Sometimes you wake up in the morning and wonder what changed from the day before.
Today we got the same brew of weaker corporate revenue with the extra helping of Spanish economic contraction. The longer Spain holds out for their bailout and restructuring, the worse it will be for the Euro Zone. The Europeans have put things off for as long as possible, so I guess one more time will not make any difference. The market is a little weaker today, and I would not stand in the way of it. The one bright spot could be Apple (AAPL) earnings this week.
KEY EARNINGS NEWS
AAPL held up the market yesterday and is not looking too bad, all things considered. The possibility of AAPL reporting decent earnings is starting to slowly leak out of the stock though. This is similar to what we had this spring. Coming into AAPL earnings, the volatility was ratcheting up into a weaker market with the specter of the Euro Zone crashing.
The outlook is not as bleak now as it was then, but we have a VIX at a similar level. For today, there is no sense in standing in the way of the increase in implied volatility, at least until the day before AAPL reports. As long as the VIX cash is trading over the front month future, the market is expecting some severe short-term volatility.
GOLD VOLATILITY
One place to look at volatility now is where it is cheapest. The gold volatility is clocking in at 2-year lows, and today it is getting barely a whisker up. Looking at the at-the-money, Nov straddle in SPDR Gold Shares ETF (GLD) is the best bet for one, if the market keeps tanking, two, especially if things turn around a bit and the gamma performs.
WORTH THE RIDE
We have seen some sharp spikes in IV lately in GLD only to be sold off, so the quick exit is very possible. If you pick the strike just under the current GLD price, the ride should be worth it.
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