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Noteworthy News – December 27, 2010

Economy:

Experts Citing Rising Hopes for Recovery – New York Times

1 in 7 Americans rely on food stamps – CNN Money

China raises interest rates amid inflation worries – Bloomberg

World economy can withstand $100 oil price: Kuwait – Reuters

The Cost of Success: Life in Beijing’s Cellars – Spiegel

Markets:

The new young investor: Shunning stocks – Yahoo Finance

VIX Decreases to 3-Year Low as S&P 500 Moves Least Since 2007 – Bloomberg

Gold Rush, The Rise of Gold Investing – Bloomberg

Politics:

Census: Fast growth in states with no income tax – Washington Examiner

Among tax deal breaks: Writing off racehorses – MSNBC

Alabama Town’s Failed Pension Is a Warning – New York Times

Beware of Greeks Bearing Bonds – Vanity Fair

The era of Bernankeism – Asia Times

Banks:

Why Bankers Paid Each Other Millions To Make Bad Trades – NPR

Posted in Economics, Markets, Media, Politics.


Today’s Option Blogs December 25, 2010

  • Merry New Years
    So I got this comment about me on my award-tinged Barrons piece. Here’s a fellow who only knows how to make money when the VIX is high. So now he’s trying to raise it again. I ain’t falling for it. Damn, he figured out my master plan. Muhahahahahahaha. Anyway, happy and a healthy to all.
  • VXX: Even Volatility of Volatility is Contracting
    Check out the 10 Day HV of VXX here. A month ago it hit 80, now its 25. It probably means nothing. Actually I’m sure it means nothing. Just don’t overpay for VXX options if you trade them. Oh and one other volatility factoid. VIX “opened” at 16.50, yet the opening Settlement price for VIX […]
  • VIX and the Week Before Christmas
    I guess I should not be surprised that a VIX of 15.45 – the lowest since July 2007 – has all manner of pundits scrambling to pull some sort of explanation out of a hat and weave it into their favorite bullish or bearish forecast for the markets.

    In fact, the new low in the VIX is not a big deal, at least during this time of the year. I have talked about this before on a number of occasions, including in VIX Holiday Crush and earlier this week in Chart of the Week: Historical Volatility Plummets in Seasonal Swoon. Call it the holiday effect or calendar reversion, but when the VIX’s 30-day window includes two holidays and two additional historically slow days in advance of the Christmas and New Year’s holidays, volatility has a tendency to take a vacation.

    How strong is the tendency toward a low VIX? Well, consider that in five of the last eight years, the annual low in the VIX fell during the week leading up to Christmas. Last year, some may recall that the VIX made its annual low on Christmas Eve. Back in 2004, the VIX had its low for the year on December 23rd; and in both 2003 and 2006, the VIX bottomed out for the year on December 18th. Today’s low makes it five pre-Christmas bottoms in eight years.

    So keep a close eye on the VIX and feel free to marvel at how low it goes, but consider that during the holiday season, experienced investors will give very little credence to the absolute level of expected 30-day implied volatility in S&P 500 options. Only after the first of the year should we take the VIX numbers seriously, regardless of how low prices and implied volatility levels may be marked down in the pre-Christmas shopping rush.

    Related posts:

    Disclosure(s): none


Posted in Markets.

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Happy Holidays

Merry Christmas!

A Politically Correct Christmas –

Twas the night before Christmas and Santa’s a wreck…
How to live in a world that’s politically correct?
His workers no longer would answer to “Elves”,
“Vertically Challenged” they were calling themselves.
And labor conditions at the North Pole,
were alleged by the union, to stifle the soul.

Four reindeer had vanished without much propriety,
released to the wilds, by the Humane Society.
And equal employment had made it quite clear,
that Santa had better not use just reindeer.
So Dancer and Donner, Comet and Cupid,
were replaced with 4 pigs, and you know that looked stupid!

The runners had been removed from his beautiful sleigh,
because the ruts were deemed dangerous by the EPA,
And millions of people were calling the Cops,
when they heard sled noises upon their roof tops.
Second-hand smoke from his pipe, had his workers quite frightened,
and his fur trimmed red suit was called “unenlightened”.

To show you the strangeness of today’s ebbs and flows,
Rudolf was suing over unauthorized use of his nose.
He went to Geraldo, in front of the Nation,
demanding millions in over-due workers compensation.

So…half of the reindeer were gone, and his wife
who suddenly said she’d had enough of this life,
joined a self help group, packed and left in a whiz,
demanding from now on that her title was Ms.

And as for gifts…why, he’d never had the notion
that making a choice could cause such commotion.
Nothing of leather, nothing of fur…
Which meant nothing for him or nothing for her.
Nothing to aim, Nothing to shoot,
Nothing that clamored or made lots of noise.
Nothing for just girls and nothing for just boys.
Nothing that claimed to be gender specific,
Nothing that’s warlike or non-pacifistic.

No candy or sweets…they were bad for the tooth.
Nothing that seemed to embellish upon the truth.
And fairy tales…while not yet forbidden,
were like Ken and Barbie, better off hidden,
for they raised the hackles of those psychological,
who claimed the only good gift was one ecological.

