The Global Economy and the Market Price of Vol Moving Forward

Discussion in 'Options' started by livevol_ophir, May 26, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    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="">LIVEVOL&#8482 Pro Summaries</a> are below.

    <img src="">

    The monthly vol term structure for each is included below (<a href="">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="">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&#8482 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="">

    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=""> 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:
  2. 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...:D

    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...

  3. livevol_ophir

    livevol_ophir ET Sponsor

    Wait, wait, wait. You don't mean to imply that Mr. Gross has motivation to hope the market goes one way or the other? :cool: :p :)
  4. livevol_ophir

    livevol_ophir ET Sponsor

    PFG has similar vol. Jun is down 8% while Jan 2012 is up 8% today.