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EXPLOSION
The VIX hits an all time high

Market pundits are using the term “unprecedented” to describe the levels we are seeing in the options market -for once they are right, there is no real historical corollary for the current volatility environment. The VIX spiked to all time high levels today as equity investors across the entire duration spectrum struggle to find their footing. As you can see from the attached chart this is a global options market phenomenon as every short gamma trader on the planet is scrambling to buy and cover because their models no longer work.

Anyone with a pronounced directional bias for a particular name or names should take note: The volatility curve is very steep sloping downward from the front months -there are a lot of very attractive calendar spread opportunities right now.

On a personal Note: based on the tone of today’s coverage, our friend’s at Bloomberg have apparently decided that it is now time to panic. As you will recall I was miffed when a smirking Bryan Keogh dismissed our thesis that the VXO would reach levels that it hadn’t seen since 1987 as a crescendo signaling a short term bottom for equities. On the 14th, after we were proven correct, volatility levels subsided and Bloomberg’s senior volatility correspondent Jeff Kearns reported that smart money expected that a measure of calm was returning to the options markets –exactly when we made the call that the VIX would test 70 again. It would be tempting now to make a call based on the shrill tone of their latest dispatches as a contrarian indicator but going into expiration at an all time high we might as well try to nail Jello to a tree as call the VIX.

Andrew Barber
Director