Greek Crisis Ends With a Thud, but the Volatility Collapses for Good Measure
Greek Crisis Ends With a Thud, but the Volatility Collapses for Good Measure
So the CDS event for Greece happened, and the buildings are still standing, and the sun is still shining. I remember as a floor trader, during market crashes, when some fund or country melted down, it looked like the world was ending. Trading floors are generally windowless fish bowls with lots of blinky lights, so when markets implode, they look much worse in an active trading room. When the volatility starts to implode (melt down), things donít feel so bad. It is more like letting the air out of a tire. So letís look at the closing print in the VIX futures.
(CBOE Futures Exchange)
Note the VIX cash closed 15.64, which is the low water mark for 2012. The VX H (Mar)future is still $2 above cash with 9 days to go until expiration. I needed to see the cash turn lower, because that means some air is finally coming out of the SPX puts. I think today is more of bids dropping and not active selling, but still, the IV is dropping in the index. Note the tail off in the SPX Apr 1300 puts. Notice how the IV, in the downside puts, has been pretty resilient on the downside. It is getting close now to breaking through.
Livevol (r) www.livevol.com
What remains stubborn is the $6 + or so in premium in the April VIX futures, which is at least partly there from the newly busy volatility ETPís. Letís see how long it can last, if the market can keep poking along. At least, for now, there is a small buy in for the levels in the SPX that now exists. Now to climb the wall of worryÖ
The Trade
The VXX is heavily dependent on the April VIX future now and is finally in new lower territory as well. I think smaller positions in protected collars (short OTM call spreads and long puts of different strikes) on the VXX or VIX look interesting for shorter to medium durations. I think we can see at least $1 or two on the downside in both of these over the next two weeks.
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Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
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