
Easy, Rose Gold
I'd go for Purple or Blue myself.
I voted gold. Not because I think you should necessarily choose gold, but because I wanted to upvote your awesome comment.
Realistically Id probably die in the first month, but id like to test my mettle anyway.
this fake bs is too easy and boring. And the do-nothing, scrawny, talkers have been too comfortable.
Red, 1.75 liter plastic by the case. Drink, remove sticky adhesives and clean open wounds. Triple-threat.
They are both racist
Remember that small little rise in the equity market after the fed announced there would be no rate hike? Now where are we? HFT mean nothing. They provide liquidity. They do not change market dirrection.
HFT = net good
HFT itself is not bad. Just like GMOs themselves are not bad.
Its what people do with it. We tend to push the boundary a little too far. Spoofing would not be possible without HFT. IPOs are disapearing because an honest start-up doesnt want to watch thier company be gamed by vultures for a percent of penny x 1000s
Absolutely not! The existence of GMOs at all constitutes a threat to each respective plant and animal species worldwide through contamination. They also threaten the food chain downward. GMO salmon threaten the entire ecosystem since salmon are a keystone species (bears, humans, eagles, orca, seals, crabs, etc). They are alive and animate. An inanimate object such as a pistol or an axe has no activity without human intervention and cannot be classified as good or bad. They are not the same thing whatsoever.
HFT is a parasite period. Perhaps there is a benefit to a limited parasitic population at a low enough level. I doubt it. I also doubt that HFT would even exist in a true and free market ecosystem.
Totally agree with you on the GMOs you mentioned. But I like seedless watermelon and I dont know that its all that bad (some argue seedless watermelon is more of a "genetically created hybrid" if you care to argue semantics).
Why would HFT not exist in a true and free market ecosystem? It would have been easy to predict that eventually the one with the best hardware and proximity to exchanges would get an advantage over others.
If we determine that HFTs are a parasite, then we can look to the ultimate complex system, nature, to look for lessons. A parasite's purpose in nature is generally to weaken prey or to carve out a life at the expense of others. In this case HFTs punish trading entities that trade often to a greater extent than those that trade rarely, thereby discouraging short-term trading. Is that a benefit? Maybe. In the current market environment, the parasite has reached such a population to threaten the entire ecosystem. HFT might exist in a free market, but I really don't know. They certainly wouldn't look anything like they do now. That's a hard counterfactual because the current state of markets are so distorted. It's hard to know what "organisms" could survive in that environment. Mega corporations absolutely would not exist. Nature punishes the giants and pushes them out of the gene pool.
Seedless watermelons were hybridized long before pandora's box of GMOs sprung open. So in a world without, or before GMOs, you could still have your seedless watermelon. It's like the difference between breeding characteristics into a dog to create a German Shepherd over several generations vs. slamming genetic material from a velociraptor into a house cat. It's very different.
PREPARE THE MUPPET SLAYER
so we have nothing to fear but the fear index itself?
I'm afraid so.
Nothing to fear but reality.
Stay deluded
dont fear the index.
Just have fear that your neighbors may have a newer phone or car or bigger house. Oh, and fear those guys in the desert, a world away, with busted old guns we gave them years ago. Uncle sam will protect you, just work hard to pay the bill, or else.
Fed Audit Shocker: They Come from Planet Klepto
https://www.youtube.com/watch?v=jt377DV2BKs
[o]ne thing is clear regardless: the Fed is driving the U.S. into a 2nd depression in order to carry out its one and only remit now that America’s ability to produce real jobs has been reduced to ash, namely, propping up criminal banks with multi-trillion-dollar giveaways.
What’s so disturbing about the fatal path that the Fed has been on for 7 years is that it's one the Fed went down before, when—by its own admission—it extended and deepened the Great Depression in the late 1930s with a foolhardy policy that jacked up total reserves and destroyed bank lending. In the words of Janet Yellen, "[t]he economy plunged back into depression." (6/23/09 tr. at p. 175)
QUOTE: "Clarifying comments from Fed Chair Janet Yellen, an upward revision to second quarter U.S. GDP to 3.9% and a higher than expected increase in consumer spending" -end
Let's assume consumer spending is up; on what? 1) Higher food prices 2) higher local, state & federal taxes 3) higher medical costs (doctor and pharma) 4) higher rents and utilities
Now that is a growing economy!!
VIX is searching for a home in Detroit.
Jeezus, didn't you guys just report a couple of days ago that some quant at Goldman said to start buying? Do those people talk to each other over there? Or maybe they just needed to sell some stuff.
It's interesting that CNBC has a picture of the four horsemen on it's site and are talking death crosses.
Last weekend's BBC concert was all music relating to death.
The VIX shorts are getting taken to the woodshed today.
S&P 500 VIX 27.94 +4.32 +18.29%Always heartwarming that the Squid is worried about our safety...!!
Always heartwarming that the Squid is worried about our safety...!!