The Latest

• VXX Breakdown!
  Posted by Adam Warner on September 2nd, 2010 at 9:55 am, Comments: 0

  

  Yes, saw some tweeting to that effect.

  Here’s my advice. Don’t look at VXX charts. And I recognize the irony of attaching a VXX chart to a post that recommends not looking at VXX charts. So let me amend that to say, don’t read much into VXX charts.

  It’s 17 levels of derivative of a stat that itself should be charted with the knowledge that it’s a stat and not an asset with more natural supply and demand characteristics. The VIX itself can simply move because the price of SPX moved up or down the skew curve.

  And even if you want to disregard that VXX is simply born to fail to begin with and attach significance to the breakdown, what exactly does it mean? Are you bullish on the market because of it? Volatility in theory mean reverts. An extended slump should get you looking for a snapback, not a continuation.

  
  

• Not All VIX Fear That Meets the Eye
  Posted by Adam Warner on September 2nd, 2010 at 6:33 am, Comments: 0

  They’re talking VIX again in the MSM, this time on Marketwatch.

  Here’s something I didn’t realize. The VIX rallied 14.5% in the month of August, marking the largest August VIX spike since 2001. Even after getting plowed Tuesday, the VIX still showed a 10.8% lift for the month.

  Should we get scared?

  Well, let’s just put the VIX lift in perspective. Here’s a chart of VIX over the past month.

  

  For balance of the post, please click thru to InvestorPlace.

  
  

• Game, Set ….Later
  Posted by Adam Warner on September 1st, 2010 at 10:07 am, Comments: 0

  

  Little guy stumbled on Caroline Wozniacki playing tennis last weekend and…yada yada yada, off to the US Open today. Will have to break news to him later that she played last night.

  So will leave you for today with a couple factoids I picked up writing up a post for InvestorHouse. From end of June to end of August, VIX lost almost 25%, yet SPX only rallied 1.8%. Out of context that sounds like an explosion of complacency. In context, VIX closed high end in June, near 35, so not a great comp. to begin with.

  Moral of the story is I think I can take the VIX and curve-fit it to prove it causes everything……or nothing at all.

  
  

• Days of VIX Past
  Posted by Adam Warner on September 1st, 2010 at 6:51 am, Comments: 0

  

  We’ve yapped alot about the persistent VIX futures premiums this summer. But is is so unusual? Don Fishback runs some graphs, and it appears not.

  To answer that question, I looked at the VIX premium on the last Thursday of the month (because last night’s close was the last Thursday of August).  I looked at the data for the past 5 years.  [I know there are two more years of data, but I've got to get back to work!]

  Note that the outlier is 2007.  Anybody care to speculate what was going on back then?

  Whether the current situation is that much different from the past … well you be the judge if the current situation is really that unusual.

  Well, I think August 2007 was Cramer’s “He has NOOOO idea” rant, so clearly that caused VIX to lose premium……well that and the market was ugly around then just before a big rally into October.

  Most interesting is that we’re almost exactly like we were last year. And of course last year the VIX pre-anticipated an uptick in volatility for about 9 month’s total before it actually happened. If memory serves me correctly, IV way outpaced HV from June 2009 to January 2010. There does seem more conviction that we’re going to crash this Fall. But as Don’s numbers show, maybe that’s more anecdotal impression than anything else as the numbers look pretty similar.

  
  

• Just Say No
  Posted by Adam Warner on August 31st, 2010 at 3:19 pm, Comments: 0

  

  So I got “miracled” the other day. Hulu graciously will now allow me to get Hulu Plus on the Ipad. One issue though, it’s $10 per month.

  Ex-squeeze me?

  What do you get for that? Apparently the mostly-network shows you get on regular Hulu. For free. Or you can pay $10 to NFLX .

  Dan Frommer on Silicon Alley Insider says he’s canceling, though more because he says the content doesn’t fit his viewing habits (I would make the case that Hulu should probably have comped an influential tech writer to begin with). So in protest. I hereby refuse to sign up to begin with!

