Saturday, December 10, 2016
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
14,876 Blog Posts

The Biggest Story Never Told

5 year chart of Volatility

We take it for granted, the seemingly endless barrage of buy orders taking the markets to new highs, compressing volatility and reducing it to a story to be woven near the fireside to the grandkids.

“Back in my days, we’d deal with this instrument called volatility. One day it really went up. Boy you had to be there.”

“Grandpa, what’s volatility?”

What is taking place in the markets is nothing short of extraordinary. The markets go up, constantly, for years and everyone doubts them. God bless the souls of Tim Knight and Zerohedge. I have no idea how they can remain on the interwebs after being treated so brambly by the markets.

Now based upon historical precedence, which doesn’t seem to mean anything these days, a $13 handle on volatility should mean we are near the highs, if not the high of the markets, and something is going to surprise us in such a way– we will regret the day our fathers decided to do without a contraceptive. Theoretically, markets are about to plunge and all of you stupid readers out there will wallow, like fat men in kiddie pools, stuck in egregious losses.

“The Fly” is immune to such occurrences, since he would be in outerspace, enjoying the view, while firing his Orbital Space Cannon (OSC) at the indigenous folks in Africa. There is nothing redeeming, whatsoever, about that God forsaken continent.

But you know it’s all poppycock. The markets will crumble no more than a person inside of the lower class will live life without bitterness, contempt and honour.

Inverse volatility has been all the rage, with XIV being the number one performer in the ETF/ETN world last year. I see no reason to believe it will stop edging higher. After all, NOTHING seems to be able to derail the markets.


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  1. Narwahl

    I Love to hear the tales of the olden times. Is that your mansion in the picture, or Jeff Goldblums?

  2. jimmy_two_times

    Funny a colleague and I looked at the VIX chart on Friday’s close and were thinking the same thing – but hey you knew that Fly.

    ZH has just turned into a big love in for gold bugs.

    Almost every comment is fuck the bankers and Benny B for printing.

    For all the smack talk of the “physical” everybody owns on the hedge, its a miracle there’s any left for sovereigns to buy.

  3. Steve Place

    A VIX of 13 can’t tell you the entire story.

    The VIX looks out 1 month. Go further out and there’s plenty of uncertainty (premium).

    The VX March Futures are currently above 17!

    Why the big difference?

    It’s the just around the corner trade.

    No one thinks there will be any near term market risk, but there’s always something just around the corner.

    That condition in volatility has persisted for most of this cyclical bull market.

    The reason XIV does so well and VXX sucks is because they trade not only the volatility, but the curve of the VX futures market which is hilariously steep.

  4. DJMarcus

    nice post, but is missing some a few curse words here and there…

    • Marc David

      My thoughts exactly DJMarcus. But if you’ve been around iBC long enough, you know that eventually the old Fly will return. He goes thru stages like a bodybuilder. This is just a cutting phase. I can’t wait till he gets back to bulking!

  5. drbigboss

    if you look back much longer there have been times of super compressed volatility, similar levels to now, that extended for years

  6. Frog

    Tim Knight and Zerohedge can remain on the interwebs after being treated so brambly by the markets,
    because they are sellers of fear.

    Fear sells very well, as you can tell from “news” media sayings like “If it bleeds, it leads.” There is no need whatsoever for the fear to have a basis in reality. A lot of people are scared already or easily frightened. The amount of fear that can be sold to them seems to be without limit.

    Meditation or yoga classes would do people a lot more good, but people don’t see the need for those as easily.

  7. Frog

    Does anyone think Tim Knight or Zeroledge have ever traded or invested in their lives?

  8. EyeWall

    This reminds me of 2006 to early 2008. Everyone knew RE was screwed but everything kept going up anyway. This can go on a long time, but lets not kid ourselves here, nothing has really be solved. The Fed has just shifted the debt problem from the banks to the tax payers. When this breaks, and it will at some point, it will be just like 2008 where the shit hits the fan and everyone seems all surprised. The market does very little discounting, but it does know how to sell once the forced selling starts. 🙂

  9. Mr. Partridge

    I don’t argue with the market… after all Mr. Partridge can see it the way nobody also can 🙂 Tim.N , Zero Hedge, Mark Faber, Nouriel Roubini and Gary Shilling would not get a job of a ticker runner in my bucket shop…
    Disclaimer: 2012 book has 14 TVIX trades for solid double digit returns EACH….
    Harry trading.

  10. ottnott

    A longer term chart suggests that the index can bounce along in the 10-15 zone for several years and that your odds are better selling high peaks than buying low levels.

    What’s making XIV awesome is that is appears to do very well when the VIX is low and flat. Steve Place sounds like he understands why. He seems to be saying that the steep curve on VIX futures costs VXX and pays XIV. Is that correct, Steve?

    If we are entering a multi-year period of low VIX, XIV should continue to do well even without further drops in VIX. Eventually, I imagine that the futures curve would flatten and XIV would stall out.

    XIV also appears to do well after some big scare has driven VIX to high peaks, but not immediately after the peaks. The time to buy might be after the major cause of the panic has been addressed, but the market is still on edge and watchful for the problem to escape containment.

    This is guesswork on my part, so critical comments are welcome.

    The time to buy VXX, of course, is never. I hold that opinion with great confidence. It will reverse split repeatedly until the one share remaining goes to zero.

    • tm

      Correct. VXX owns a blend of futures…the nearest term expiration, and the one after that. So if there is sizable contango between the two (later term more expensive), every day the fund rebalances by selling the cheap one and buying the more expensive, leading to negative roll yield.

  11. Patrick

    Title reminds me of Kudlow circa 2005-07. He’d close the program saying “it’s the greatest story never told folks…”

  12. fake amish

    That looks like a box. Other than AAPL what has ripped to the upside the last 15 fucking years? XIV will be a decent short trade just gotta pick the spots. Trendless trends 5 year old are a pinless grenade.

  13. Berserker

    Don’t want to go all “zero hedge” on people or in any way cater to the conspiracy theorists, BUT, the VIX, to most people, is a black box. Set up by GS with discretionary management/admin etc by the CBOE. Might be time to have a look under the hood…

  14. widespread panik

    The true VIX is right on. Started nibbling on March 15/17 calls today. If you think the market is gonna just cruise on in to the debt ceiling debate you got another thing coming. 2/14 could be the low for the year. Don’t count out AAPL either.