I love the headline news yesterday of Silvio Berlusconi getting back into the game. That guy is like the Energizer Bunny of Italian politics. The Italian bond market did not like it too much with yields spiking up about 40 basis points yesterday.
The thing I noticed most is that the Euro was up on the day here by the end of the normal trading session at 4pm ET. The beleaguered currency closed 128.50 if you watch the FXE. That was a pretty stunning turnaround and if this happened in June or July the FXE would have been down 1 or 2 full points. The point of this is I am seeing some resilience in the market. Not a ton but some and I think that bodes well going into 2013.
VOLATILITY FADE
Trading yesterday there was a slight fade to the volatility. VIX cash got marked down pretty hard on Friday into the weekend which basically said no deal was going to happen (and it was right). The VIX marked up sharply to reset the Weekend Effect but spent the day drifting south. If I stay on my resilience thesis the market is starting to lose its taste for protective juice. My next measure is realized volatility in the S&P500 humming along at 6.4%. That is right, 6.4%. When you here the talking heads moaning about the VIX being too low remember it is relative to what? Ultimately options price forward volatility but what about right now.
PUTTING ON THE TRADE
The trades that make sense are the little broken wing butterflies. Instead of breaking the wing out, as in a farther out strike, break the wing in so if the market stays truly resilient the trade will remain profitable. Something like a SPY Dec 142/144/145 Fly in the ordinary cycle. You might want to try out a few scenarios in the different SPY Weeklys to maximize a payout.
