Check our our next Master Class on Longer Term Option trading here
QE announcement is no longer a market positive
QE announcementnormally would send stocks to giddy heights. After today that time has passed. We can mark the day when the market no longer sees QE as a solution but the continuation of a problem. That problem is economic policy by the participating governmens t(s) is not getting it done and some smoke and mirrors by the central bank is not going to change it.
VIX was ahead of the move all week
VIX showed strange behavior all week with rising implied volatility but lackluster movement in SPX. It was almost like the move was leaked on Monday afternoon and it took all week for the ECB to spill the beans. No close on the Trade War and the Huawei legal battle is not helping either. The good feelings rally to 2800 is in tatters right now. VIX has been leading all week and now the news is out.
The VIX curve dropped into light contango into the close
And how did the VIX curve react today? The curve got super flat midday and it looked like the lid was about to blow out the bottom of stock prices and then …. Everything…… stopped. VIX cash ended up on the day but the curve was most definitely slopping up by the close. That usually signals the vol event is not over yet. With higher futures prices in the VIX traders are looking for higher prices down the road.
Charts by VIX Central
SPX should stay weak with VIX moving
This sets up the best possible trade in my mind for VIX and related vol products. The short end is stressed and the nearest reverting number is 13.5. That creates a nice range for VIX and VXXB. This also means SPX just grinds around mostly lower until some truly positive news comes out.
Positions in VIX, VXXB, SPX