Skip to content

Vol Says to Buy the Dips

It was a rather ugly day in the cash markets with the S&P 500 down 1.59%, but volatility remained rather subdued.  We saw a nice move in the VIX of 1.54 vol points, but in the VIX futures curve action was very muted in longer maturities with most increasing about .4 vol points.

The front had action, but mild on the backside

We could argue that the longer dated VIX futures are already fairly inflated at the 30 vol level, but what about implied volatility of regular S&P 500 options?  It turns out that the skew on 6-month options moved in a timid way as well with ATM implied vol moving from about 22 to 22.5.  In addition, we saw a pretty parallel shift in vol which suggests that there was little “fear buying” of OTM put options.  In fact, I would even suggest that the fall in market prices gave traders an opportunity to sell puts or increase risky asset exposures at more attractive levels.

Option implied vols were muted as well

I take this to mean that the “risk-on” trade is still fully in force and we should see this as a pause and pullback rather than the start of a correction.  The mood could shift quickly with more news, but right now the vol markets are not telling me to run for the door.  In fact, they might just be telling me to add to my positions.  Do you see any fear in the Credit Suisse Fear Barometer?

Posted in Derivatives, Markets, Trading Ideas.

Tagged with , , , , , .

Copyright © 2009-2013 SurlyTrader DISCLAIMER The commentary on this blog is not meant to be taken as an investment advice. The author is not a registered investment adviser. There is no substitute for your own due diligence. Please be aware that investing is inherently a risky business and if you chose to follow any of the advice on this site, then you are accepting the risks associated with that investment. The Author may have also taken positions in the stocks or investments that are being discussed and the author may change his position at any time without warning.

Yellow Pages for USA and Canada SurlyTrader - Blogged