This keeps me up at night... In the recent weeks of market volatility, the hyper focus has been on global economies. In the short-term what's going to happen with Europe and the Euro Zone? Is the US immune? Is the "jobless" recovery going to sputter? The short term focus has revealed a longer term trend in the options market. I'll discuss four companies, a tech bell weather (AAPL), the largest "bricks and mortar" retailer (WMT), the largest online retailer (AMZN) and the largest bank (BAC). The <a href="http://www.livevol.com">LIVEVOL™ Pro Summaries</a> are below. <img src="http://4.bp.blogspot.com/_hMry1m7UF10/S_1mWO38WBI/AAAAAAAACmQ/fbHOrLEJWBM/s1600/aap_amzn_bac_wmt_summaries.gif"> The monthly vol term structure for each is included below (<a href="http://livevol.blogspot.com/2010/05/future.html">in the article</a>). I've highlighted the front month and Jan 2012 vols. Notice for each that the current vol is <i>lower</i> than the back. This is pretty unusual and is symptomatic of the majority of the market. The Skew Tab snap for WMT with just Jun and Jan '12 is included <a href="http://livevol.blogspot.com/2010/05/future.html">in the article</a>. I've circled the ATM vols. You can see how much higher Jan '12 is relative to Jun. A week ago we saw a 45 VIX with IV30™ of 167 (i.e the vol of vol). The VIX has come down 33% and the iv in the VIX has dropped 60 points as well. <img src="http://4.bp.blogspot.com/_hMry1m7UF10/S_1nSRvf_eI/AAAAAAAACm4/d5h6YOurg-Y/s1600/vix_summary_52610.gif"> While the near term end of the world scenario has eased up (for today at least), the back months are not as much. <a href="http://livevol.blogspot.com/2010/05/future.html"> In the article</a> you can see the vol changes for this month and Jan 2012 of our four test cases today. These are all negative moves (vol is down today). I have omitted the "-" sign for ease of reading. We're seeing 12%-16% vol drops today in the front months, but only 3%-5% drops in the back. The option market is implying a volatile future... Not for the next month or two. Not into Fall... This is out to January 2012. This is trade analysis, not a recommendation. Details, prices, vols, skews here: http://livevol.blogspot.com/2010/05/future.html
As almost every so called pundit and financial expert out there is 1000 % sure, Greek needs a debt restructuring or will default. If I would be the Greek finance minister and read what Mr. Gross has to tell the world, I would default TOMORROW ! Just to see for the fun of it how Mr. Gross' T Bond long positions would work out. Flight to "quality" ? I guess, nope... No surprise as to longer term vol expectations. Zerohedge does know it already for more than 2 years in what sort of fiat currency economy we all live in...
Wait, wait, wait. You don't mean to imply that Mr. Gross has motivation to hope the market goes one way or the other?