I remember staring at the TV screen on the Pacific Exchange (PCX) floor eleven years ago about thirty minutes before the open when the second airplane flew into the tower. It was pretty scary at the time as we did not know if any more planes were coming down in other major cities.
The trading floors were closed for a week after the attack as the markets got time to adjust. That was the first time that the equity markets shut down for that long. Very sad days…but seem better now.
VIX MOVE
There was a bit of a freak yesterday as the GoDaddy website was hacked and temporarily disrupted service to a good chunk of the Internet. That short-term scare at the end of the day drove the SPDR S&P 500 ETF (SPY) down to 134.51 and the Volatility Index or VIX up to just over 16.28.
CHEAP FUTURES
From a market point of view there was not much to drive volatility up except that news that was slowly spreading over the web. Today that leaves us with a very cheap September VIX future at just .06 over VIX cash as of this writing late morning Tuesday.
WAITING ON THE NEWS
What we do have is two big announcements for Wednesday and Thursday, each of which can move the markets. First there is the German High Court ruling on the European Central Bank (ECB) bailout and next some sort of answer from the Fed on QE3. Gold in particular is betting on some added Fed stimulus as it trolls near its short term highs.
THE TRADE
The real opportunity lies in the cheap VIX options. Normally there is a substantial premium in VIX futures with a week to go (.50 or more at least) but the market seems to be pricing in the fact that QE3 is a lock. A good way to hedge any longs would be to buy some ATM VIX call spreads in Sep at this level. They rarely get this cheap.
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