Is the New VIX Level Justified?

10/01/2014 8:00 am EST


Andrew Giovinazzi

Chief Options Strategist,

Andrew Giovinazzi of discusses how stocks have been more edgy lately as intraday volatility picks up and examines whether or not he feels the volatility is justified and how options traders should act following the release of the NFP numbers on Friday.

It is possible we are back to the days when the non-farm payrolls (NFP) numbers mean something.  Stocks are more edgy lately as the intraday volatility picks up.  The 16 VIX right now is justified on the touchy moves over the last four or five sessions.  The bid for volatility Monday belied something else.  I see some unrest potential from Pimco but I do not think that is it.

Note the way IV is up Monday in the SPY.  There is some weekend effect in the options from the day reset but note how smooth the change in IV was.  Volatility did not jump too much in the OTM option relative to the ATM options.  What this says is that traders think IV should be higher all up and down the curve.

3D charts by OptionVision
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IV is telling us the market is going to move.  The VIX futures kept up a healthy gain Monday and are following the change in the VIX cash closely.  Normally if the spike in IV is viewed as short lived, the futures will lag the cash VIX by a substantial amount.  That was not the case Monday.  The even move in IV all up and down the curve is telling us that.

This payroll number will come and go but will the volatility remain?  Stay tuned for Friday afternoon but I think the bid for IV does not last past Friday.  I like the idea of flat delta iron condor in SPX or RUT.  If worried about a sustained selloff after the NFP, hedge with cheap 4-5 point wide butterflies in the VIX Oct cycle with the Iron Condors.

By Andrew Giovinazzi, Chief Options Strategist,

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