Wednesday, July 15, 2009

Volatility Analysis for July 15, 2009

One what was one of the more interesting days in volatility in a long time, I thought I should pass along a few random thoughts:

  1. The intraday tick for tick positive correlation between the VIX and the SPX was as strong as I have ever seen. Most of the time the VIX and the SPX move in opposite directions. Today it was almost as if someone has inverted the gravitational forces acting upon these two indices. (For more on the correlation between the VIX and the SPX, check out the posts with the SPX-VIX correlation label.)

  2. The SPX finished the day up 2.96%, with the VIX up 3.48%. This is the first time ever that both indices moved more than 2.8% in the same direction on the same day.

  3. For more on days in which the VIX and SPX both have strong moves to the upside, check out my June 1st post, Eerie Déjà vu as VIX and SPX Both Jump More Than 2.5%

  4. When both the VIX and SPX are up on the same day, this is historically bearish, generally conveying an edge of 0.25% or to the bears for 3-5 days. This edge begins to diminish substantially after about a month or so.

  5. Regarding today’s VIX movement, keep in mind that the VIX gapped down about 0.80 when Intel (INTC) earnings were announced after hours yesterday. So with the SPX essentially frozen, there was a 0.80 offset going into the day from the 15 minute twilight zone while trading that took place yesterday from 4:00 to 4:15 p.m. ET. If we were to back out the 0.80 after hours VIX drop, then the VIX would have finished approximately flat today – still an interesting development, but a lot less noteworthy.

  6. As predicted earlier today (VXX Volume Spiking to New Record as Investors Bet on Increasing Volatility), the iPath S&P 500 VIX Short-Term Futures ETN (VXX) crushed the old volume record, with 1,537,844 shares exchanging hands, eclipsing the old record by more than 440,000.

  7. Finally, Tuesday was a particularly interesting day to see volatility drop so low, with so many very important volatility events right around the corner, including a critical earnings reporting season, a flood of highly anticipated economic data and options expiration.
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4 comments:

  1. Tony LeoneJuly 16, 2009 at 12:16 AM

    I show July 9th VIX put Skew 17%-

    http://tinyurl.com/n694wv

    Today 7/9 I show VIX put skew at 27%-

    http://tinyurl.com/n694wv

    So if I am looking at this right the increase in Skew in put options today is for protection not as Najarian said today on CNBC Short sellers buying calls for hedge( why no cover- you mean new money came in to market and Shorts held on?)Buying calls doe snot create such a skew it is always the puts that are bid up as put volume has increased considerably as well.

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  2. Bill LubyJuly 16, 2009 at 7:01 AM

    Hi Tony,

    Both of the data links you provided were to the 7/9 data, but if the skew data for yesterday vs. a week ago is as you described, I would agree with your conclusion that the increase in the skew was due to long put protection and not short call protection.

    Cheers,

    -Bill

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  3. DouglasJuly 16, 2009 at 8:13 AM

    Bill

    Thanks for the reference back to your previous post on VIX and market up days. I read it again including my own comments below it. I wish I was better at remembering my own previous analysis. :-)

    I think the thing that I noticed then was the a day with both implied volatility and the market going up together (by a lot) tended to be on days when the RSI(2) on the daily S&P 500 was >90... Something like that has happened again.

    This may not be unrelated to why it is a little bit bearish in the short term - some bulls are scared of heights?

    Douglas
    PS I have not forgotten (though you may have) about what we said about a potential study on volume that I have in mind. I just have not got round to doing it yet - but it is on my 'to do' list.

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  4. AnonymousJuly 17, 2009 at 8:31 AM

    There is an article in the WSJ today about this in the money&investments section and I wonder whether the writer got the feedback from you..
    I love your website, keep up the great work..

    ReplyDelete