Yo Pit Crazies,

If you want to check out one of the hottest trading products at Option Pit, take a look at Trade to Close on Wednesday night. Sign up here to see how Mark and Voz grab the end-of-day trends.

Speaking of trends, this next one is not a great one for bond bulls.  At least for now the 30-year bull market in bonds is over and heading the other way in a hurry.  If you told me the iShares Barclays 20+ year Government Bond ETF (Ticker: TLT) would be down 50% in two years I would say no way. That is a big chunk of market value gone in the short term.  2% Interest rates?  Not today.

The two-year chart of TLT is somewhat off-putting.  The long slow slide in bond prices has only roughly correlated with a rise in volatility.

2-year chart of TLT with 30-day implied volatility and 20-day realized vol

TLT is at the 2-year low but bond IV is not at a two-year high.

Something is not right.

Implied Volatility is high but not at the highs

Traders look for that big spike in IV because that normally means capitulation is happening.  Also, the IV spikes when there is a two-directional action.  When I was a floor trader, the snapback was the short gamma killer.  Right now there is only a modest rise in IV because TLT is a one-way wrecking ball.  Not many traders are worried about a snapback.  I looked at the IV skew in an Edge Hunter Sheet today and the skew was dead on the upside.

Stocks right now are having trouble digesting the pain of the bond market.  The flight to quality today was mostly the Magnificent 7 stocks that have propelled the gains this year.  I think that will lead to more short-term “orbiting” markets going into earnings where there could be a hint of better news.

Of note, gold made year lows so the safety trades of gold and bonds were getting smoked.  Hard to believe all that money is going into the big Invesco QQQ Trust (Ticker: QQQ) but that is what it looks like.

Mark and I will cover trading the chop in the Trading Desk and this should open up opportunities in the Easy Button as so many stocks make new lows this year.

To your trading success,

AG

P.S. One of Olivia Voz’s strongest tools is the Volume Profile. When you register for Wednesday’s event, you’ll receive two demo videos breaking down exactly how to set it up and use it. Click to see!