Via Peter Tchir of TF Market Advisors [4],
VIX continues to remain low, but intraday (or intranight) volatility appears to be making a comeback. That is volatility in the true sense of moves up and down (I'm not sure when volatility came to mean 'stocks went down').
Chinese PMI is supposedly one of the reasons that futures are up, yet, that seems to be a bad explanation, since futures went from an Amazon induced low of 1306, up to 1311 on the PMI news, but then drifted lower and were at 1304 by the time Europe got up and running. It has been a relentless march higher since then as it went to 1320. It's not quite like last year where multiple 10 point moves were the norm, but we have had a few 0.5% moves up and down overnight already. Yesterday we hit a high of 1315 while Europe was in charge, hit 1302 once the US data was revealed, and clawed back to 1310 for a variety of reasons (month end, amazon and psi expectations chief among them). Again, nothing like last year?s intraday vol, but starting to provide some significant moves that will make risk management a challenge again.
Main isn't really volatile, it just goes tighter every day. There was a brief attempt to open it wider this morning, as some courageous (or poorly informed) traders made it 143 bid. It has been hit like a piñata since then and got as tight 139 offered. It is giving back a touch as the US opens (the opposite trend of last year). It has almost gotten to the point I'm scared to answer the phone since it will be my mother asking if I'm long Main yet? For the record, by the time she knows what the obvious trade is, it's over.
The correlation of stocks and Euro hasn't been as strong as it was last year, though it seems to be returning. In any case, the intraday vol there is also picking up.
[5]
This isn't as wild as last year, but a grind to 1.32 followed by a drop to 1.30 followed by a spike back to 1.32 isn't exactly quiet and tame.
These moves are occurring on fairly light volume. So as hedge funds and other asset managers get themselves positioned, volatility is increasing. Volumes remain low. Street liquidity remains very low. I don't see any reason for this trend to reverse itself, and think higher levels of intraday volatility are on the way. Is it time to buy some options to capture this?
Long or short, it looks like trading some options could make sense as some timely 'delta' rebalancing could be very effective and the implied volatility you are paying seems reasonable. Longer dated vol has not dropped as much as short dated vol, so another reason to look at this trade.