The SOTU did not move the ball

After the SOTU address the market went into a malaise and realized volatility stopped dead.  With no real new policy changes the catalyst for a rally faded rather quickly.  Today yet another announcement came out that there will be no early meeting between Xi and Trump.  That was enough to put an end to the big rally in SPX that has been nonstop for a month.

SPX IV is very cheap

The bigger question is if the VIX we had the last 3 months is coming back to haunt all the short vol traders.  As Mark mentioned last nite, VIX may have found its bottom.  I agree with him.  The one thing that is interesting is the downward spiral of IV in the face of the 2 month SPX volatility.

Chart from Cboe Livevol Pro

Realized Vol is at a 2 month low

Recent realized vol is down to 11% on a 20 day basis.  That is huge drop from around 18% two week ago.  This does signal we could see a lower VIX number, if and big if, the Trade War can end successfully.  SPX IV in the very short term got as low as 9.5% yesterday for the SPX Feb11 cycle.  That is some very low IV.

Buying 2 week IV in SPX looks like a decent bet around 12.5%.  It won’t be over until the Trade War is over.

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