No baseball, no football…someone might get hurt,
besides – playing sports exposed kids to dirt.
Dolls were said to be sexist and should be passe.
and Nintendo would rot your entire brain away.

So Santa just stood there, disheveled and perplexed,
he just couldn’t figure out what to do next?
He tried to be merry he tried to be gay,
but you must have to be careful with that word today
His sack was quite empty, it was flat on the ground,
nothing fully acceptable was anywhere to be found.

Something special was needed, a gift that he might,
give to us all, without angering the left or the right.
A gift that would satisfy – with no indecision,
each group of people in every religion.
Every race, every hue,
everyone, everywhere…even you!
So here is that gift, it’s price beyond worth…

“MAY YOU AND YOUR LOVED ONES, ENJOY PEACE ON EARTH”

Posted in Media.


Where Do Your Taxes Go?

A nice interactive graph from US Today showing where your taxes are being spent.  Just enter your salary and cry away…

Posted in Economics, Politics.

Tagged with , .


Today’s Option Blogs December 22, 2010

  • Does a Low VIX Signal Danger? : My Guest Appearance In Barrons
    Yes, a respectable publication agreed to run my VIX-related infomercial. I guested the Barrons Striking Price column yesterday. Remember all the way back to April 2010? Spring was in the air, the Mets were still mathematically alive in the National League East race, and the VIX (the Chicago Board Options Exchange volatility index) was near […]
  • Giant Meltage
    OK, just one comment on the Giant Debacle. Probably. Slightly lost in the public lynching of Matt Dodge and his inability to punt a ball to the sidelines AFTER THE GIANTS HAD ALREADY BLOWN THE BIG LEAD was the onsides kick the Giants let the Eagles recover with ease. Really the line of thought that […]
  • Expiring Monthly December 2010 Issue Recap
    A reminder that the December issue of Expiring Monthly: The Option Traders Journal was published yesterday and is available for subscribers to download.

    This month’s issue has a feature article from Mark Sebastian on the future of options exchanges. On a related subject, Mark Longo interviews Gary Katz, President and CEO of the International Securities Exchange (ISE).  Additional subjects covered in the magazine include how market makers use volatility to update their quotes, delta hedging, analyzing opening gap tendencies, payment for order flow, directional vs. non-directional strategies, the role of luck and skill in trading, and a review of Ron Ianieri’s recent options book.

    I contribute two articles to the December issue. Unintentionally blurring zoomorphism with mythology, one article is based on a trade I call “the Minotaur” while the other has earned the name of “the Swan Catcher.” The Minotaur turns out to be a VIX-VXX pairs trade and here I embark on a proof-of-concept approach. The Swan Catcher trade also represents something of a bottoms-up approach to developing options strategies. In part one of a two-part series, I seek a way to structure options positions to profit from extreme moves in the market, without losing too much money while one waits for these events to occur.

    As is now my habit, I have reproduced a copy of the Table of Contents for the December issue below for those who may be interested in learning more about the magazine. Thanks to all who have already subscribed. For those who are interested in subscription information and additional details about the magazine, you can find all that and more at http://www.expiringmonthly.com/.

  • The “Cheap” VIX?
    Is it really that cheap? I mean check out this graph here of 10 Day realized volatility in SPY over the past 3 months. It hit 5 on Friday. Anyway, please click thru to InvestorPlace for the balance of the post.
  • Chart of the Week: Historical Volatility Plummets in Seasonal Swoon
    ‘Tis the season for the annual holiday effect in which historical volatility (HV) has a strong tendency to plunge and drag implied volatility down with it. This is a subject I have tackled on a number of occasions in the past (see links below) and is really just a longer variant of what I call calendar reversion – the tendency of the VIX to fall an extra 1% or so on Fridays due to market makers adjusting prices ahead of the weekend. The lack of volatility all boils down to the same root cause: fewer trading days during the 30 calendar day window specified by the VIX (and implied volatility in general) means there are fewer opportunity for stocks to stray significantly from the path projected by efficient markets, standard deviations and the rest of the normalcy regime.

    As of Friday’s close the S&P 500 index had a 10-day historical volatility of 5.5, which is the lowest reading since May 2007. In this week’s chart of the week below, I have elected to show the 10-day historical volatility of the Russell 2000 small cap index (RUT), which traditionally has higher volatility than the SPX and is also more susceptible to the winds of economic change and uncertainty. As the chart shows, 10-day historical volatility (white line) sits at a two-year low and has helped to pull the implied volatility (red line) of the index down below 20. Note that last week the CBOE Russell 2000 Volatility Index (RVX) dipped as low as 19.55 and is threatening to drop below the 19.00 level for the first time since June 2007.

    After the first of the year I expect to see the holiday effect magically disappear and HV, IV and volatility indices begin to reflect a more accurate view of investor expectations.


    [source: Livevol.com]
    Disclosure(s): Livevol is an advertiser on VIX and More


  • VIX-Piracy Time!
    Zerohedge chimes in on our beloved VIX. Since he has about 4 billion times my audience, I feel some sort of civic duty to elaborate on a few of his points. On April 15, the VIX contango hit its heretofore steepest of the year. What happened immediately afterward was a peak in the market followed […]

Posted in Markets.

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