Dec

15

Oddities, from William Weaver

December 15, 2011 |

 93 day VIX minus spot settled at 4.76, the second highest reading since DEC07 (VXV inception). Expect mean reversion in VIX but the contango will kill VXX. Interesting that equities closed at recent lows at the same time which is a lot like the last sell-off when the term structure never inverted — like no one believed the selling or they had perfect foresight into a bounce… So vol is cheap but you get what you pay for. The prior times readings were above 4 they reverted below 4 within a week. Maybe the signal is to buy vol on a bounce in equities, but that still means fighting the contango headwind… as pointed out by two sources VIX has historically had the highest probability of making a yearly low in December (40% of years since 1990)… 14 and change might be out of reach, but it doesn't mean it can't try… seems like the political news machine has slowed recently, will that turn off into the close of the year?

No positions as of writing this and I will be sitting on my hands through the session.


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