livevol_ophir
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VXX (VIX Short-Term Futures) is trading $18.72, with IV30™ down 3.5% to 66.32.
<img src="http://3.bp.blogspot.com/_hMry1m7UF10/TIkuadTSkLI/AAAAAAAAEqU/glj9Lv8o_rc/s1600/vxx_summary.gif">
So the market is up, vol is down and VXX is super down over the last few months from 31.66 down to 18 (ish). The Charts Tab for the recent few months is included (<a href="http://livevol.blogspot.com/2010/09/vxx.html">in the article</a>).
<img src="http://3.bp.blogspot.com/_hMry1m7UF10/TIkua_bYKAI/AAAAAAAAEqc/rrqJSPHCeSA/s1600/vxx_charts.gif" width="450">
During this same time period, the market hasn't been ripping, it's just been bouncing. I've included the S&P 500 chart for the last few months (<a href="http://livevol.blogspot.com/2010/09/vxx.html">in the article</a>)., note the horizontal line on top illustrating where the market has bounced back down ff of cyclical highs.
<img src="http://1.bp.blogspot.com/_hMry1m7UF10/TIkvjwXSAoI/AAAAAAAAEq0/eZITXOJgbLo/s1600/spx_charts.gif" width=450">
So vol has declined in a period where the market has muddled around, it has not been a matter of a market headed straight up. The question isn't so much where we've been, but of course, where we're going. Let's look at the VX Skew on 7-21-2010. It's just a random date I chose over the last few months is pretty representative of the skew shape over this time frame (<a href="http://livevol.blogspot.com/2010/09/vxx.html">in the article</a>).
<img src="http://3.bp.blogspot.com/_hMry1m7UF10/TIkubOFfftI/AAAAAAAAEqk/_FotSLCeSBQ/s1600/vxx_skew_7-21-2010.gif" width="450">
The skew looked quite flat, indicating an option market implication of lessened tail risk. And, as we have seen, this implication was correct over the short term. Now let's take a look at the VXX skew as of yesterday (<a href="http://livevol.blogspot.com/2010/09/vxx.html">in the article</a>).
<b>Whoa....</b> We can see now that the VXX skew is pronounced and steep relative to the mid summer. A part of the muted skew in July was a summer doldrums, where vol often drops. The point now is that as the market is reaching it's cyclical/technical highs, this time, the VXX skew is pricing substantive tail risk. In other words, the option market isn't buying the recovery relative to summer. Hmm...
Note also, the overall level of IV30™ for the VXX is 65.62. For perspective, the 52 wk range is [55.91, 93.11]. So, while skew is expensive, vol is relatively cheap.
This is trade analysis, not a recommendation.
Details, trades, prices, vols, skews, charts here:
http://livevol.blogspot.com/2010/09/vxx.html
Legal Stuff:
<a href="http://www.livevolpro.com/help/disclaimer_legal.html">http://www.livevolpro.com/help/disclaimer_legal.html</a>
<img src="http://3.bp.blogspot.com/_hMry1m7UF10/TIkuadTSkLI/AAAAAAAAEqU/glj9Lv8o_rc/s1600/vxx_summary.gif">
So the market is up, vol is down and VXX is super down over the last few months from 31.66 down to 18 (ish). The Charts Tab for the recent few months is included (<a href="http://livevol.blogspot.com/2010/09/vxx.html">in the article</a>).
<img src="http://3.bp.blogspot.com/_hMry1m7UF10/TIkua_bYKAI/AAAAAAAAEqc/rrqJSPHCeSA/s1600/vxx_charts.gif" width="450">
During this same time period, the market hasn't been ripping, it's just been bouncing. I've included the S&P 500 chart for the last few months (<a href="http://livevol.blogspot.com/2010/09/vxx.html">in the article</a>)., note the horizontal line on top illustrating where the market has bounced back down ff of cyclical highs.
<img src="http://1.bp.blogspot.com/_hMry1m7UF10/TIkvjwXSAoI/AAAAAAAAEq0/eZITXOJgbLo/s1600/spx_charts.gif" width=450">
So vol has declined in a period where the market has muddled around, it has not been a matter of a market headed straight up. The question isn't so much where we've been, but of course, where we're going. Let's look at the VX Skew on 7-21-2010. It's just a random date I chose over the last few months is pretty representative of the skew shape over this time frame (<a href="http://livevol.blogspot.com/2010/09/vxx.html">in the article</a>).
<img src="http://3.bp.blogspot.com/_hMry1m7UF10/TIkubOFfftI/AAAAAAAAEqk/_FotSLCeSBQ/s1600/vxx_skew_7-21-2010.gif" width="450">
The skew looked quite flat, indicating an option market implication of lessened tail risk. And, as we have seen, this implication was correct over the short term. Now let's take a look at the VXX skew as of yesterday (<a href="http://livevol.blogspot.com/2010/09/vxx.html">in the article</a>).
<b>Whoa....</b> We can see now that the VXX skew is pronounced and steep relative to the mid summer. A part of the muted skew in July was a summer doldrums, where vol often drops. The point now is that as the market is reaching it's cyclical/technical highs, this time, the VXX skew is pricing substantive tail risk. In other words, the option market isn't buying the recovery relative to summer. Hmm...
Note also, the overall level of IV30™ for the VXX is 65.62. For perspective, the 52 wk range is [55.91, 93.11]. So, while skew is expensive, vol is relatively cheap.
This is trade analysis, not a recommendation.
Details, trades, prices, vols, skews, charts here:
http://livevol.blogspot.com/2010/09/vxx.html
Legal Stuff:
<a href="http://www.livevolpro.com/help/disclaimer_legal.html">http://www.livevolpro.com/help/disclaimer_legal.html</a>