  
  

• ….Or Maybe Correlation Not So Bad
  Posted by Adam Warner on August 31st, 2010 at 10:15 am, Comments: 0

  Steven Place checked out our post yesterday on increasing correlations, and made the very valid point that JCJ measures correlation between 50 big cap names. Meanwhile lots of movers under the surface. He adds.

  Here’s the thing– we already know that a lot of the large companies are going to have high correlations. Unless there’s fresh news in a sector or a company, they generally run on the same track– the futures arb firms make sure of that.

  So the death of stock picking? Probably not. The high beta small caps aren’t really included in this reading, and so I’m more inclined to think that correlations really aren’t running that hot– especially when you see ARST or FIRE from the past week. Besides, stock picking is much more sexy when you buy DDRX instead of XOM.

  Very true. It’s misleading to say everything is just moving with an index now. There’s always opportunities, jalexander makes a similar point in the comments.

  Maybe we can meet somewhere in the middle here. VIX proxies SPX volatility, so it is reasonable to use a correlation measure that bases off SPX. And it’s an apples to apples comp. as it’s JCJ vs. itself at a different time. And it is higher than in all other “different times”.

  I do think in general it hasn’t been a good time to own paper in individual names. But you really want a lottery ticket type win when you do own one, and there’s as many POT’s as any time. So Steve’s correct here.

  Whatever way you look at it though, I think you want to own individual stock paper over index from both the standpoint that correlation is extended, and there’s still plenty of potential wins out there.

  
  

• Fear Not
  Posted by Adam Warner on August 31st, 2010 at 6:43 am, Comments: 0

  

  Slow summer Monday VIX thoughts, by me on InvestorPlace.

  On Monday, the CBOE Volatility Index (VIX) opened up about 5%. The market did open slightly lower, but basically hovered close to unchanged for the first few hours of trading. Yet the VIX held onto its gains.

  So is this another sign of impending doom we can file alongside the steep VIX futures term structure and the heavy skew toward out-of-the-money (OTM) puts?

  I think not. I believe this is a confluence of quirks that would lead one walking into the market today to see fear where not all that much exists. But you have to go back to Friday to put this in better perspective.

  Please click thru for the balance of the post.

  
  

• Another Implication of High Correlation
  Posted by Adam Warner on August 30th, 2010 at 9:44 am, Comments: 0

  Correlation is a proxy for the infamous “Dispersion” trade. That’s where traders go long gamma in individual names and short it in indices. The goal is to have the individual names gap every which way, while index action remains relatively muted. In other words, declining correlation. Speciallsts, trading desks, and big derivatives players in general often have this sort of position on.

  That position has clearly not worked well.

  Now for those of us playing at home, you can’t really put this sort of position on in any meaningful way. It’s too capital and time intensive to have, say 10 positions on with enough long gamma you can trade against plus an index short or two that’s large enough to offset the time decay you’re paying on those 10 long gamma positions. So it’s just a question of alternatives. And what this kind of says is that if you want own options gamma right now and you think correlation is a bit extended, you should probably look at individual names. And likewise if you want to short gamma, look at indices.

  
  

• Awesome Sports News
  Posted by Adam Warner on August 30th, 2010 at 2:15 am, Comments: 0

  

  Sounds like the Big Ten Plus 2 (not to be confused with the 10 team Big 12) is going to split up Michigan-Ohio State into separate divisions.  And better still, the season-ending game they’ve played in November since 1935 will now move to mid-October. Awesome! Who needs tradition.

  Why? Apparently so if they play in the Big Ten championship it won’t just be a rematch of the week before. The Big 10 Championship Game TV rights incidentally will go for $10-20 million they say. And best of all, the players will get none of it!

  Pay the players already, the more and more money they generate, the sillier and sillier this whole thing gets.