I noticed two things today:
-The rate at which the market was recovering from the low of 1073 has slowed
You may be saying WHAT! We rallied all day and were up almost today as we were yesterday. I would differentiate yesterday from today because of the timing of the rallies. The rally yesterday started out somewhat slow but caught momentum that carried forward all day. The rally today essentially peaked at around lunch time. I would also note that yesterday the market rallied into the close and today, the market did not. What might this mean? Personally, I do not think we are going to sell off tomorrow however, I am expecting a MUCH more normalized market than we have had over the last three trading days. I would think the market will move less than one standard deviation tomorrow.
-The rate of change in the VIX slowed
I stated how implied volatilities essentially have been falling for a week straight. If we take the time to look at what the VIX did relative to price action of the SPX it was in only marginally. Despite the rally, I would argue that implied volatilities fell far more between Monday and Friday of last week than volatilities will fall this week. Let us do some math:
On Monday (1/25) morning with the VIX opening at around 27, SPX at about 1100, the 30 day expected move (standard deviation) was 85.14. On Friday’s close with the VIX at 24.55 and the SPX at 1073, the 30 day expected move was 75.52. The expected price movement dropped about 10 dollars or 11.76%.
On Monday the market opened with the VIX at about 24.33 and the market at 1075, a standard deviation of just under 75. The expected move as of close today with the VIX at 21.48 and the SPX at 1103 is 68 points. Thus the standard deviation has fallen 7 points or 9%. That’s a 20 percent TRUE IV drop, I am hard pressed to believe this pace will continue.
Underlying Data
| Symbol | Close | Change |
| VIX | 21.48 | -1.11 |
| BTU | 44.26 | +0.07 |
| IBM | 125.53 | +0.86 |
| WLP | 65.05 | +0.85 |
SPX Price Chart for Feb 2, 2010
BTU Summary
| -20 | BTU | JUN10 | 55 Call | @ | 2.25 | Currently | 1.23 | = | -20 | * 100 * |
1.02
|
=
|
+$2040 |
| 12 | BTU | MAR10 | 48 Call | @ | 3.30 | Currently | 1.19 | = | 12 | * 100 * | -2.12 |
=
|
-$2538 |
| TOTAL UNREALIZED LOSS IS (excluding commissions) |
-$498 | ||||||||||||
 |
 |
IBM Summary
| 12 | IBM | FEB10 | 125 Put | @ | 0.94 | Currently | 1.98 | = | 12 | * 100 * |
1.04
|
=
|
+$1243 |
| 12 | IBM | FEB10 | 140 Call | @ | 0.74 | Currently | 0.03 | = | 12 | * 100 * | -0.71 |
=
|
-$847 |
| -10 | IBM | FEB10 | 130 Put | @ | 2.28 | Currently | 5.38 | = | -10 | * 100 * |
-3.10
|
=
|
-$3095 |
| -10 | IBM | FEB10 | 135 Call | @ | 2.03 | Currently | 0.08 | = | -10 | * 100 * | 1.95 |
=
|
$1950 |
| TOTAL UNREALIZED LOSS IS (excluding commissions) |
-$749 | ||||||||||||
 |
 |
WLP Summary
| 20 | WLP | FEB10 | 65.0 Put | @ | 1.60 | Currently | 1.70 | = | 20 | * 100 * |
0.10
|
=
|
+$190 |
| -20 | WLP | FEB10 | 67.5 Put | @ | 2.40 | Currently | 1.51 | = | -20 | * 100 * | 0.90 |
=
|
-$1790 |
| 2 | WLP | MAR10 | 75 Call | @ | 1.30 | Currently | 0.26 | = | 2 | * 100 * |
-1.04
|
=
|
-$208 |
| TOTAL UNREALIZED LOSS IS (excluding commissions) |
$1772 | ||||||||||||
 |
 |
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