Monday, April 1, 2013

Is Volitility DEAD? Will the market ever trade lower?

Anyone that has been reading this blog over the last few months knows that I have been bullish for all of Q1 and have been projecting a bullish story for all of 2013. Overall I continue to be bullish for the year, but short term my opinion is being challenged. The S&P 500 finished Q1 up 10% on the year and volatility has basically traded near historical lows for a big part of the quarter besides the 35%+ spike in February.

This morning I happen to be watching the SPY trade up to test the $157 level. But it failed and reversed course. This is one of many instances of the last 1-2 weeks where we have had a pretty large reversal in the market. It feels like a tuggle war is taking place in the markets.

The VIX is popping 10% as I write this.

Volatility has been dead, but there is a certain level of complacency that is making me a bit nervous in the short term. I am starting to believe that we could see a correction lower. I am initially thinking that it could be in the tune of 30 points to start. I would re-evaluate if this occurs.

With that said I have actually lighted up on a few positions that were pretty deep in the money. With 9 months to go on a lot of my positions, today I had the opportunity to close those positions for close to 60% of the gain in some cases.

Before today I was close to 95% invested...after this morning I am more like 10% invested. Now don't get me wrong, I typically want to have passive positions on. But something told me this morning that it was a good opportunity to move to cash and wait for another opportunity to re-enter the market at lower prices. So until then I will likely sit in a large cash position.

Maybe we will get a pop in volatility that would allow me to put my covered put position back on in VXX. If we could see vol back in the 20's, it may also bring some opportunities to sell some premium.

Good Luck Trading!

In The Money Trades

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1 comment:

  1. The more I sit on this post this morning the more I want to be long volatility. So I decided to sell 5 May '13 $19 puts in the VXX. There are 46 days to go until expiration and I really think there is a pop in vol coming. Maybe into the 15-18 range. This is just a trade and I will be looking to capture about $0.50-$0.80 of the $1.25 that I collected per contract.