What Does The VIX Know That We Don't?
Growth, Long/Short Equity, Momentum, Macro
Seeking Alpha Analyst Since 2014
I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.
I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels.
1/13/21
Stocks – INTC, AMD, GM
Macro – SPY, VIX
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Stocks rose some on January 13, but the S&P 500 has still been unable to take out Friday's closing high. To some degree, that is surprising to me. It has been nearly three days, and what was a powerful closing level on Friday has been difficult for the index to move above.
What also concerns me is that this coming Friday is an options expiration date, and we should begin to see market makers unloading over hedged positions. The amount of options trading taking place in the market and the moves it creates in some stocks is really amazing. The open interest levels for expiration this Friday is almost on par with December's expiration date.
Meanwhile, the VIX doesn't go down, and perhaps the explosion in options volume has permanently shifted the structure of the implied volatility pricing. After all, with all of the options trading taking place, shouldn't the dealer be able to make a little extra? If that is the case, then perhaps the VIX at 22 is the new 12.
What is most strange is that the VIX volatility index, VVIX, is actually diverging from the VIX. Meaning, as the VIX is falling, the VIX volatility index is rising.
Implied volatility on the S&P 500 is much higher than the historical volatility. This is a trend that typically is followed by a surging realized volatility. So, we can patiently wait for the shoe to drop. When it will drop, and what will cause it to drop, is the big mystery.
It is worth noting that the one index that continues to make new highs is the most shorted index.
Anyway, maybe we should all mark our calendars for February 9, just in case.
Intel (INTC)
Intel jumped today after it was announced that Bob Swan was stepping down as the CEO in February. The new CEO will be coming over from VMWare. Intel jumped rather noticeable, filling a technical gap from mid-July at $59.75. These CEO changes can be messy initially, so maybe the stock is getting ahead of itself here. At least, that is what the chart would indicate. Now it is going to have a gap to fill at $53.20.
AMD (AMD)
AMD didn't like the Intel news falling by 3%. This stock seems to find a tremendous amount of support around $89.25. So that will be the level to watch. A breakdown could be a sign of a lot worse to come.
Exxon (XOM)
Exxon keeps going up, and it is in a spot where it could even rise to around $51.
Ok, that is all...
Mike
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