March 21, 2011
Good morning. Volatile and down week for the market last week, despite a solid bounce off the Wednesday lows. The SPY was down 3.08 on the week to close at 127.76 (2.3%), which was still a solid 2.48 (2%) off the low made on Wednesday afternoon. The news regarding the Japanese earthquake damage and subsequent tsunami, soon overwhelmed by events at the nearby nuclear reactor facility, dominated the trading for the week. A big upward reaction to the market was directly associated with a coordinated G7 (first coordinated intervention in over ten years) move to stop appreciation of the Japanese yen in the aftermath of the disaster.
March 29, 2010
Good morning. Another quiet week in terms of volatility last week, but again the market did finish with a gain. The SPY was up fractionally again, gaining .61 to close at 116.58. At times, both Thursday and Friday, it looked like there was a chance of a real upside breakout, but late sell-offs dampened the mood. On Thursday, for instance, the SPY traded all the way up to 118.17 before closing near the day’s lows at 116.65. Normally that would be the sign of a tired market, but any attempt at a sell-off seems to be met by buyers below the market (at least so far). The VIX was actually up on the week, although fractionally, closing up .82 to 17.77. If anything, the upward skew in the implied volatility going forward worsened, and it remains significantly more expensive, in terms of implied volatility, to buy far out protective puts than it does to buy anything near term. For example, in AT&T (trading $26.24), the January 25 puts of 2012 are trading for a 23 implied volatility vs. the near term April 26 options at a 15 implied volatility. I am not sure what sort of relative carnage or volatility spike the market is collectively expecting going forward, but it is sure priced in.
January 25, 2010
Good afternoon. Last week was the worst week in the market since last March, with the SPY down over 4% to close at 109.21. That closing number is also lower than the 111.44 closing number from last year, wiping out all of the early January gains. The VIX was up a dramatic 52% for the week to close at 27.30, and erased a lot of the upward sloping volatility skew we talked about last week.