VIX - Market Sentiment
Wednesday S&P futures traded down 7 handles on weak flash PMI numbers out of Europe. Combined with a poor existing home sales number and poor earnings recently out of Dell (DELL) and Wal-Mart (WMT) our markets were weak going into the noon hour. The S&P traded right down to the accelerated uptrend channel on the 10-day moving average and bounced.
This move was somewhat telegraphed from the CBOE Volatility Index (VIX). Even trading down to the 1355.53 level the spot VIX reaction remained muted. Only toward the close did the VIX begin to perk up as well as the VIX futures which sold off even with spot rising. This kills those long volatility ETFs (VXX) and 2x volatility (TVIX) as the futures continue to come down off of last week's high.
Yesterday
March VIX futures 22.58
April VIX futures 24.95
May VIX futures 26.05
Today
March VIX futures 21.95
April VIX futures 24.63
May VIX futures 25.68
Even with spot VIX closing flat today the overall futures traded down which is why TVIX and VXX continued to get punished in a relatively flat to down market. VXX puts as reported on yesterday's sonar continued to be bought today as people continue to believe this market is set to rally yet further. With volatility down at these levels players could sell weekly S&P 2x short ETF (SDS) calls against further out month calls. I personally like the April 16 calls for 1.00 and selling the weekly 17 or 18 against it to collect weekly premium but stay hedged to the downside.
Options Paper
Yesterday a very large trade in the S&P cash went off where a single 50K block of December 2012 calls were sold for 71.00. These calls were bought back on November 18th of last year
