Blog Archives
New Keynesian Economics
July 26, 2010
Good morning. It was a very strong week for the market last week, despite a sell-off on Wednesday attributed to Federal Reserve Chairman Ben Bernanke’s testimony before Congress. In that testimony before the Senate Banking Committee the Fed Chairman referred to the economic outlook as “unusually uncertain,” and the market responded with a two percent sell-off into the close on Wednesday. The market recovered that amount and more on a big rally Thursday that continued into Friday. For one week, at least, the market focused on generally good earnings, increased revenues, and good guidance going forward, rather than the tepid Economic numbers.
The Bottom Line
June 7, 2010
Good morning. One of the few calendar, or seasonal, type plays in the market that has been most consistent since the early 1980’s (time I started in the trading business) has been the relative lack of volatility in the market from essentially the May options expiration through Memorial Day and even until the 4th of July. When I remember the years when I had 11 traders trading in our group on the floor of the CBOE and how difficult it was to not end up long premium entering a time of holidays, time off, graduations, etc. Not this year, it seems.
This Island Earth
May 10, 2010
Good morning. Wild and down market last week, with the SPY closing down 7.55 (or 6.4%) to close at 111.26. The VIX spiked up 85% to close at 40.95, signifying that the cost to protect positions had risen dramatically, and actually closed Friday night very close to the high. In addition the market had a nightmare day on Thursday, with the markets spiking down and coming virtually unglued for a brief time in the afternoon. Investigations are abounding, and should show that the entire market structure needs to be looked at very strongly and honestly, but I am not holding out any hope for real reform.
Mental Midgets and More
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.
Middle America
March 22, 2010
Good morning. Last week the market was up fractionally, with the SPY up .51 to close at 115.97. That is still a spectacular move up from the gloomy days of last March, when on last March 19 the SPY closed at 78.94 (47% increase). It also is an interesting contrast to the VIX, which was down on the week to close at a low number of 16.96. That is down dramatically from the number last March 19 of 43.68 (61% drop).