Lenny Jordan's Market Blog
Monday, 29 August 2011
Okay, here’s the first installment of my weekly market blog. Let's have your comments!
THE MARKETS
Last week the markets stayed waiting for Friday’s comments by Fed Chairman Bernanke from Jackson Hole . Traders reported generally lackluster conditions. Typical comments included: ‘…waiting for the Fed to lead us by the hand,’ and ‘… like being holed up in Jackson Hole .’
Although trading activity was light, however, the markets are preparing themselves for renewed activity next week, as indicated by the firmness in options implied volatility.
Bernanke’s comments were professor-like, but at least they calmed the markets. We need to watch the flows on Monday to get a true sense, but my hunch is that vol’s about to take a short-term dive.
COMMODITIES
After the push through $1900, and after the 5% sell-off, gold vol stayed firm. The precious metal may have been overbought on a technical basis, but with the possibility of more QE looming, significant upside potential still remains. All this put a bid to the CBOE Gold ETF Volatility Index (the gold VIX), which went to 33, its highest level for more than two years, and still remains trend upward.
The Brent-WTI spread (110.15-85.16 = 24.99!) continues to firm as well. There’s lots to say about this spread, and below is a chart telling when it all began. Stay tuned for a more in-depth analysis, and…
If you want a market on this spread, then give us a call.
STOCK INDICES
Meanwhile, the S&P 500 VIX is firm at the 35-40 level, as the market looks for the relief rally to continue but also fears a breach of major downside levels: S&P 1,000; DJIA 10,000; FTSE 5,000. For a trade idea, see below.
TREASURIES
The Implied vol vs yield spread continues to defy logic. There’s no justification for the Bund implied to be at 4% when the yield’s @2%. Historically, this spread should be at about levels. Still, in a fear-driven market, this makes perfect sense. Which makes for trade opportunities, see below.
TRADE IDEA
One trade idea – and a safe one - is to place butterflies and condors at technical support/resistance levels. This is a market maker’s trade (because I was one): you anticipate vol coming off for the next several days, with near-term technicals to hold. You are selling options premium but you have the protection of covering options. And with vol as high as it is, these spreads are cheap. For more discussion, please phone or email.
‘Til next week,
lenny@lennyjordan.com, in London at +44(0)7905589249
