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ZB: Never above 120 again?
They are done. Finished. Toast(?) Well, $40B to go…but still, the FED announced today they are going to stop buying debt this fall. We knew this day was coming. So did the market. We just didn’t know when.
So…I have a co-worker/friend…struggling/racing…through learning the options game. I’m not sure if I pushed him over-bored today, attempting to explain what a volatility crush is. So, I thought I’d toss up the chart below.
Today, through the FED deliberations, we got a pretty good example of an implied volatility crush. The September 117 Calls fell from about 1 15/64th to 1 3/64th (shown on the arrows) and the underlying was maybe only off by 10/320 ish across the news. I was short a few contracts through that ride today…and still am. Fun, indeed.
Booyah.
What happens is, before the news, option’s get bid up…pushing IV higher. After whatever news comes out, the volatility gets crushed and the guys who are long the options feel the pain of Vega. One of my reasons, I never go long plain vanilla.
I’m glad we’re resting atop this nice perch in the equities market, where a slight pull back is due, which could cause a flight to safety to push one last fixed income rally. Just in time for an end of year crash in American Debt, putting a 1050 – 1150 ceiling on domestic equities as rates climb with commodities. That’s my 2 sentence, 6 month forecast. Agree, or disagree?