VIX and Variance Futures
The December CBOE S&P 500 3-Month Variance futures settled at 5053, which is a volatility of about 71% (square root). That number was once “unreachable” on a short term basis, let alone over a 90-day period. Longer-term Variance much lower for now, in the range of 38% to 43% volatility (still relatively high). If market movements remain in this range for most 90-day expiry’s in 2009. then this is going to be an extremely volatile year. Balance this by reducing size and opening up the ranges. Remember: when VIX futures are at a premium to VIX cash, it is bearish for SPX. This is the main wrench in getting aggressively bullish. This premium remains in the futures vs. cash Volatility. I would have liked to see the spread close with the recent down leg in stocks, but it hasn’t, which makes me worry. If VIX drops, spread will close. Spread closed a little on Tuesday, from 7 to 5 points. If this spread evaporates in the near term, I can get more comfortable with my bullish themes.
Analysis:
OIH holding 77.50 all day. Above 79.35 will result in a continuation move. Easy money in this ETF.
SPY has been putting in a base for 10 days. There may be another test of 82 required before the market starts to believe. However, Tuesday’s action looks like bidders are stepping up and sellers are at 85. Watch that level for a breakout WITH VOLUME.
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